e424b5
The
information in this preliminary prospectus is not complete and
may be changed. This preliminary prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
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Filed Pursuant to
Rule 424(b)(5)
Registration No. 333-146540
SUBJECT TO COMPLETION, DATED
APRIL 20, 2010
PRELIMINARY PROSPECTUS SUPPLEMENT (to the Prospectus Dated
October 17, 2008)
DryShips Inc.
10,000,000 Shares
Common Stock
This is an offering of up to an aggregate of
10,000,000 shares of common stock of DryShips Inc. The
shares of our common stock being offered hereby are shares that
we will loan to Deutsche Bank AG, London Branch, an affiliate of
Deutsche Bank Securities Inc., the underwriter for this
offering, which affiliate we refer to as the share
borrower. These shares are referred to in this prospectus
supplement as the borrowed shares.
We have been informed by Deutsche Bank Securities Inc. that it,
or its affiliates, intend to use the short position created by
the share loan and the short sales of the borrowed shares for
purposes reasonably designed to facilitate transactions by which
investors in our 5.00% Convertible Senior Notes due
December 1, 2014, which we refer to as our
convertible notes and which are being offered in a
concurrent registered offering, may hedge their investments
through short sales or privately negotiated derivative
transactions. We will not receive any proceeds from the sale of
the borrowed shares in this offering, but we will receive a
nominal lending fee of $0.01 per share from the share borrower
for the use of the borrowed shares. The share borrower or its
affiliates will receive all the proceeds from the sale of the
borrowed shares. See Description of Share Lending
Agreement. In November 2009, we previously loaned
26,100,000 shares of common stock to the share borrower in
connection with a concurrent offering of $460,000,000 in
aggregate principal amount of notes of the same series as the
5.00% Convertible Senior Notes due December 1, 2014
being issued concurrently herewith.
Up to 10,000,000 borrowed shares are being offered concurrently
with the offering of the convertible notes. To the extent that
fewer than 10,000,000 shares are sold concurrently with the
offering of the convertible notes, the share borrower may from
time to time borrow additional shares from us for additional
offerings that may be made from time to time. See
Description of Share Lending Agreement and Concurrent
Offering of Our Convertible Notes and
Underwriting on pages
S-31 and
S-48,
respectively, of this prospectus supplement. The total number of
shares that the share borrower can borrow under the share
lending agreement is limited to 10,000,000.
The borrowed shares of common stock offered hereby may be
offered for sale in transactions, including block sales, on the
Nasdaq Global Select Market, in the
over-the-counter
market, in negotiated transactions or otherwise. The shares
initially borrowed by the share borrower will be offered at
$ per share. Any subsequently
borrowed shares will subsequently be sold in transactions at
prevailing market prices at the time of sale or at negotiated
prices.
The delivery of the borrowed shares being offered hereby is
contingent upon the closing of our convertible notes offering.
We expect that delivery of up to 10,000,000 of the borrowed
shares will be made concurrently with the closing of our
convertible notes offering on or about April ,
2010.
Our common stock is listed on the Nasdaq Global Select Market
under the symbol DRYS. On April 19, 2010, the
last reported sale price of our common stock was $6.20 per share.
Investing in our
common stock involves risks. See Risk Factors
beginning on
page S-11.
The Securities
and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
SOLE BOOK RUNNING MANAGER
Deutsche Bank
Securities
The date of this prospectus supplement is
April , 2010
TABLE OF
CONTENTS
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Page
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PROSPECTUS SUPPLEMENT
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S-ii
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S-iii
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S-1
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S-8
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S-11
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S-19
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S-20
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S-21
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S-22
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S-24
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S-31
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S-33
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S-39
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S-48
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S-53
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S-53
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S-53
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PROSPECTUS
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1
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19
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35
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35
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36
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37
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38
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38
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40
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40
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41
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46
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47
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48
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57
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57
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58
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58
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58
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58
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IMPORTANT
INFORMATION ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement is based on information provided by
us and other sources that we believe to be reliable. The
underwriter is not responsible for, and is not making any
representation or warranty to you concerning, our future
performance or the accuracy or completeness of this prospectus
supplement. This prospectus supplement summarizes certain
documents and other information, and we refer you to them for a
more complete understanding of what we discuss in this
prospectus supplement. To the extent information contained in
this prospectus supplement is inconsistent with information
contained in the accompanying prospectus, you should rely on the
information contained in this prospectus supplement.
You should rely only on the information contained and
incorporated by reference in this prospectus supplement, the
accompanying prospectus and any free writing prospectus that we
authorize to be delivered to you. We have not, and the
underwriter has not, authorized any person to provide you with
additional or different information. If anyone provides you with
additional, different or inconsistent information, you should
not rely on it.
You should not assume that the information contained in this
prospectus supplement is accurate as of any date other than the
date appearing on the front cover of this prospectus supplement.
You should assume that the information contained in the
documents incorporated by reference in this prospectus
supplement is accurate only as of the respective dates of those
documents.
In making an investment decision regarding the shares of common
stock we are offering, you must rely on your own examination of
our company and the terms of this offering, including the
potential merits and risks involved. We are offering the shares
of common stock on the basis of this prospectus supplement only.
Accordingly, you must base any decision to purchase the shares
of common stock in this offering only on the information
contained and incorporated by reference in this prospectus
supplement.
S-ii
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides
safe harbor protections for forward-looking statements in order
to encourage companies to provide prospective information about
their business. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events
or performance, and underlying assumptions and other statements,
which are other than statements of historical facts.
We desire to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and is
including this cautionary statement in connection with this safe
harbor legislation. This document and any other written or oral
statements made by us or on our behalf may include
forward-looking statements, which reflect our current views with
respect to future events and financial performance. The words
believe, anticipate,
intends, estimate, forecast,
project, plan, potential,
will, may, should,
expect and similar expressions identify
forward-looking statements. We caution that assumptions,
expectations, projections, intentions and beliefs about future
events may and often do vary from actual results and the
differences can be material.
All statements in this document that are not statements of
historical fact are forward-looking statements. Forward-looking
statements include, but are not limited to, such matters as:
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future operating or financial results;
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statements about planned, pending or recent acquisitions;
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business strategy and expected capital spending or operating
expenses, including drydocking and insurance costs;
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statements about drybulk shipping market trends, including:
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charter rates and factors affecting supply and demand;
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our ability to obtain additional financing;
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expectations regarding the availability of vessel
acquisitions; and
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anticipated developments with respect to pending litigation.
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The forward-looking statements in this document are based upon
various assumptions, many of which are based, in turn, upon
further assumptions, including without limitation,
managements examination of historical operating trends,
data contained in our records and other data available from
third parties. Although we believe that these assumptions were
reasonable when made, because these assumptions are inherently
subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond our control,
we cannot assure you that it will achieve or accomplish these
expectations, beliefs or projections described in the forward
looking statements contained in this report.
Important factors that, in our view, could cause actual results
to differ materially from those discussed in the forward-looking
statements include the strength of world economies and
currencies, general market conditions, including changes in
charter rates and vessel values, failure of a seller to deliver
one or more vessels, failure of a buyer to accept delivery of a
vessel, inability to procure acquisition financing, default by
one or more charterers of our ships, changes in demand for
drybulk commodities, changes in demand that may affect attitudes
of time charterers, scheduled and unscheduled drydocking,
changes in our voyage and operating expenses, including bunker
prices, dry-docking and insurance costs, changes in governmental
rules and regulations, potential liability from pending or
future litigation, domestic and international political
conditions, potential disruption of shipping routes due to
accidents, international hostilities and political events or
acts by terrorists.
Matters discussed in this document may constitute
forward-looking statements.
S-iii
We refer you to the section entitled Risk Factors,
beginning on
page S-11,
for a more complete discussion of these risks and uncertainties
and for other risks and uncertainties. These factors and the
other risk factors described in this prospectus supplement are
not necessarily all of the important factors that could cause
actual results or developments to differ materially from those
expressed in any of our forward-looking statements. Other
unknown or unpredictable factors also could harm our results.
Consequently, there can be no assurance that actual results or
developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected
consequences to, or effects on, us. Given these uncertainties,
prospective investors are cautioned not to place undue reliance
on such forward-looking statements.
S-iv
SUMMARY
This summary highlights information and consolidated
financial data that appear elsewhere in this prospectus
supplement or are incorporated by reference herein and is
qualified in its entirety by the more detailed information and
financial statements that appear later. This summary may not
contain all of the information that may be important to you. As
an investor or prospective investor, you should review carefully
the entire prospectus supplement, including the risk factors and
the more detailed information and consolidated financial
statements that are included herein.
Unless otherwise indicated, references in this prospectus
supplement to DryShips Inc., we,
us, our and the Company
refer to DryShips Inc. and our subsidiaries. All amounts in this
prospectus supplement are expressed in U.S. dollars, and
the financial information has been prepared in accordance with
generally accepted accounting principles in the United States,
or GAAP. All references in this prospectus supplement to
$, U.S.$ and Dollars refer
to United States dollars.
We use the term deadweight ton, or dwt, in describing the
size of vessels. Dwt, expressed in metric tons each of which is
equivalent to 1,000 kilograms, refers to the maximum weight of
cargo and supplies that a vessel can carry.
Our
Company
We are a Marshall Islands corporation with our principal
executive offices in Athens, Greece. We were incorporated in
September 2004. As of April 6, 2010, we owned, through our
subsidiaries, a fleet of 37 drybulk carriers comprised of seven
Capesize, 28 Panamax and two Supramax vessels, which have a
combined deadweight tonnage of approximately 3.3 million
dwt, and had newbuilding contracts for two Panamax newbuilding
drybulk carriers of 76,000 dwt each scheduled for delivery in
the fourth quarter of 2011 and the first quarter of 2012,
respectively. Our drybulk fleet principally carries a variety of
drybulk commodities including major bulk items such as coal,
iron ore, and grains, and minor bulk items such as bauxite,
phosphate, fertilizers and steel products. The average age of
the vessels in our drybulk fleet is 8.3 years. We are also
an owner and operator of two ultra-deep water semi-submersible
drilling rigs and further have contracted for the construction
of four ultra deep-water newbuilding drillships, which are
further discussed below.
We employ our drybulk vessels under period time charters and on
bareboat charters. Thirty-five of our vessels are currently
employed on time charter, with an average remaining duration of
three years, and two of our vessels are currently employed on
bareboat charters.
All of our drybulk carriers are managed by Cardiff Marine Inc.,
or Cardiff, under separate ship management agreements.
Mr. George Economou, our Chairman and Chief Executive
Officer, has been active in shipping since 1976 and formed
Cardiff in 1991. We are affiliated with Cardiff, a Liberian
corporation with offices in Greece, which is responsible for all
technical and commercial management functions of our drybulk
fleet. We believe that Cardiff has established a reputation in
the international shipping industry for operating and
maintaining a fleet with high standards of performance,
reliability and safety. Seventy percent of the issued and
outstanding capital stock of Cardiff is owned by a foundation
which is controlled by Mr. Economou. The remaining 30% of
the issued and outstanding capital stock of Cardiff is owned by
a company controlled by Mr. Economous sister, who is
also a member of our board of directors.
Cardiff provides comprehensive ship management services
including technical supervision, such as repairs, maintenance
and inspections, safety and quality, crewing and training, as
well as supply provisioning. Cardiffs commercial
management services include operations, chartering, sale and
purchase, post-fixture administration, accounting, freight
invoicing and insurance.
S-1
Cardiff completed early implementation of the International
Maritime Organizations, or IMO, International Management
Code for the Safe Operation of Ships and Pollution Prevention,
or ISM Code, in 1996. Cardiff has obtained documents of
compliance for its office and safety management certificates for
its vessels as required by the ISM Code and has been ISO 14001
certified since 2003, in recognition of its commitment to
overall quality.
In addition, through our acquisition of Ocean Rig ASA, or Ocean
Rig, a Norwegian offshore drilling services company whose shares
were listed on the Oslo Stock Exchange, we own and operate two
ultra-deep water, harsh environment, semi-submersible drilling
rigs, the Leiv Eiriksson and the Eirik Raude. In
April 2008, we, through our subsidiary, DrillShips Investment
Inc., or DrillShips Investment, exercised an option to acquire
from entities affiliated with our Chief Executive Officer
contracts for the construction of two newbuilding advanced
capability drillships for use in ultra-deep water locations,
identified as Hull 1865 and Hull 1866, for an expected cost of
approximately $800 million per drillship. We expect to take
delivery of Hulls 1865 and 1866 in July 2011 and September 2011,
respectively. Our subsidiary, Ocean Rig UDW Inc., or Ocean Rig
UDW, completed a share purchase agreement with parties
affiliated with our Chief Executive Officer to acquire
Drillships Holdings, Inc., or Drillships Holdings, which has
contracts for the construction of two newbuilding ultra-deep
water drillships, identified as Hulls 1837 and 1838, to be
delivered in December 2010 and March 2011, respectively. We
currently do not have employment arranged for any of these four
newbuilding drillships. During the first quarter of 2010, the
Company made payments amounting to $313.4 million towards
the yard installments for the construction of Hulls 1865, 1866
and 1837, which were financed by cash on hand.
We may sell a minority voting and economic interest in our
wholly-owned subsidiary, Ocean Rig UDW, in a public offering
sometime later in 2010. Ocean Rig UDW comprises our entire
offshore drilling segment, which represented approximately 53.8%
of our total assets as of December 31, 2009 and over 45.8%
of our total revenues for the year ended December 31, 2009.
Alternatively, we may distribute, or spin-off, a minority voting
and economic interest in Ocean Rig UDW to holders of our voting
stock (including holders of our preferred shares) or complete
some combination of a public offering and distribution to
holders of our voting stock. There can be no assurance, however,
that we will complete any such transaction, which, among other
things, will be subject to market conditions.
In October 2009, the Leiv Eiriksson, one of our two
drilling rigs, commenced a three-year contract with
Petróleo Brasileiro S.A. for exploration drilling in the
Black Sea at a day-rate maximum of $583,000 including an 8%
bonus and, assuming 100% utilization, expiring in October 2012,
which we refer to as the Petróleo Brasileiro contract.
In October 2008, our other drilling rig, the Eirik Raude,
commenced a three-year term contract with Tullow Oil PLC, or
Tullow Oil, for development drilling in offshore Ghana at an
average day-rate of $639,000, based upon 100% utilization,
expiring in October 2011, which we refer to as the Tullow Oil
contract.
Various subsidiaries of Ocean Rig directly manage the Eirik
Raude and the Leiv Eiriksson. The supervision of the
construction of the two newbuilding drillships identified as
Hulls 1865 and 1866 is performed by our subsidiary, Ocean Rig
AS, pursuant to two separate management agreements. On
August 1, 2008, the owning companies of the two newbuilding
drillships identified as Hulls 1837 and 1838, which on
October 3, 2008 we entered into a share purchase agreement
to acquire, each entered into a separate management agreement
with Ocean Rig AS for the supervision of the construction of
these drillships on the same terms as the agreements by and
between the owning companies of drillship Hulls 1865 and 1866
and Ocean Rig AS. The transaction was completed on May 15,
2009. We have entered into a management agreement with Cardiff
for supervisory services in connection with the newbuilding
drillships, Hulls 1837 and 1838.
S-2
Our
Fleet
As of April 6, 2010, our fleet was comprised of the
following vessels:
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Gross
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Year
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Current
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Rate
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Redelivery
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Redelivery
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Built
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DWT
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Type
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Employment
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per Day
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Earliest
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Latest
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Capesize (7):
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Mystic
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2008
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170,500
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Capesize
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T/C
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$
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52,310
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Aug-2018
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Dec-2018
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Manasota
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2004
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171,061
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Capesize
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T/C
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$
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67,000
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Feb-2013
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Apr-2013
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Flecha
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2004
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170,012
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Capesize
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T/C
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$
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55,000
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Jul-2018
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Nov-2018
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Capri
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2001
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172,579
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Capesize
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T/C
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$
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61,000
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Apr-2018
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Jun-2018
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Alameda
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2001
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170,269
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Capesize
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T/C
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$
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21,000
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Feb-2011
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May-2011
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Samsara
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1996
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150,393
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Capesize
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T/C
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$
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57,000
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Dec-2011
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Apr-2012
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Brisbane
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1995
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151,066
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Capesize
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T/C
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$
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25,000
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Dec-2011
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Apr-2012
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8.7
years
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1,155,880
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Panamax (28):
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Oliva
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2009
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75,000
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Panamax
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T/C
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$
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17,850
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Oct-2011
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Dec-2011
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Rapallo
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2009
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75,000
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Panamax
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T/C
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$
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15,400
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Aug-2011
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Oct-2011
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Catalina
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2005
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74,432
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Panamax
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T/C
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$
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40,000
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Jun-2013
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Aug-2013
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Majorca
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2005
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74,364
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Panamax
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T/C
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$
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43,750
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Jun-2012
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Aug-2012
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Sorrento
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2004
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76,633
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Panamax
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T/C
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$
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17,300
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Sep-2011
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Dec-2011
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Avoca
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2004
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76,500
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Panamax
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T/C
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$
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45,500
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Aug-2013
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Dec-2013
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Ligari
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2004
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75,583
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Panamax
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T/C
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$
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55,500
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Jun-2012
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Aug-2012
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Saldanha
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2004
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75,500
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Panamax
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T/C
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$
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52,500
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Jun-2012
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Sep-2012
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Padre
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2004
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73,601
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Panamax
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T/C
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$
|
46,500
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Sept-2012
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Dec-2012
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Mendocino
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2002
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76,623
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Panamax
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T/C
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$
|
56,500
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Jun-2012
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Sep-2012
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Bargara
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2002
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74,832
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Panamax
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|
|
T/C
|
|
|
$
|
43,750
|
|
|
May-2012
|
|
Jul-2012
|
Oregon
|
|
|
2002
|
|
|
|
74,204
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
16,350
|
|
|
Aug-2011
|
|
Oct-2011
|
Maganari
|
|
|
2001
|
|
|
|
75,941
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
14,500
|
|
|
Jul-2011
|
|
Sep-2011
|
Conquistador
|
|
|
2001
|
|
|
|
75,607
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
17,750
|
|
|
Aug-2011
|
|
Nov-2011
|
Capitola
|
|
|
2001
|
|
|
|
74,832
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
39,500
|
|
|
Jun-2013
|
|
Aug-2013
|
Samatan
|
|
|
2001
|
|
|
|
74,823
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
39,500
|
|
|
May-2013
|
|
Jul-2013
|
Sonoma
|
|
|
2001
|
|
|
|
74,786
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
19,300
|
|
|
Sept-2011
|
|
Nov-2011
|
Ecola
|
|
|
2001
|
|
|
|
73,931
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
43,500
|
|
|
Jun-2012
|
|
Aug-2012
|
Levanto
|
|
|
2001
|
|
|
|
73,931
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
16,800
|
|
|
Sep-2011
|
|
Nov-2011
|
Coronado
|
|
|
2000
|
|
|
|
75,706
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
18,250
|
|
|
Sep-2011
|
|
Nov-2011
|
Redondo
|
|
|
2000
|
|
|
|
74,716
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
34,500
|
|
|
Apr-2013
|
|
Jun-2013
|
Positano
|
|
|
2000
|
|
|
|
73,288
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
42,500
|
|
|
Sept-2013
|
|
Dec-2013
|
Marbella
|
|
|
2000
|
|
|
|
72,561
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
14,750
|
|
|
Aug-2011
|
|
Nov-2011
|
Ocean Crystal
|
|
|
1999
|
|
|
|
73,688
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
15,000
|
|
|
Aug-2011
|
|
Nov-2011
|
Xanadu
|
|
|
1999
|
|
|
|
72,270
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
39,750
|
|
|
Jul-2013
|
|
Sep-2013
|
Primera *
|
|
|
1998
|
|
|
|
72,495
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
18,250
|
|
|
Dec-2010
|
|
Dec-2010
|
La Jolla
|
|
|
1997
|
|
|
|
72,126
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
14,750
|
|
|
Aug -2011
|
|
Nov-2011
|
Toro
|
|
|
1995
|
|
|
|
73,034
|
|
|
|
Panamax
|
|
|
|
T/C
|
|
|
$
|
16,750
|
|
|
May-2011
|
|
Jul-2011
|
|
|
|
8.3
years
|
|
|
|
2,086,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supramax (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paros 1 ex Clipper Gemini**
|
|
|
2003
|
|
|
|
51,201
|
|
|
|
Supramax
|
|
|
|
BB
|
|
|
$
|
27,135
|
|
|
Oct-2011
|
|
May-2012
|
Pachino ex VOC Galaxy**
|
|
|
2002
|
|
|
|
51,201
|
|
|
|
Supramax
|
|
|
|
BB
|
|
|
$
|
20,250
|
|
|
Sept-2010
|
|
Feb-2011
|
|
|
|
7.5
years
|
|
|
|
102,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals (37)
|
|
|
8.3
years
|
|
|
|
3,344,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newbuildings (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax 1
|
|
|
2011
|
|
|
|
76,000
|
|
|
|
Panamax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Panamax 2
|
|
|
2012
|
|
|
|
76,000
|
|
|
|
Panamax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-3
|
|
|
|
|
|
|
|
|
Rigs (2):
|
|
|
|
|
|
|
|
|
Leiv Eiriksson
|
|
2001
|
|
Fifth-generation
drilling unit***
|
|
semi-
submersible
|
|
Contract with Petroleo Brasiliero S.A. for a three-year term
ending Q4 2012 at a maximum day-rate of $583,000, including an
8% bonus.
|
Eirik Raude
|
|
2002
|
|
Fifth-generation
drilling unit***
|
|
semi-
submersible
|
|
Contract with Tullow Oil PLC for a three-year term ending Q4
2011 at an average day-rate of $639,000.
|
N/B Drillships (4):
|
|
|
|
|
|
|
|
|
N/B-Hull No: 1865
|
|
Q3 2011
|
|
UDW Drillship****
|
|
|
|
|
N/B-Hull No: 1866
|
|
Q3 2011
|
|
UDW Drillship****
|
|
|
|
|
N/B-Hull No: 1837
|
|
Q4 2010
|
|
UDW Drillship****
|
|
|
|
|
N/B-Hull No: 1838
|
|
Q1 2011
|
|
UDW Drillship****
|
|
|
|
|
|
|
|
*
|
|
Based on a synthetic time charter
as a result of the vessel being set against a forward freight
agreement.
|
|
**
|
|
The MV Paros I and MV
Pachino are employed under a bareboat charter.
|
|
***
|
|
Fifthgeneration drilling
units have the capability to drill wells in 7,500 feet of
water to a total depth of 35,000 feet.
|
|
****
|
|
UDW Drillships have the capability
to drill wells in 10,000 feet of water to a total depth of
35,000 feet.
|
Recent
Developments
Change in
Independent Registered Public Accounting Firm
On April 12, 2010, the Audit Committee of our Board of
Directors approved the engagement of Ernst & Young
(Hellas) Certified Auditors Accountants S.A. as the
Companys independent registered public accounting firm for
the year ending December 31, 2010. The Companys
previous independent registered public accounting firm was
Deloitte. Hadjipavlou Sofianos & Cambanis S.A.
Loan
Facilities
As of December 31, 2009, we were in breach of certain
financial covenants under a $230 million loan facility.
However, we were notified by the lenders by letter dated
April 16, 2010 that, effective April 16, 2010 through
June 15, 2010, we are in full compliance with this loan
facility.
On April 15, 2010, we entered into a supplemental agreement
on waiver and amendment terms on a $47 million loan
facility. This agreement provides, among other things, for a
waiver of certain covenants, including: (i) the required
payment in the event of a security value shortfall until
January 1, 2011 and (ii) the financial covenants
contained in the corporate guarantee until January 1, 2011.
On February 25, 2010, we entered into a supplemental
agreement on waiver and amendment terms on a $125 million
loan facility, providing for a waiver of certain covenants. The
covenant waiver, among other things: (i) increases the
applicable margin on the facility from January 1, 2009
until December 31, 2010; (ii) waives additional
security; and (iii) amends our financial covenants as
guarantor through December 31, 2010.
Also on February 25, 2010, we entered into a supplemental
agreement on waiver and amendment terms on a $35 million
loan facility, providing for a waiver that, among other things:
(i) increases the applicable margin on the facilities from
January 1, 2009 until
S-4
December 31, 2010; (ii) amends the minimum security
cover; and (iii) amends our financial covenants as
guarantor through December 31, 2010.
Dividend
Policy
In light of a lower freight rate environment and a highly
challenging financing environment, our board of directors,
beginning with the fourth quarter of 2008, suspended our common
share dividend. Our dividend policy will be assessed by the
board of directors from time to time. The suspension allows us
to preserve capital and use the preserved capital to capitalize
on market opportunities as they may arise. Until market
conditions improve, it is unlikely that we will reinstate the
payment of dividends. In addition, the waivers of our
non-compliance with covenants in our loan agreements that we
received from our lenders prohibit us from paying dividends.
Declaration and payment of any dividend is subject to the
discretion of our board of directors. The timing and amount of
dividend payments will be dependent upon our earnings, financial
condition, cash requirements and availability, fleet renewal and
expansion, restrictions in our loan agreements, the provisions
of Marshall Islands law affecting the payment of distributions
to shareholders and other factors. The payment of dividends
would also result in a conversion rate adjustment under the
terms of the convertible notes.
Because we are a holding company with no material assets other
than the stock of our subsidiaries, our ability to pay
dividends, if any, in the future, will depend on the earnings
and cash flow of our subsidiaries and their ability to pay
dividends to us. If there is a substantial decline in the
drybulk charter market, our earnings would be negatively
affected thus limiting our ability to pay dividends, if any, in
the future. Marshall Islands law generally prohibits the payment
of dividends other than from surplus or while a company is
insolvent or would be rendered insolvent upon the payment of
such dividend.
We believe that, under current law, our dividend payments from
earnings and profits will constitute qualified dividend
income and as such will generally be subject to a 15%
United States federal income tax rate with respect to
non-corporate individual stockholders (for taxable years
beginning on or before December 31, 2010). Distributions in
excess of our earnings and profits will be treated first as a
non-taxable return of capital to the extent of a United States
stockholders tax basis in its common stock on a
dollar-for-dollar
basis and thereafter as capital gain. Please see the section of
this report entitled Tax Considerations for
additional information relating to the tax treatment of our
dividend payments.
Corporate
Information
We maintain our principal executive offices at 80 Kifissias
Avenue, Amaroussion 15125, Athens, Greece. Our telephone number
at that address is (011) (30) (210) 809 0570. Our corporate
website address is www.dryships.com. The information contained
in or accessible from our corporate website is not part of this
prospectus supplement.
S-5
The
Offering
|
|
|
Issuer |
|
DryShips Inc. |
|
Shares of common stock offered hereby |
|
Up to 10,000,000 shares. |
|
Shares of common stock outstanding following this offering |
|
Up to 294,826,871 shares (including up to
10,000,000 shares offered hereby). |
|
The Nasdaq Global Select Market Symbol for our Common Stock |
|
Our common stock is listed on the Nasdaq Global Select Market
under the symbol DRYS. |
|
Risk Factors |
|
See Risk Factors beginning on
page S-11
and other information included or incorporated by reference in
this prospectus for a discussion of factors you should carefully
consider before deciding to invest in the common stock. |
|
Description of Concurrent Offering |
|
Concurrently with this offering of common stock, we are offering
$150 million aggregate principal amount of our
5.00% Convertible Senior Notes due December 1, 2014
(our convertible notes) by means of a separate
prospectus supplement and accompanying prospectus. |
|
|
|
The delivery of the shares of common stock hereunder is
contingent upon the closing of the concurrent offering of our
convertible notes, and the closing of the offering of our
convertible notes is contingent upon the delivery by us of
borrowed shares pursuant to the share lending agreement with the
share borrower, an affiliate of Deutsche Bank Securities Inc.,
the underwriter for this offering. See Description of
Share Lending Agreement and Concurrent Offering of Our
Convertible Notes. |
|
Use of Proceeds |
|
The shares of our common stock offered hereby are shares that we
are loaning to the share borrower pursuant to a share lending
agreement between our company and the share borrower (which we
refer to as the share lending agreement). We have
been informed by Deutsche Bank Securities Inc. that it, or its
affiliates, intend to use the short position created by the
share loan and the short sales of the borrowed shares for
purposes reasonably designed to facilitate |
S-6
|
|
|
|
|
transactions by which investors in our convertible notes
offering may hedge their investments through short sales or
privately negotiated derivative transactions. We will not
receive any proceeds from the sale of the borrowed shares
pursuant to the share in this offering, but we will receive a
nominal lending fee of $0.01 per share from the share borrower
for the use of the shares. The share borrower or its affiliates
will receive all the proceeds from the sale of the borrowed
shares. See Description of Share Lending Agreement. |
S-7
SUMMARY
CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth the selected consolidated
financial data and other operating data for the Company as of
and for the years ended December 31, 2005, 2006, 2007, 2008
and 2009. The following information should be read in
conjunction with Item 5Operating and Financial
Review and Prospects and the consolidated financial
statements and related notes in our Annual Report on
Form 20-F
for the year ended December 31, 2009 filed with the SEC on
April 9, 2010 and incorporated by reference herein. The
following selected consolidated financial data of the Company
are derived from our audited consolidated financial statements
and the notes thereto which have been prepared in accordance
with U.S. generally accepted accounting principles
(US GAAP).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars except per share
|
|
Year Ended December 31,
|
|
and share data)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
228,913
|
|
|
|
248,431
|
|
|
|
582,561
|
|
|
|
1,080,702
|
|
|
|
819,834
|
|
Loss on forward freight agreements
|
|
|
|
|
|
|
22,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
9,592
|
|
|
|
15,965
|
|
|
|
31,647
|
|
|
|
53,172
|
|
|
|
28,779
|
|
Vessels and drilling rigs operating expenses
|
|
|
39,875
|
|
|
|
54,164
|
|
|
|
63,225
|
|
|
|
165,891
|
|
|
|
201,887
|
|
Depreciation and amortization
|
|
|
40,231
|
|
|
|
58,011
|
|
|
|
76,511
|
|
|
|
157,979
|
|
|
|
196,309
|
|
Gain on sale of assets, net
|
|
|
|
|
|
|
(8,845
|
)
|
|
|
(137,694
|
)
|
|
|
(223,022
|
)
|
|
|
(2,045
|
)
|
Gain on contract cancellation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,098
|
)
|
|
|
(15,270
|
)
|
Contract termination fees and forfeiture of vessels deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,000
|
|
|
|
259,459
|
|
Vessel impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,578
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700,457
|
|
|
|
|
|
General and administrative expensescash (1)
|
|
|
9,148
|
|
|
|
12,540
|
|
|
|
17,072
|
|
|
|
57,856
|
|
|
|
52,753
|
|
General and administrative expensesnon-cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,502
|
|
|
|
38,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
130,067
|
|
|
|
94,123
|
|
|
|
531,800
|
|
|
|
(14,035
|
)
|
|
|
58,314
|
|
Interest and finance costs
|
|
|
(20,668
|
)
|
|
|
(42,392
|
)
|
|
|
(51,231
|
)
|
|
|
(113,194
|
)
|
|
|
(97,599
|
)
|
Interest income
|
|
|
749
|
|
|
|
1,691
|
|
|
|
5,073
|
|
|
|
13,085
|
|
|
|
10,414
|
|
Gain/(loss) on interest rate swaps
|
|
|
270
|
|
|
|
676
|
|
|
|
(3,981
|
)
|
|
|
(207,936
|
)
|
|
|
23,160
|
|
Other, net
|
|
|
(175
|
)
|
|
|
214
|
|
|
|
(3,037
|
)
|
|
|
(12,640
|
)
|
|
|
(6,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes and equity in loss of
investee
|
|
|
110,243
|
|
|
|
54,312
|
|
|
|
478,624
|
|
|
|
(334,720
|
)
|
|
|
(12,403
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,844
|
)
|
|
|
(12,797
|
)
|
Equity in loss of investee
|
|
|
|
|
|
|
|
|
|
|
(299
|
)
|
|
|
(6,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(loss)
|
|
|
110,243
|
|
|
|
54,312
|
|
|
|
478,325
|
|
|
|
(344,457
|
)
|
|
|
(25,200
|
)
|
Less: Net income attribute to non controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,825
|
)
|
|
|
(7,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(Loss) attributable to Dryships Inc.
|
|
|
110,243
|
|
|
|
54,312
|
|
|
|
478,325
|
|
|
|
(361,282
|
)
|
|
|
(32,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share attributable to Dryships Inc.
common stockholders, basic and diluted
|
|
$
|
3.81
|
|
|
$
|
1.68
|
|
|
$
|
13.40
|
|
|
$
|
(8.11
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares, basic and diluted
|
|
|
28,957,397
|
|
|
|
32,348,194
|
|
|
|
35,700,182
|
|
|
|
44,598,585
|
|
|
|
209,331,737
|
|
Dividends declared per share
|
|
$
|
0.40
|
|
|
$
|
0.80
|
|
|
$
|
0.80
|
|
|
$
|
0.80
|
|
|
|
|
|
S-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands of dollars except per share and
|
|
As of and for the Year
|
|
share data, average daily results data and
|
|
Year Ended December 31,
|
|
fleet data)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
BALANCE SHEET AND OTHER FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
18,777
|
|
|
|
25,875
|
|
|
|
153,035
|
|
|
|
720,427
|
|
|
|
1,180,650
|
|
Total assets
|
|
|
906,778
|
|
|
|
1,161,973
|
|
|
|
2,344,432
|
|
|
|
4,842,680
|
|
|
|
5,799,088
|
|
Current liabilities, including current portion of long-term debt
|
|
|
135,745
|
|
|
|
129,344
|
|
|
|
239,304
|
|
|
|
2,525,048
|
|
|
|
1,896,023
|
|
Total long-term debt, including current portion
|
|
|
525,353
|
|
|
|
658,742
|
|
|
|
1,243,778
|
|
|
|
3,158,870
|
|
|
|
2,684,684
|
|
Common stock
|
|
|
304
|
|
|
|
355
|
|
|
|
367
|
|
|
|
706
|
|
|
|
2,803
|
|
Number of shares outstanding
|
|
|
30,350,000
|
|
|
|
35,490,097
|
|
|
|
36,681,097
|
|
|
|
70,600,000
|
|
|
|
280,326,271
|
|
Stockholders equity
|
|
|
352,720
|
|
|
|
444,692
|
|
|
|
1,021,729
|
|
|
|
1,291,572
|
|
|
|
2,804,635
|
|
OTHER FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
163,806
|
|
|
|
99,082
|
|
|
|
407,899
|
|
|
|
540,129
|
|
|
|
286,217
|
|
Net cash used in investing activities
|
|
|
(847,649
|
)
|
|
|
(287,512
|
)
|
|
|
(955,749
|
)
|
|
|
(2,110,852
|
)
|
|
|
(162,043
|
)
|
Net cash provided by financing activities
|
|
|
680,656
|
|
|
|
185,783
|
|
|
|
656,381
|
|
|
|
1,762,769
|
|
|
|
265,881
|
|
EBITDA (2)
|
|
|
170,393
|
|
|
|
153,024
|
|
|
|
600,994
|
|
|
|
(100,350
|
)
|
|
|
263,913
|
|
DRYBULK FLEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of vessels (3)
|
|
|
21.6
|
|
|
|
29.76
|
|
|
|
33.67
|
|
|
|
38.56
|
|
|
|
38.12
|
|
Total voyage days for drybulk carrier fleet (4)
|
|
|
7,710
|
|
|
|
10,606
|
|
|
|
12,130
|
|
|
|
13,896
|
|
|
|
13,660
|
|
Total calendar days for drybulk carrier fleet (5)
|
|
|
7,866
|
|
|
|
10,859
|
|
|
|
12,288
|
|
|
|
14,114
|
|
|
|
13,914
|
|
Drybulk carrier fleet utilization (6)
|
|
|
98.00
|
%
|
|
|
97.70
|
%
|
|
|
98.71
|
%
|
|
|
98.46
|
%
|
|
|
98.17
|
%
|
(In dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE DAILY RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (7)
|
|
|
28,446
|
|
|
|
21,918
|
|
|
|
45,417
|
|
|
|
58,155
|
|
|
|
30,425
|
|
Vessel operating expenses (8)
|
|
|
5,069
|
|
|
|
4,988
|
|
|
|
5,145
|
|
|
|
5,644
|
|
|
|
5,434
|
|
DRILLING RIG FLEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of drilling rigs (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Total voyage days for drilling rig fleet (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
695
|
|
Total calendar days for drilling rig fleet (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
730
|
|
Drilling rig fleet utilization (6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88.66
|
%
|
|
|
95.25
|
%
|
(In dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE DAILY RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig operating expenses (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,821
|
|
|
|
192,988
|
|
|
|
|
(1)
|
|
Cash compensation to members of our
senior management and directors amounted to $1.4 million,
$1.4 million, $1.5 million, $9.7 million and
$5.3 million for the years ended December 31, 2005,
2006, 2007, 2008 and 2009, respectively.
|
|
(2)
|
|
EBITDA represents net income before
interest, taxes, depreciation and amortization. EBITDA does not
represent and should not be considered as an alternative to net
income or cash flow from operations, as determined by United
States generally accepted accounting principles, or US GAAP, and
our calculation of EBITDA may not be comparable to that reported
by other companies. EBITDA is included herein because it is a
basis upon which the Company measures its operations and
efficiency. EBITDA is also used by our lenders as a measure of
our compliance with certain loan covenants and because the
Company believes that it presents useful information to
investors regarding a companys ability to service and/or
incur indebtedness.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(dollars in thousands)
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
Net income/(loss)
|
|
|
110,243
|
|
|
|
54,312
|
|
|
|
478,325
|
|
|
|
(361,282
|
)
|
|
|
(32,378
|
)
|
Add: Net interest expense
|
|
|
19,919
|
|
|
|
40,701
|
|
|
|
46,158
|
|
|
|
100,109
|
|
|
|
87,185
|
|
Add: Depreciation and amortization
|
|
|
40,231
|
|
|
|
58,011
|
|
|
|
76,511
|
|
|
|
157,979
|
|
|
|
196,309
|
|
Add: Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
|
12,797
|
|
EBITDA
|
|
|
170,393
|
|
|
|
153,024
|
|
|
|
600,994
|
|
|
|
(100,350
|
)
|
|
|
263,913
|
|
S-9
|
|
|
(3)
|
|
Average number of vessels is the
number of vessels that constituted the respective fleet for the
relevant period, as measured by the sum of the number of days
each vessel in that fleet was a part of the fleet during the
period divided by the number of calendar days in that period.
|
|
(4)
|
|
Total voyage days for the
respective fleet are the total days the vessels in that fleet
were in the Companys possession for the relevant period
net of off-hire days associated with major repairs, drydockings
or special or intermediate surveys.
|
|
(5)
|
|
Calendar days are the total days
the vessels in that fleet were in the Companys possession
for the relevant period including off-hire days associated with
major repairs, drydockings or special or intermediate surveys.
|
|
(6)
|
|
Fleet utilization is the percentage
of time that the vessels in that fleet were available for
revenue-generating voyage days, and is determined by dividing
voyage days by fleet calendar days for the relevant period.
|
|
(7)
|
|
Time charter equivalent, or
TCE, is a measure of the average daily revenue
performance of a vessel on a per voyage basis. The
Companys method of calculating TCE is determined by
dividing voyage revenues (net of voyage expenses) by voyage days
for the relevant time period. Voyage expenses primarily consist
of port, canal and fuel costs that are unique to a particular
voyage, which would otherwise be paid by the charterer under a
time charter contract, as well as commissions. TCE revenues, a
non-GAAP measure, provides additional meaningful information in
conjunction with revenues from our vessels, the most directly
comparable GAAP measure, because it assists Companys
management in making decisions regarding the deployment and use
of its vessels and in evaluating their financial performance.
TCE is also a standard shipping industry performance measure
used primarily to compare period -to-period changes in a
shipping companys performance despite changes in the mix
of charter types (i.e., spot charters, time charters and
bareboat charters) under which the vessels may be employed
between the periods. The following table reflects the
calculation of our TCE rates for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drybulk Carrier Segment
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars, except for TCE rates,
|
|
Year Ended December 31,
|
which are expressed in dollars and voyage days)
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
Voyage revenues
|
|
|
228,913
|
|
|
|
248,431
|
|
|
|
582,561
|
|
|
|
861,296
|
|
|
|
444,385
|
|
Voyage expenses
|
|
|
(9,592
|
)
|
|
|
(15,965
|
)
|
|
|
(31,647
|
)
|
|
|
(53,172
|
)
|
|
|
(28,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent revenues
|
|
|
219,321
|
|
|
|
232,466
|
|
|
|
550,914
|
|
|
|
808,124
|
|
|
|
415,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage days for drybulk fleet
|
|
|
7,710
|
|
|
|
10,606
|
|
|
|
12,130
|
|
|
|
13,896
|
|
|
|
13,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent (TCE) rate
|
|
|
28,446
|
|
|
|
21,918
|
|
|
|
45,417
|
|
|
|
58,155
|
|
|
|
30,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling Rig Carrier Segment
|
|
Year Ended December 31,
|
(in thousands of dollars)
|
|
2008
|
|
2009
|
|
Revenue from drilling contracts
|
|
|
219,406
|
|
|
|
375,449
|
|
Drilling rig operating expenses
|
|
|
(86,180
|
)
|
|
|
(126,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
133,226
|
|
|
|
249,167
|
|
|
|
|
|
|
|
|
|
|
Total employment days for drilling rigs
|
|
|
410
|
|
|
|
695
|
|
|
|
|
(8)
|
|
Daily vessel/rig operating
expenses, which includes crew costs, provisions, deck and engine
stores, lubricating oil, insurance, maintenance and repairs, is
calculated by dividing vessel/rig operating expenses by drybulk
carrier/drilling rig fleet calendar days for the relevant time
period.
|
S-10
RISK
FACTORS
You should carefully consider the risk factors set forth
below and in our Annual Report on
Form 20-F
filed with the SEC on April 9, 2010, beginning on
page 4 as well as the other information included in this
prospectus supplement in evaluating us or our business before
deciding to purchase any shares of common stock. Additional risk
factors are included in the accompanying prospectus, beginning
on page 18. The occurrence of any of the events described
in this section or any of these risks may have a material
adverse effect on our business, financial condition, results of
operations and cash flows. In that case, you may lose all or
part of your investment in the common stock.
Company Specific
Risk Factors
We have not been
in compliance with financial covenants contained in our credit
facilities.
Our credit facilities, which are secured by mortgages on our
vessels, require us to comply with specified collateral coverage
ratios and satisfy certain financial and other covenants. The
current low drybulk charter rates and drybulk vessel values, and
even lower rates and values experienced over the past year, have
affected our ability to comply with these covenants. A violation
of these covenants constitutes an event of default under our
credit facilities, which, unless waived by our lenders, provides
our lenders with the right to require us to post additional
collateral, enhance our equity and liquidity, increase our
interest payments, pay down our indebtedness to a level where we
are in compliance with our loan covenants, sell vessels in our
fleet, reclassify our indebtedness as current liabilities and
accelerate our indebtedness and foreclose their liens on our
vessels, which would impair our ability to continue to conduct
our business.
As a result of the recent drop in vessel values, we were in
breach of covenants contained in certain of our loan agreements,
for each of which we have obtained waivers expiring between
June 15, 2010 and October 31, 2011. Charter rates and
vessel values, particularly in the drybulk sector, may remain at
low levels for an extended period of time, in which case it may
be difficult for us to comply with the financial and other
covenants in our loan agreements absent extensions of the
existing waivers. There can be no assurance that our lenders
will extend these waivers, if we are not in compliance with our
secured loan agreements, as they expire. In which case, or if we
otherwise fail to comply with the covenants in our secured loan
agreements, our lenders could accelerate our indebtedness and
foreclose their liens on our vessels, which would impair our
ability to continue as a going concern. If this secured debt
were to be accelerated it would effectively rank senior to the
notes offered hereby.
Because of the presence of cross default provisions in all of
our loan agreements, the refusal of any one lender to grant or
extend a waiver could result in all of our indebtedness being
accelerated even if our other lenders have waived covenant
defaults under the respective loan agreements. A cross default
provision means that if we default on one loan we would then
default on all of our other loans.
If our indebtedness is accelerated, it would be very difficult
in the current financing environment for us to refinance our
debt or obtain additional financing and we could lose our
vessels if our lenders foreclose their liens. In addition, if
the fair value of our vessels, which is calculated using
undiscounted cash flows, deteriorates significantly from their
currently depressed levels, we may have to record a further
impairment adjustment to our financial statements, which would
adversely affect our financial results and further hinder our
ability to raise capital.
S-11
Our inability to
comply with certain financial and other covenants under our loan
agreements raises substantial doubt about our ability to
continue as a going concern.
As discussed above, we have been in breach of certain financial
and other covenants contained in our loan agreements as a result
of the decline in the drybulk charter market and related decline
in vessel values in the drybulk sector and have obtained waivers
which expire in 2010 and 2011. When the waivers expire we may be
unable to meet the financial and other covenants contained in
our loan agreements for the foreseeable future and our lenders
may choose to accelerate our indebtedness. Therefore, our
ability to continue as a going concern is dependent on
managements ability to successfully generate revenue and
to meet our obligations as they become due and the continued
support of our lenders. In 2009, we have issued a total of
165,054,595 common shares pursuant to our two at the market
offerings, resulting in aggregate net proceeds of
$952.4 million. In 2009, the Company also offered
$460 million aggregate principal amount of our
5% Convertible Senior Notes due December 1, 2014,
resulting in net proceeds of $447.8 million. Our
independent registered public accounting firms have issued their
respective opinions with an explanatory paragraph in connection
with our financial statements included in our most recent Annual
Report on
Form 20-F
that expresses substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome
of our inability to continue as a going concern. However, there
is a material uncertainty related to events or conditions which
raises significant doubt on our ability to continue as a going
concern and, therefore, we may be unable to realize our assets
and discharge our liabilities in the normal course of business.
As a result of
our inability to comply with certain financial and other
covenants under our loan agreements a significant amount of our
indebtedness was reclassified as current liabilities as of
December 31, 2009.
A total of $1.3 billion of our indebtedness as of
December 31, 2009 has been reclassified as current
liabilities as a result of our non-compliance with financial
covenants contained in our loan agreements. As a result of this
reclassification we had a working capital deficit of
$715.4 million as of December 31, 2009. Consequently,
our independent registered public accounting firms included an
explanatory paragraph in their respective opinions on our most
recently audited financial statements for the year ended
December 31, 2009 that expressed substantial doubt about
our ability to continue as a going concern. Charter rates and
vessel values, particularly in the drybulk sector, may remain at
low levels for an extended period of time, in which case it may
be difficult for us to comply with the financial and other
covenants in our loan agreements absent extensions of the
existing waivers.
Our credit
facilities and waivers impose operating and financial
restrictions on us, and if we receive additional waivers and/or
amendments to our loan agreements, our lenders may impose
additional operating and financial restrictions on us and/or
modify the terms of our existing loan agreements.
In addition to certain financial covenants relating to our
financial position, operating performance and liquidity, the
restrictions contained in our loan agreements limit our ability
to, among other things:
|
|
|
|
|
pay dividends to investors or make capital expenditures if we do
not repay amounts drawn under the credit facilities, if there is
a default under the credit facilities or if the payment of the
dividend or capital expenditure would result in a default or
breach of a loan covenant;
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incur additional indebtedness, including through the issuance of
guarantees;
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S-12
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change the flag, class or management of our vessels;
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create liens on our assets;
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sell or otherwise change the ownership of our vessels;
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merge or consolidate with, or transfer all or substantially all
our assets to, another person;
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drop below certain minimum cash deposits, as defined in our
credit facilities; and/or
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receive dividends from certain subsidiaries.
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Therefore, we may need to seek permission from our lenders in
order to engage in some corporate actions. Our lenders
interests may be different from ours and we may not be able to
obtain our lenders permission when needed. In addition to
the above restrictions, our lenders may require the payment of
additional fees, require prepayment of a portion of our
indebtedness to them, accelerate the amortization schedule for
our indebtedness and increase the interest rates they charge us
on our outstanding indebtedness. These potential restrictions
and requirements may limit our ability to pay dividends, if any,
in the future, to you, finance our future operations, make
acquisitions or pursue business opportunities.
We have
significant indebtedness and payment obligations relating to
four drillships under construction for Ocean Rig UDW.
Our subsidiary, Ocean Rig UDW, has contracts for construction of
the four drillships, Hulls 1837, 1838, 1865 and 1866, scheduled
to be delivered in December 2010, March 2011, July 2011 and
September 2011, respectively. As of December 31, 2009, we
owe an additional $1.0 billion in installment payments due
within the next year and $0.9 billion of newbuilding
installment payments due thereafter. We have entered into two
separate credit facilities, each in the amount of
$562.5 million, to finance the installment payments for
Hulls 1865 and 1866. This indebtedness is in addition to the
indebtedness we have incurred and will incur to finance our
drybulk fleet and its operations, may adversely affect our
ability to comply with our loan covenants and service our
indebtedness and would adversely impact our profitability and
cash flows. Our lenders are not required to fund certain
drawdowns by us under these loan agreements and we would be
required to repay all outstanding amounts in the event we do not
obtain employment contracts by the earlier of April 30,
2011 or the delivery of the applicable drillship for these
drillships at specified minimum day rates with charterers that
are satisfactory to such lenders. If for any reason we fail to
take delivery of the four newbuilding drillships, we would be
prevented from realizing potential revenues from these projects
and could also lose our deposit money, which as of
December 31, 2009 amounted to $920.6 million, and we
may incur additional liability and costs.
No financing has
been arranged for the construction of the two newbuilding
drillships, Hulls 1837 and 1838.
Ocean Rig UDW owns the equity interests of DrillShips Holdings
Inc., or DrillShips Holdings, which owns contracts for the
construction of two drillships, identified as Hull 1837 and Hull
1838, scheduled to be delivered in December 2010 and March 2011,
respectively. The expected cost of construction is approximately
$800 million per unit. As of December 31, 2009,
$557.8 million was capitalized as construction-related
expenses for these hulls, which was financed by
$230.0 million in debt and $327.8 million in equity
contributions. In connection with the acquisition of these
drillships, we have assumed construction-related payment
obligations totaling approximately $873 million as of
December 31, 2009. We have not yet obtained financing for
these construction-related payment obligations due during 2010
and 2011 for Hulls 1837 and 1838, which amounts to approximately
54% of the expected cost of construction of these drillships. In
the current challenging financing environment, it may be
difficult to
S-13
obtain secured debt to finance these purchases or raise debt or
equity in the capital markets. If we fail to secure financing
for the two newbuilding drillships, Hulls 1837 and 1838, we
could also lose our deposit money, which as of December 31,
2009 amounted to $508.7 million, and we may incur
additional liability and costs.
We do not yet
have employment contracts for our four newbuilding drillships
and decreases in the price of crude oil may affect our ability
to charter these drillships and the revenues that we are able to
earn from our drilling rigs.
Changes in crude oil prices often affect oil exploration and
drilling activities that, in turn, drive changes in the contract
rates for oil drilling equipment, such as deep sea oil rigs and
drillships, or, possibly, cause the suspension of exploration
and drilling programs. Such changes and any such suspension
could affect the rates which we receive for any rigs when their
contracts expire, with the result that we would recognize less
revenue from their operations. We have not yet secured
employment contracts for any of the four newbuilding drillships.
If the price of crude oil were to again fall to depressed
levels, we may not be able to negotiate charter agreements for
Hulls 1837, 1838, 1865 or 1866 at attractive rates or at all. On
April 8, 2009, we entered into a three-year contract with
Petróleo Brasileiro for the employment of the Leiv
Eiriksson for exploration drilling in the Black Sea at a
day-rate maximum of $583,000, including an 8% bonus based on
operational performance. The contract commenced on
October 27, 2009. As of December 31, 2009, the
contract for the Eirik Raude was amended to an average
day-rate of $639,000 per day assuming 100% utilization,
effective until the expiration of the contract in October 2011.
A spin-off of our
subsidiary, Ocean Rig UDW, may have adverse tax consequences to
shareholders.
We may distribute, or spin-off, a majority voting and economic
interest in our subsidiary, Ocean Rig UDW Inc., or Ocean Rig
UDW, formerly known as Primelead Shareholders Inc., sometime in
2010. A spin-off of Ocean Rig UDW may be a taxable transaction
to our shareholders depending upon their country of residence. A
shareholder may recognize taxable gain and be subject to tax as
a result of receiving shares of Ocean Rig UDW in the spin-off,
notwithstanding that cash had not been received. In addition,
after the spin-off, Ocean Rig UDW may be treated as a PFIC,
which would have adverse U.S. federal income tax
consequences to a U.S. share holder of Ocean Rig UDW. Under
the PFIC rules, unless those shareholders make an election
available under the Code (which election could itself have
adverse consequences for such shareholders), such
U.S. shareholders would be subject to U.S. federal
income tax at the then prevailing income tax rates on ordinary
income plus interest upon excess distributions and upon any gain
from the disposition of shares of Ocean Rig UDW, as if the
excess distribution or gain had been recognized ratably over the
shareholders holding period in such shares. In the
alternative, Ocean Rig UDW may issue shares of its common stock
in a public offering. If as a result of such issuance, our
ownership of Ocean Rig UDW was reduced to less than 25% of its
outstanding capital stock, our ownership of Ocean Rig UDW common
stock could be treated as a passive asset for purposes of
determining whether we are a passive foreign investment
company for U.S. federal income tax purposes.
S-14
Risks Relating to
the Offering
The effect of the
issuance and sale of our shares of common stock in this
offering, which issuance is being made to facilitate
transactions by which investors in our convertible notes may
hedge their investments, may be to lower the market price of our
common stock.
In this offering and any subsequent offering of shares that the
share borrower borrows from us pursuant to the share lending
agreement, we may offer from time to time up to an aggregate of
shares of our common stock. All of these shares are being
borrowed by the share borrower under the share lending
agreement. We will not receive any proceeds from the borrowed
shares of common stock, but we will receive a nominal lending
fee from the share borrower for the use of those shares. All
borrowed shares (or identical shares or, in certain
circumstances, the cash value thereof) must be returned to us on
or about the maturity date of the convertible notes or earlier
upon demand when our convertible notes, which are being offered
in a concurrent registered offering, are no longer outstanding,
or in certain other circumstances. See Description of
Share Lending Agreement and Concurrent Offering of Our
Convertible Notes.
The existence of the share lending agreement and the short sales
of our common stock effected in connection with the sale of our
convertible notes and the trading of such notes following
completion of the concurrent offering could cause the market
price of our common stock to be lower over the term of the share
lending agreement than it would have been had we not entered
into that agreement, due to the effect of the increase in the
number of outstanding shares of our common stock resulting from
the loan of shares or otherwise. In addition, we have been
informed by Deutsche Bank Securities Inc. that it or its
affiliates intend to use the short position created by the share
loan and the concurrent short sales of the borrowed shares for
purposes reasonably designed to facilitate transactions by which
investors in the notes may hedge their investments through short
sales or privately negotiated derivative transactions. Deutsche
Bank Securities Inc. also has informed us that it intends to
short sell the borrowed shares concurrently with the offering of
our convertible notes. To the extent such shares are not sold
concurrently with the offering of the convertible notes, the
share borrower may from time to time borrow additional shares
from us for additional offerings that may be made from time to
time. The market price of our common stock could be further
negatively affected by these or other short sales of our common
stock, including other sales by the purchasers of our
convertible notes hedging their investment therein.
Future sales of
our common stock in the public market or the issuance of other
equity may adversely affect the market price of our common stock
and our ability to raise funds in new equity or equity-related
offerings.
Sales of a substantial number of shares of our common stock or
other equity-related securities in the public market could
depress the market price of our common stock, and impair our
ability to raise capital through the sale of additional equity
securities. We cannot predict the effect that future sales of
our common stock or other equity-related securities would have
on the market price of our common stock. In addition, the price
of our common stock could be affected by possible sales of our
common stock by investors who view the convertible notes as a
more attractive means of equity participation in our company and
by hedging or arbitrage trading activity that we expect to
develop involving our common stock.
In addition, the existence of the notes also may encourage short
selling by market participants because the conversion of the
notes could depress our common stock price. The price of our
common stock could be affected by possible sales of our common
stock by investors who view the notes as a more attractive means
of equity participation in us or as a
S-15
means to engage in hedging or arbitrage trading activity, which
we expect to occur involving our common stock. This hedging or
arbitrage could, in turn, affect the market price of the notes.
The adjustments
by convertible note investors of their hedging positions in our
common stock and the expectation thereof may have a negative
effect on the market price of our common stock.
The 10,000,000 shares of our common stock that may be
offered pursuant to the share lending agreement are expected to
be used by investors in the convertible notes to establish
hedged positions with respect to our common stock through short
sale transactions or privately negotiated derivative
transactions. That may be more or less than the number of shares
that will be needed in such hedging transactions. Any buying or
selling of shares of our common stock by the investors to adjust
their hedging positions may affect the market price of our
common stock.
Borrowed shares
may not be available for hedging transactions.
Some or all of the borrowed shares we have agreed to lend to the
share borrower may not be available to facilitate hedging
transactions in some circumstances, including if the share
borrower returns shares to us before the expiration of the share
lending agreement, (if in the case that the share borrower does
not borrow the maximum amount of borrowed shares concurrently
with the offering of the notes) a registration statement is
unavailable before the share borrower has completed the initial
sale of such shares or if the share borrower is unwilling or
unable to purchase additional shares at the market. See
Description of Share Lending Agreement. Any
unavailability of borrowed shares to facilitate hedging
transactions may make it more difficult for investors in our
convertible notes to hedge their investment and consequently
could adversely impact the trading price of the convertible
notes.
Changes in the
accounting guidelines relating to the borrowed shares could
decrease our reported earnings per share and potentially our
common stock price.
Because the borrowed shares that are being offered in the
concurrent offering (or identical shares) must be returned to us
at the end of the loan availability period under the share
lending agreement or earlier in certain circumstances, we
believe that under U.S. GAAP, as presently in effect, the
borrowed shares will not be considered outstanding for the
purpose of computing and reporting our earnings per share. If
accounting guidelines were to change in the future, we may
become required to treat the borrowed shares as outstanding for
purposes of computing earnings per share, our reported earnings
per share would be reduced and our common stock price could
decrease, possibly significantly.
Risks Relating to
Our Common Stock
There is no
guarantee of a continuing public market for you to resell our
common stock.
Our common shares commenced trading on the Nasdaq National
Market, now the Nasdaq Global Select Market, in February 2005.
We cannot assure you that an active and liquid public market for
our common shares will continue. The price of our common stock
may be volatile and may fluctuate due to factors such as:
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actual or anticipated fluctuations in our quarterly and annual
results and those of other public companies in our industry;
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mergers and strategic alliances in the drybulk shipping industry;
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market conditions in the drybulk shipping industry and the
general state of the securities markets;
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S-16
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changes in government regulation;
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shortfalls in our operating results from levels forecast by
securities analysts; and
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announcements concerning us or our competitors.
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You may not be able to sell your shares of our common stock in
the future at the price that you paid for them or at all.
We are
incorporated in the Republic of the Marshall Islands, which does
not have a well-developed body of corporate law and as a result,
shareholders may have fewer rights and protections under
Marshall Islands law than under a typical jurisdiction in the
United States.
Our corporate affairs are governed by our amended and restated
articles of incorporation and bylaws and by the Marshall Islands
Business Corporations Act, or BCA. The provisions of
the BCA resemble provisions of the corporation laws of a number
of states in the United States. However, there have been few
judicial cases in the Republic of the Marshall Islands
interpreting the BCA. The rights and fiduciary responsibilities
of directors under the law of the Republic of the Marshall
Islands are not as clearly established as the rights and
fiduciary responsibilities of directors under statutes or
judicial precedent in existence in certain United States
jurisdictions. Shareholder rights may differ as well. While the
BCA does specifically incorporate the non-statutory law, or
judicial case law, of the State of Delaware and other states
with substantially similar legislative provisions, our public
shareholders may have more difficulty in protecting their
interests in the face of actions by management, directors or
controlling shareholders than would shareholders of a
corporation incorporated in a United States jurisdiction.
A small number of
our stockholders effectively control the outcome of matters on
which our stockholders are entitled to vote.
Entities affiliated with Mr. Economou, our Chairman and
Chief Executive Officer currently own, directly or indirectly,
approximately 15.8% of our outstanding common stock. While those
stockholders have no agreement, arrangement or understanding
relating to the voting of their shares of our common stock, they
will effectively control the outcome of matters on which our
stockholders are entitled to vote, including the election of
directors and other significant corporate actions. The interests
of these stockholders may be different from your interests.
Anti-takeover
provisions in our organizational documents and in our
stockholders rights agreement could make it difficult for our
stockholders to replace or remove our current board of directors
or have the effect of discouraging, delaying or preventing a
merger or acquisition, which could adversely affect the market
price of our common stock.
Several provisions of our amended and restated articles of
incorporation and bylaws and in our stockholders rights
agreement could make it difficult for our stockholders to change
the composition of our board of directors in any one year,
preventing them from changing the composition of management. In
addition, the same provisions may discourage, delay or prevent a
merger or acquisition that stockholders may consider favorable.
These provisions include:
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prior to the date of the transaction that resulted in the
shareholder becoming an interested shareholder, our board of
directors approved either the business combination or the
transaction that resulted in the shareholder becoming an
interested shareholder;
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providing for a classified board of directors with staggered,
three year terms;
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S-17
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prohibiting cumulative voting in the election of directors;
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authorizing the removal of directors only for cause and only
upon the affirmative vote of the holders of a majority of the
outstanding shares of our common stock entitled to vote for the
directors;
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prohibiting stockholder action by written consent;
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limiting the persons who may call special meetings of
stockholders; and
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establishing advance notice requirements for nominations for
election to our board of directors or for proposing matters that
can be acted on by stockholders at stockholder meetings.
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Under our stockholders rights plan adopted in 2008 and amended
in 2009, our board of directors declared a dividend of one
preferred share purchase right, or a right, to purchase one
one-thousandth of a share of our Series A Participating
Preferred Stock for each outstanding common share. Each right
entitles the registered holder, upon the occurrence of certain
events, to purchase from us one one-thousandth of a share of
Series A Participating Preferred Stock. The rights may have
anti-takeover effects. The rights will cause substantial
dilution to any person or group that attempts to acquire us
without the approval of our board of directors. As a result, the
overall effect of the rights may be to render more difficult or
discourage any attempt to acquire us. Because our board of
directors can approve a redemption of the rights or a permitted
offer, the rights should not interfere with a merger or other
business combination approved by our board of directors. The
adoption of the rights agreement was approved by our existing
stockholders prior to the offering.
Although the Marshall Islands Business Corporation Act does not
contain specific provisions regarding business
combinations between corporations organized under the laws
of the Republic of Marshall Islands and interested
shareholders, we have included provisions regarding such
combinations in our articles of incorporation.
Our articles of incorporation contain provisions which prohibit
us from engaging in a business combination with an interested
shareholder for a period of three years after the date of the
transaction in which the person became an interested
shareholder, unless:
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authorizing our board of directors to issue blank
check preferred stock without stockholder approval;
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upon consummation of the transaction that resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of our voting stock outstanding
at the time the transaction commenced;
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at or subsequent to the date of the transaction that resulted in
the shareholder becoming an interested shareholder, the business
combination is approved by the board of directors and authorized
at an annual or special meeting of shareholders by the
affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested shareholder; or
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the shareholder became an interested shareholder prior to the
consummation of the Initial Public Offering.
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For purposes of these provisions, a business
combination includes mergers, consolidations, exchanges,
asset sales, leases and other transactions resulting in a
financial benefit to the interested shareholder and an
interested shareholder is any person or entity that
beneficially owns 15% or more of our outstanding voting stock
and any person or entity affiliated with or controlling or
controlled by that person or entity. Further, the term
business combination, when used in reference to us
and any interested shareholder does not include any
transactions for which definitive agreements were entered into
prior to the date the articles were filed with the Republic of
the Marshall Islands.
S-18
USE OF
PROCEEDS
The shares of our common stock offered hereby are shares that we
are loaning to the share borrower pursuant to a share lending
agreement between our Company and the share borrower (which we
refer to as the share lending agreement). We have
been informed by Deutsche Bank Securities Inc. that it, or its
affiliates, intend to use the short position created by the
share loan and the short sales of the borrowed shares for
purposes reasonably designed to facilitate transactions by which
investors in our convertible notes offering may hedge their
investments through short sales or privately negotiated
derivative transactions. We will not receive any proceeds from
the sale of the borrowed shares in this offering, but we will
receive a nominal lending fee of $0.01 per share from the share
borrower for the use of the shares. The share borrower or its
affiliates will receive all the proceeds from the sale of the
borrowed shares. See Description of Share Lending
Agreement.
S-19
MARKET PRICE OF
COMMON STOCK
The trading market for our common stock is the Nasdaq Global
Select Market, on which the shares are listed under the symbol
DRYS. The following table sets forth the high and
low closing prices for our common stock since February 3,
2005, when our common stock began trading on Nasdaq. The high
and low closing prices for our common stock for the periods
indicated were as follows:
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High
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Low
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For the Fiscal Year Ended December 31, 2009
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$
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16.58
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$
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2.79
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For the Fiscal Year Ended December 31, 2008
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$
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110.74
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$
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3.54
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For the Fiscal Year Ended December 31, 2007
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$
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130.97
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$
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16.99
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For the Fiscal Year Ended December 31, 2006
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$
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18.01
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$
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8.58
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For the Fiscal Year Ended December 31, 2005 (beginning
February 3, 2005)
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$
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23.16
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$
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12.16
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For the Quarter Ended
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March 31, 2010
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$
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6.77
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$
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5.50
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December 31, 2009
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$
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7.37
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$
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5.82
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September 30, 2009
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$
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7.48
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$
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4.90
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June 30, 2009
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$
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10.70
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$
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4.52
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March 31, 2009
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$
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16.58
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$
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2.79
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December 31, 2008
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$
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35.45
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$
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3.54
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September 30, 2008
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$
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79.61
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$
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33.15
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June 30, 2008
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$
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110.74
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$
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59.98
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March 31, 2008
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$
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87.45
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$
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52.18
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December 31, 2007
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$
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130.97
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$
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69.67
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September 30, 2007
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$
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91.40
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$
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44.14
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June 30, 2007
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$
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43.38
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$
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23.24
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March 31, 2007
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$
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23.50
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$
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16.99
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For the Month:
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April 1 through April 19, 2010
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$
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6.67
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$
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6.00
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March 2010
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$
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6.18
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$
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5.38
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February 2010
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$
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5.82
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$
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5.27
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January 2010
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$
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6.77
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$
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5.50
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December 2009
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$
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6.36
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$
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5.82
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November 2009
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$
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7.14
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$
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5.86
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October 2009
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$
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7.37
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$
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6.01
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September 2009
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$
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7.48
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$
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5.65
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August 2009
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$
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6.71
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$
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5.69
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July 2009
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$
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7.08
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$
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4.90
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S-20
DIVIDEND
POLICY
In light of a lower freight rate environment and a highly
challenged financing environment, our board of directors,
beginning with the fourth quarter of 2008, suspended our common
share dividend. Our dividend policy will be assessed by the
board of directors from time to time. The suspension allows us
to preserve capital and use the preserved capital to capitalize
on market opportunities as they may arise. Until market
conditions improve, it is unlikely that we will reinstate the
payment of dividends. In addition, the waivers of our
non-compliance with covenants in our loan agreements that we
received from our lenders prohibit us from paying any dividends.
Declaration and payment of any dividend is subject to the
discretion of our board of directors. The timing and amount of
dividend payments will be dependent upon our earnings, financial
condition, cash requirements and availability, fleet renewal and
expansion, restrictions in our loan agreements, the provisions
of Marshall Islands law affecting the payment of distributions
to shareholders and other factors. The payment of dividends
would also result in a conversion rate adjustment under the
terms of the convertible notes.
Because we are a holding company with no material assets other
than the stock of our subsidiaries, our ability to pay
dividends, if any, in the future, will depend on the earnings
and cash flow of our subsidiaries and their ability to pay
dividends to us. If there is a substantial decline in the
drybulk charter market, our earnings would be negatively
affected thus limiting our ability to pay dividends, if any, in
the future. Marshall Islands law generally prohibits the payment
of dividends other than from surplus or while a company is
insolvent or would be rendered insolvent upon the payment of
such dividend.
We believe that, under current law, our dividend payments from
earnings and profits will constitute qualified dividend
income and as such will generally be subject to a 15%
United States federal income tax rate with respect to
non-corporate individual stockholders (for taxable years
beginning on or before December 31, 2010). Distributions in
excess of our earnings and profits will be treated first as a
non-taxable return of capital to the extent of a United States
stockholders tax basis in its common stock on a
dollar-for-dollar
basis and thereafter as capital gain. Please see the section of
this report entitled Tax Considerations for
additional information relating to the tax treatment of our
dividend payments.
S-21
CAPITALIZATION
The following table sets forth our cash position and
consolidated capitalization as of December 31, 2009:
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on an actual basis;
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on an as adjusted basis to give effect to (i) the
additional drawdown of $2.0 million of debt for the
drillship Hulls 1865 and 1866; (ii) loan repayments of
$88.7 million under our credit facilities subsequent to
December 31, 2009; (iii) an increase in restricted
cash of $192.7 million mainly due to loan waiver terms and
disposal of assets; (iv) payments of $313.4 million
towards the yard installments for the construction of drillship
Hulls 1865, 1866, 1837 and $6.6 million towards the Panamax
Hulls 1637 and 1638; (v) proceeds of $44.2 million
from the sale of the vessels Delray and Iguana; (vi) the
issuance of 4.5 million restricted shares of common stock
to George Economou of which 1 million shares have vested;
and (vii) the issuance of 600 restricted shares of common
stock to the board of directors; and
|
|
|
|
on an as further adjusted basis giving effect to gross proceeds
of $ million senior
convertible notes offered in the concurrent offering net of fair
value of conversion option of
$ million (assuming no
exercise by the underwriter of its over-allotment option) and
reflecting the 10,000,000 shares of common stock to be loaned to
the share borrower under the share lending agreement.
|
S-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
As Further
|
|
(in thousands of U.S. dollars)
|
|
Actual
|
|
|
As Adjusted (1)
|
|
|
Adjusted
|
|
|
Cash and cash equivalents
|
|
$
|
693,196
|
|
|
$
|
135,924
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash (2)
|
|
$
|
350,833
|
|
|
$
|
543,547
|
|
|
$
|
543,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total secured debt, including current portion
|
|
|
2,392,840
|
|
|
|
2,306,138
|
|
|
|
2,306,138
|
|
Convertible senior notes due 2014 ($460 million)
|
|
|
342,925
|
|
|
|
342,925
|
|
|
|
342,925
|
|
Convertible senior notes due 2014 offered concurrently
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt (3)
|
|
$
|
2,735,765
|
|
|
$
|
2,649,063
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 500,000,000 shares
authorized, none issued as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible preferred stock, $0.01 par value;
100,000,000 shares authorized, 52,238,806 shares
issued and outstanding as of December 31, 2009
|
|
|
522
|
|
|
|
522
|
|
|
|
522
|
|
Common stock, $0.01 par value; 1,000,000,000 shares
authorized, 280,326,271 shares issued and outstanding at
December 31, 2009; 284,826,871 shares issued as
adjusted; 294,826,871 shares as further adjusted (4)(5)
|
|
|
2,803
|
|
|
|
2,848
|
|
|
|
2,948
|
|
Additional paid-in capital (6)
|
|
|
2,681,974
|
|
|
|
2,690,289
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(28,137
|
)
|
|
|
(28,137
|
)
|
|
|
(28,137
|
)
|
Retained Earnings
|
|
|
147,473
|
|
|
|
139,158
|
|
|
|
139,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
2,804,635
|
|
|
|
2,804,680
|
|
|
|
2,804,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
5,540,400
|
|
|
$
|
5,453,743
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
There have been no significant
changes to our capitalization since December 31, 2009, as
so adjusted.
|
|
(2)
|
|
Restricted cash represents bank
deposits to be used to fund loan installments coming due and
minimum cash deposits required to be maintained with certain
banks under our borrowing arrangements.
|
|
(3)
|
|
Total debt does not include debt
issuance costs.
|
|
(4)
|
|
Does not include out of the
money five year warrants issued on April 9, 2009, to
entities controlled by our Chairman and Chief Executive Officer,
George Economou, for the purchase of up to 3.5 million
common shares with exercise prices depending on the relevant
tranches of between $20 and $30 per share. Does not include any
amount of common shares resulting from the conversion of the
Series A Convertible preferred stock.
|
|
(5)
|
|
The borrowed shares that are being
offered in this offering (or identical shares) and the
26,100,000 borrowed shares offered in November 2009 must be
returned to us at the end of the loan availability period under
the share lending agreement or earlier in certain circumstances.
We believe that U.S. GAAP, as presently in effect, the borrowed
shares will not be considered outstanding for the purpose of
computing and reporting our earnings per share, although the
borrowed shares will be outstanding for corporate law purposes.
|
|
(6)
|
|
As further adjusted represents
estimated fair value of conversion option related to the
convertible notes offered concurrently herewith of approximately
$ million and an
estimated fair value of the share-lending agreement entered into
in connection with the concurrent convertible notes offering of
approximately
$ million.
|
S-23
DESCRIPTION OF
INDEBTEDNESS
The following is a summary of the material terms of our
credit facilities and other indebtedness that will be
outstanding following the consummation of this offering.
$1.04 billion
revolving credit and term loan facility, dated
September 17, 2008, as amended
In September and October 2008, Ocean Rig ASA, our wholly-owned
subsidiary, drew down a total of $1.0 billion under this
credit facility, which was used to repay all other outstanding
Ocean Rig ASA debt in the amount of $776 million and for
general corporate purposes. This credit facility consists of a
guarantee facility which provides us with a letter of credit in
the amount of up to $20 million, three revolving credit
facilities in the amounts of up to $350 million,
$250 million and $20 million, respectively, and a term
loan facility in the amount of up to $400 million. This
loan bears interest at LIBOR plus a margin, and is repayable in
20 quarterly installments plus a balloon payment, payable
together with the last installment on September 17, 2013.
As of December 31, 2009, we had outstanding borrowings in
the amount of $808.6 million under this facility.
The loan contains various finance covenants, including
restrictions as to payment of dividends, distribution to
shareholders, and the reduction of share capital without the
banks prior consent. The loan is secured by (i) first
and second priority mortgages over Ocean Rig ASAs two
ultra-deepwater drilling rigs; (ii) first and second
priority assignment of all insurances and earnings of the
mortgaged drilling rigs; (iii) pledges of shares of Ocean
Rig Norway AS, Ocean Rig 1 AS, Ocean Rig 2 AS, Ocean Rig North
Sea AS, Ocean Rig Ghana Ltd., Ocean Rig Ltd., Ocean Rig 1 Inc.
and Ocean Rig 2 Inc.; and (iv) first and second mortgages
over the machinery and plant of Ocean Rig 1 Inc. and Ocean Rig 2
Inc. As of December 31, 2009, we were in compliance with
all covenants under this facility.
Under this loan, Ocean Rig ASA is restricted from paying
dividends if there is less than six months remaining on the
contract for the MV Eirik Raude with Tullow Oil Plc,
which expires October 2011, and no other contract with equally
satisfactory terms has been entered into.
Two
$562.5 million credit facilities, each dated July 18,
2008, as amended
As of December 2008, Drillship Kithira Owners Inc. and Drillship
Skopelos Owners Inc., our wholly-owned subsidiaries, each drew
down $86.7 million under these credit facilities, which was
used to partially finance the construction costs of Drillship
Hulls 1865 and 1866, including payment of the loan financing
fees, incidental vessel costs, commitment fees, loan interest,
and a portion of the second yard installments. Both of these
loans bear interest at LIBOR plus a margin and are repayable in
18 semi-annual installments through November 2020. The first
installment is payable six months after delivery of the vessels,
which is expected to be in the third quarter of 2011. Our
lenders are not required to fund certain drawdowns by us under
these loan agreements and we would be required to repay all
outstanding amounts in the event we do not obtain employment
contracts for Hulls 1865 and 1866 by the earlier of
April 30, 2011 or the delivery of the applicable drillship
at specified minimum day rates with charterers that are
satisfactory to such lenders. As of December 31, 2009, we
had outstanding borrowings in the aggregate amount of
$186.3 million under these credit facilities.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
25% and (ii) the market value adjusted net worth must be
greater than or equal to $500 million. On June 5,
2009, we entered into agreements on waiver and amendment terms
with respect to each of these credit facilities providing for a
waiver of certain financial covenants through January 31,
2010. These agreements provide for, among other things,
(i) a waiver of the required market adjusted equity ratio,
(ii) a waiver of the required market value adjusted net
worth; and (iii) a
S-24
required payment from us to each lender and the facility agent.
These agreements were terminated by supplemental agreement dated
January 28, 2010, which supersedes the waiver agreement and
extended the deadline for obtaining suitable employment
contracts for Hulls 1865 and 1866 that are required for the
continued availability of these credit facilities through April
2011. As of April 16, 2010, the Company was in compliance
with the covenants under these credit facilities and there were
no defaults under these credit facilities.
$126.4 million
term loan facility, dated July 23, 2008, as
amended
In July 2008, Cretan Traders Inc., our wholly-owned subsidiary,
drew down $126.4 million under this term loan facility,
which was used to partially finance the acquisition of the
secondhand vessel, to be named MV Flecha. This loan bears
interest at LIBOR plus a margin, and is repayable in 40
quarterly installments, plus a balloon payment payable with the
last installment in July 2018. As of December 31, 2009, we
had outstanding borrowings in the amount of $113.2 million
under this term loan facility.
As of December 31, 2008, we were not in compliance with a
covenant for this facility which requires that the market value
(of the vessels mortgaged thereunder) to loan amount ratio be
equal to or greater than 125%. On October 12, 2009, we
entered into a supplemental agreement with respect to this loan
facility providing for a waiver of certain covenants, including
the security cover provisions, through October 9, 2011.
Under this loan, we are restricted from paying dividends if we
are in default of the loan or the payment of dividends would
result in a default of the loan.
$103.2 million
loan facility, dated June 20, 2008, as amended
In June and July 2008, Aegean Traders Inc. and Iguana Shipping
Company Limited, our wholly-owned subsidiaries, drew down
$32.5 million and $51.6 million under this loan
facility, respectively, to partially finance the acquisition
cost of the vessels MV Iguana and MV Sorrento This
loan bears interest at LIBOR plus a margin, and is repayable in
32 quarterly installments, plus a balloon payment payable with
the last installment in July 2016 for the MV Sorrento,
and 20 quarterly installments, with the last installment in June
2013 for the Iguana. As of December 31, 2009, we had
outstanding borrowings in the amount of $63.4 million under
this loan facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
20%, (ii) the market value adjusted net worth must be equal
to or greater than $250 million and (iii) the market
value to loan amount ratio must be greater than or equal to
135%. On October 8, 2009, we entered into a supplemental
agreement with respect to this loan facility providing for,
among other things, waivers of the (i) value maintenance
provisions; (ii) market adjusted equity ratio;
(iii) market value adjusted net worth and (iv) certain
other financial covenants as guarantor through April 8,
2011.
$125 million
loan facility, dated May 13, 2008, as amended
In May and June 2008, Norwalk Star Owners Inc. and Ionian
Traders Inc., our wholly-owned subsidiaries, drew down
$81.8 million and $43.2 million, respectively, under
this loan facility to partially finance the acquisition cost of
the vessels MV Capri and MV Positano. This loan
bears interest at LIBOR plus a margin, and is repayable in 32
quarterly installments, plus a balloon payment through June
2016. As of December 31, 2009, we had outstanding
borrowings in the amount of $86.0 million under this loan
facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility (i) the
market-adjusted equity ratio must be greater than or equal to
25%, (ii) the market
S-25
value to loan amount ratio must be greater than or equal to 125%
and (iii) the market value adjusted net-worth greater than
or equal to $180 million. On February 25, 2010, we
entered into a supplemental agreement, which, among other
things, (i) increases the applicable margin on the facility
from January 1, 2009 until December 31, 2010;
(ii) waives additional security; and (iii) amends our
financial covenants as guarantor until December 31, 2010.
Under this loan, we are restricted from paying dividends without
the lenders consent if we are in default of the loan.
$90 million
loan facility, dated May 5, 2008, as amended
In June 2008, Dalian Star Owners Inc, our wholly-owned
subsidiary, drew down $90 million under this loan facility
to partially finance the acquisition cost of the secondhand
vessel MV Mystic. The loan bears interest at LIBOR plus a
margin, and is repayable in 14 semi-annual installments, with a
balloon payment payable together with the last installment in
December 2015. As of December 31, 2009, we had outstanding
borrowings in the amount of $60.0 million under this loan
facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
20%, (ii) the market value adjusted net worth must be
greater than or equal to $250 million and (iii) the
market value to loan amount ratio must be greater than or equal
to 125%. On October 22, 2009, we entered into an agreement,
providing for a waiver of certain covenants through
September 30, 2010. This agreement, among other things,
(i) revises the security cover for the duration of the
waiver period; and (ii) amends the minimum requirements for
the market adjusted equity ratio, market value adjusted new
worth of the group and the interest leverage ratio. Furthermore,
the waiver agreement increases the interest margin for the
duration of the waiver period and it includes various dividend
and capital expenditure restrictions by us or our subsidiary
Dalian Star Owners Inc.
$130 million
loan facility, dated March 13, 2008, as amended
In March 2008, Annapolis Shipping Company Limited, Atlas Owning
Company Limited, Farat Shipping Company Limited and Lansat
Shipping Company Limited, our wholly-owned subsidiaries, drew
down $130 million under this loan facility in order to
obtain additional liquidity and for general corporate purposes.
The vessels MV Lacerta, MV Menorca, MV Toro
and MV Paragon were released from their previous loan
and related security obligations, and were provided as
collateral under this loan facility. On June 27, 2008, the
vessel MV Menorca was sold and its loan balance
outstanding at such date of $33 million was fully repaid.
On December 9, 2008, the vessel MV Lacerta was
renamed MV Delray. The loan bears interest at LIBOR plus
a margin and is repayable in 28 quarterly installments plus a
balloon payment payable with the last installment in March 2015.
On March 3, 2009, the MV Paragon was sold and its
outstanding loan balance of $28.5 million was fully repaid.
As of that date, the balloon payment was reduced. As of
December 31, 2009, we had outstanding borrowings in the
amount of $49.0 million under this loan facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
25%, and (ii) the market value to loan amount ratio must be
greater than or equal to 125%. On July 30, 2009, we entered
into a supplemental agreement with respect to this credit
facility providing for the waiver of certain covenants. This
supplemental agreement, among other things, (i) increases
the applicable margin on the facility to 2% per annum from
April 1, 2009 until March 31, 2011 and 1.5% per annum
from March 31, 2011 until the final maturity date;
(ii) requires that until March 31, 2011, proceeds from
the sale or loss of the collateral vessels be applied to the
outstanding advance of the facility; (iii) requires
additional security and a restricted cash
S-26
account equaling a minimum of the next four quarterly principal
installments; (iv) waives the minimum required security
cover until March 31, 2011; and (v) waives our
financial covenants until March 31, 2011.
On January 25, 2010, we entered into a vessel substitution
agreement for MVs Toro and Delray. This agreement
provides, among other things, that after the end of the waiver
period the applicable margin is reduced.
$101.2 million
loan facility, dated December 4, 2007, as amended
In December 2007 and January 2008,
Team-Up
Owning Company Limited and Orpheus Owning Company Limited, our
wholly-owned subsidiaries, drew down an aggregate of
$101.2 million under this loan facility in order to
partially finance the acquisition cost of the second hand
vessels MV Saldahna (ex. Shino Brilliance) and
MV Avoca. The loan bears interest at LIBOR plus a margin,
and is repayable in 28 quarterly installments, with a balloon
payment payable together with the last installment in January
2015. As of December 31, 2009, we had outstanding
borrowings of $70.3 million under this loan facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
30%, and (ii) the market value to loan amount ratio must be
greater than or equal to 125%. On June 11, 2009, we entered
into a supplemental agreement on waiver terms on this loan
facility. This supplemental agreement provides, among other
things that through May 19, 2011, (i) the lender will
waive the financial covenants contained in the corporate
guarantee; (ii) the lender will waive the required
prepayment in the event of a security value shortfall;
(iii) the applicable margin will be increased; and
(iv) we will not pay any cash dividends except under
certain circumstances.
$47 million
loan facility dated November 16, 2007, as amended
In December 2007, Iason Owning Company Limited, our wholly-owned
subsidiary, drew down $47 million under this loan facility
in order to partially finance the acquisition cost of the second
hand vessel MV Oregon (ex. Athina Zafirakis). The
loan bears interest at LIBOR plus a margin, and is repayable in
32 quarterly installments, with a balloon payment payable
together with the last installment in December 2015. As of
December 31, 2009, we had outstanding borrowings in the
amount of $29.0 million under this loan facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
20%, (ii) market value adjusted net worth greater than or
equal to $180 million, and (iii) the market value to
loan amount must be greater than or equal to 130%. In February
2009, we entered in a supplemental agreement on waiver and
amendment terms on this loan facility, providing for a waiver of
certain covenants through December 31, 2009. On
November 11, 2009, we entered into an agreement with the
lender to confirm that the conditions in such waivers remain
satisfied, and that the waivers extend to certain financial
covenants in our guarantee of this loan facility through
December 31, 2009. On April 15, 2010, we entered into
a supplemental agreement on waiver and amendment terms on this
loan facility providing, among other things, that the lender
will waive until January 1, 2011: (i) the required
payment in the event of a security value shortfall and
(ii) the financial covenants contained in the corporate
guarantee.
$90 million
loan facility dated October 5, 2007, as amended
In October and November 2007, Boone Star Owners Inc. and Iokasti
Owning Company Limited, our wholly-owned subsidiaries, drew down
$90 million under this loan facility in order to partially
finance the acquisition cost of the second hand vessels MV
Samatan and MV VOC Galaxy. The loan bears interest at
LIBOR plus a margin depending on corporate leverage, and
S-27
is repayable in 32 quarterly installments beginning in the first
quarter of 2008, with a balloon payment payable together with
the last installment in the fourth quarter of 2015. As of
December 31, 2009, we had outstanding borrowings of
$74.0 million under this loan facility.
As of December 31, 2008, we were not in compliance with the
following covenants for this facility: (i) the
market-adjusted equity ratio must be greater than or equal to
25%, (ii) the market value adjusted net worth must be
greater than or equal to $250 million and (iii) the
market value to loan amount ratio must be greater than or equal
to 125%. On July 30, 2009, we entered into a covenant
waiver and amendment agreement with respect to this credit
facility for the waiver of certain covenants. This covenant
waiver and amendment agreement, among other things,
(i) increases the applicable margin on the facility to 2%
per annum from April 1, 2009 until March 31, 2011 and
1.5% per annum from March 31, 2011 until the final maturity
date; (ii) requires that until March 31, 2011,
proceeds from the sale or loss of the collateral vessels be
applied to the outstanding advance of the facility;
(iii) requires additional security; (iv) waives our
minimum required security cover until March 31, 2011; and
(v) waives the our financial covenants as guarantor until
March 31, 2011.
$35 million
loan facility dated October 2, 2007, as amended
In October 2007, Ioli Owning Company Limited, our wholly-owned
subsidiary, drew down $35 million under this loan facility
in order to partially finance the acquisition cost of the second
hand vessel MV Clipper Gemini. The loan bears interest at
LIBOR plus a margin, and is repayable in 36 quarterly
installments beginning in the first quarter of 2008, with a
balloon payment payable together with the last installment in
the fourth quarter of 2016. As of December 31, 2009, we had
outstanding borrowings of $25.0 million under this loan
facility.
As of December 31, 2008, we were not in compliance with the
market value to loan covenant. Our ratio must be greater than or
equal to 125%. If we are in default of this loan, we may not pay
dividends without the lenders consent. On
February 25, 2010, we entered into a supplemental agreement
providing for a waiver of certain covenants. This covenant
waiver and amendment agreement, among other things:
(i) increases the applicable margin on the facilities from
January 1, 2009 until December 31, 2010;
(ii) amends the minimum security cover; and
(iii) amends our financial covenants as guarantor through
December 31, 2010.
$628.8 million
senior and junior loan facilities, dated March 31, 2006, as
amended
In April, 2006, we drew down $628.8 million in order to
refinance the then outstanding balance of our prior indebtedness
($528.3 million as at 2005), to provide us with working
capital, and to partially finance the acquisition cost of the
second hand vessels MV Hille Oldendorff, MV
Maganari, MV Ligari and MV Lanzarote. These
facilities are comprised of (i) term loan and short-term
credit facilities of up to $557.5 million in the aggregate
(senior loan facility) and (ii) term loan and short-term
credit facilities of up to $71.3 million in the aggregate
(junior loan facility). The senior and junior loan facilities
were subsequently amended and supplemented (as described below).
Under these facilities, dividends may not exceed more than 50%
of our net income for that year, as evidenced by the relevant
annual audited financial statements.
The senior loan facility bears interest at LIBOR plus a margin.
The term loan facility is repayable in 37 quarterly
installments, with a balloon payment payable together with the
last installment on May 31, 2016. Each advance from the
short term credit facility is repayable in quarterly
installments with the next term loan facility installment. As of
December 31, 2009, we had outstanding borrowings of
$498.3 million under this loan facility.
The junior loan facility bears interest at LIBOR plus a margin.
The term loan facility is repayable in 37 quarterly
installments, with a balloon payment payable with the last
S-28
installment on May 31, 2016. Each advance from the short
term credit facility is repayable in quarterly installments with
the next term loan facility installment. As of December 31,
2009, we had outstanding borrowings of $99.9 million under
this loan facility.
In April 23, 2008, the senior and junior loan facilities
were amended to provide as follows: (i) our market value
net worth must be higher than $750 million for the year
ended December 31, 2008, $800 million for the year
ended December 31, 2009, and $1 billion for subsequent
years, (ii) we must maintain minimum available cash of
$100 million, and (iii) we must have current charters
for 25% of our vessels until December 31, 2009 and 35% of
our vessels following that date.
As of December 31, 2008, we were not in compliance with the
following covenants for the senior and junior loan facilities:
(i) the market-adjusted equity ratio must be greater than
or equal to 40% and (ii) the market value adjusted net
worth must be greater than or equal to $750 million.
On November 17, 2009, we entered in a supplemental
agreement on waiver and amendment terms on the senior and junior
loan facilities. These supplemental agreements, among other
things, amend (i) market adjusted equity ratios;
(ii) market value adjusted net worth; (iii) interest
coverage ratios; (iv) minimum liquidity;
(v) applicable margins on the facilities from
December 22, 2008 until September 30, 2010; and
(vi) security cover requirements during the waiver period.
$230 million
loan facility, dated September 10, 2007, as
amended
In connection with the acquisition of Drillships Holdings on
May 15, 2009, we assumed two $115 million loan
facilities that were entered into in September 2007, in order to
finance the construction of Hulls 1837 and 1838. The loans bear
interest at LIBOR plus margin and are repayable upon the
delivery of Hull 1837 in December 2010 and Hull 1838 in March
2011. In addition to the customary security and guarantees
issued to the borrower, this facility was collateralized by
certain vessels owned by certain related parties, corporate
guarantees of certain related parties, and a personal guarantee
from Mr. Economou.
As of December 31, 2009, we had outstanding borrowings in
the amount of $230.0 million under these loan facilities.
As of December 31, 2009, we were in breach of certain
financial covenants under this loan facility. However, we were
notified by the lenders by letter dated April 16, 2010
that, effective April 16, 2010 through June 15, 2010,
we are in full compliance with this loan facility.
All of our credit facilities discussed in this section other
than the $1.04 billion revolving credit and term loan
facility, dated September 17, 2008, the two
$562.5 million credit facilities, each dated July 18,
2008 and the two $115 million loan facilities, each entered
into in September 2007, are secured by a first priority mortgage
over the vessels, assignment of shipbuilding contracts and
refund guarantees, corporate guarantee, a first assignment of
all freights, earnings, insurances and requisition compensation.
The loans contain covenants including restrictions, without the
banks prior consent, as to changes in management and
ownership of the vessels, additional indebtedness and mortgaging
of vessels and change in the general nature of our business. In
addition, the vessel owning companies are not permitted to pay
any dividends without the requisite lenders prior consent.
The loans also contain certain financial covenants relating to
our financial position, operating performance and liquidity.
The $1.04 billion revolving credit and term loan facility,
dated September 17, 2008 is secured by (i) first and
second priority mortgages over the ultra-deep water drilling
rigs; (ii) first and second priority assignment of all
insurances and earnings of the mortgaged drilling rigs;
(iii) pledge of shares of Ocean Rig AS, Ocean Rig Norway
AS, Ocean Rig 1 AS, Ocean Rig 2 AS,
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Ocean Rig North Sea AS, Ocean Rig Ghana Ltd, Ocean Rig Ltd,
Ocean Rig 1 Inc and Ocean Rig 2 Inc; and (iv) first and
second mortgages over the machinery and plant of Ocean Rig 1 Inc
and Ocean Rig 2 Inc.
Cross Default
Provisions
All of our loan agreements contain cross default provisions. As
a result of such provisions, any defaults that exist after the
expiration of the Companys waiver agreements, could result
in defaults on all of the Companys outstanding debt and
the acceleration of such debt by the Companys lenders. As
such, the Company has classified all of the Companys
affected debt as current liabilities given the respective
opinions of our independent registered public accounting firms
for the year ended December 31, 2009 expressing substantial
doubt as to our ability to continue as a going concern.
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DESCRIPTION OF
SHARE LENDING AGREEMENT AND
CONCURRENT OFFERING OF OUR CONVERTIBLE NOTES
Concurrently with this offering of borrowed shares, we are
offering, by means of a separate prospectus supplement and
accompanying prospectus, an additional $150 million
aggregate principal amount of our 5.00% Convertible Senior
Notes due 2014, in an offering registered under the Securities
Act. We also expect to grant a
30-day
option to the underwriters of the convertible notes to purchase
up to an additional 15% of the aggregate principal amount of the
convertible notes solely to cover over-allotments. The
additional convertible notes will be issued under the same
indenture (as supplemented) as the outstanding $460 million
aggregate principal amount of our 5.00% Convertible Senior
Notes due 2014, originally issued on November 25, 2009.
We intend to use the net proceeds from the offering of the
convertible notes for vessel acquisitions, acquisitions of
vessel owning companies, and other acquisitions in shipping and
related industries, and for general corporate purposes, such as
scheduled capital expenditures for our newbuild drillships.
To facilitate transactions by which investors in the convertible
notes may hedge their investments, we have entered into a share
lending agreement, dated as of the pricing of this offering,
with the share borrower, under which we have agreed to loan to
the share borrower up to 10,000,000 shares of our common
stock for a period beginning on the date of the share lending
agreement and ending on or about the maturity date of the
convertible notes, or, if earlier, the date as of which the
entire principal amount of our convertible notes ceases to be
outstanding as a result of conversion, repurchase, cancellation
or redemption, or earlier in certain circumstances. We refer to
this period as the loan availability period. The
total number of shares that the share borrower can borrow under
the share lending agreement is limited to 10,000,000.
We will not receive any proceeds from the shares of common stock
being offered and sold by the share borrower using this
prospectus supplement and the accompanying prospectus, which are
being loaned to the share borrower pursuant to the share lending
agreement, which we refer to as the borrowed shares,
but the share borrower will pay us a nominal lending fee of
$0.01 per share for the use of those shares.
The delivery of shares of common stock hereunder is contingent
upon the closing of the concurrent offering of the convertible
notes, and the closing of the offering of the convertible notes
is contingent upon the delivery by us of the borrowed shares
requested by the share borrower pursuant to the share lending
agreement.
Share loans under the share lending agreement will terminate and
the borrowed shares must be returned to us if the concurrent
offering of the convertible notes is not consummated or upon the
termination of the loan availability period, as well as under
the following circumstances:
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the share borrower may terminate all or any portion of a loan at
any time; and
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we or the share borrower may terminate any or all of the
outstanding loans upon a default by the other party under the
share lending agreement, including certain breaches by the share
borrower of its representations and warranties, covenants or
agreements under the share lending agreement, or the bankruptcy
of us or the share borrower.
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Any shares that we loan to the share borrower will be issued and
outstanding for corporate law purposes and, accordingly, the
holders of the borrowed shares will have all of the rights of a
holder of our outstanding shares, including the right to vote
the shares on all matters submitted to a vote of our
shareholders and the right to receive any dividends or other
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distributions that we may pay or make on our outstanding shares
of common stock. However, under the share lending agreement, the
share borrower has agreed:
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to pay to us an amount equal to cash dividends, if any, that we
pay on the borrowed shares;
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to pay or deliver to us any other distribution, other than in
liquidation or a reorganization in bankruptcy, that we make on
the borrowed shares; and
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not to vote on the borrowed shares on any matter submitted to a
vote of our stockholders, except in certain circumstances where
such vote is required for quorum purposes.
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In view of the contractual undertakings of the share borrower in
the share lending agreement, which have the effect of
substantially eliminating the economic dilution that otherwise
would result from the issuance of the borrowed shares, we
believe that under U.S. generally accepted accounting
principles currently in effect, the borrowed shares will not be
considered outstanding for the purpose of computing and
reporting our earnings per share.
Deutsche Bank Securities Inc. (together with the share borrower,
referred to herein collectively as Deutsche Bank)
has informed us that it, or its affiliates, intend to use the
short position created by the share loan and the short sales of
the borrowed shares to facilitate transactions by which
investors in the convertible notes may hedge their respective
investments through short sales or privately negotiated
derivative transactions. Deutsche Bank has informed us that it
intends to short sell the borrowed shares concurrently with the
offering of the convertible notes. Deutsche Bank and its
affiliates will receive all the proceeds from the sale of the
borrowed shares, if any, and we will have no interest whatsoever
in any such proceeds.
To the extent that fewer than 10,000,000 shares are sold
concurrently with the offering of the convertible notes, the
share borrower may from time to time borrow additional shares
from us for additional offerings that may be made from time to
time. We refer to the latter shares as of the supplemental
borrowed shares. In connection with the sale of these
supplemental borrowed shares, Deutsche Bank may effect such
transactions by selling the shares at various prices from time
to time or through dealers, and these dealers may receive
compensation in the form of discounts, concessions or
commissions from the underwriter and or from purchases of shares
for whom the dealers may act as agents or to whom they may sell
as principals. Over the same period that Deutsche Bank sells
these supplemental borrowed shares, it may, in its discretion,
purchase at least an equal amount of shares of our common stock
on the open market. Deutsche Bank may from time to time purchase
shares of our common stock in the market and use such shares,
including shares purchased in connection with the sale of
supplemental borrowed shares, to facilitate transactions by
which investors in the convertible notes may hedge their
investments in such convertible notes.
The existence of the share lending agreement and the short sales
of our common stock effected in connection with the sale of the
convertible notes being offered concurrently herewith could
cause the market price of our common stock to be lower over the
term of the share lending agreement than it would have been had
we not entered into that agreement. See Risk
FactorsRisks Relating To the OfferingThe effect of
the issuance and sale of our shares of common stock in this
offering, which issuance is being made to facilitate
transactions by which investors in the convertible notes may
hedge their investments, may be to lower the market price of our
common stock. However, we have determined that the entry
into the share lending agreement is in our best interests as a
means to facilitate the offer and sale of the convertible notes
pursuant to the related prospectus supplement and accompanying
prospectus on terms more favorable to us than we could have
otherwise obtained.
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DESCRIPTION OF
CAPITAL STOCK
Authorized and
Outstanding Capital Stock
Under our articles of incorporation, our authorized capital
stock consists of 1,000,000,000 shares of common stock, par
value $.01 per share, of which 284,826,871 shares are
issued and outstanding as of April 6, 2010, and
500,000,000 shares of preferred stock, of which
52,238,806 shares are issued and outstanding as of
April 6, 2010. All of our shares of stock are in registered
form.
Share
History
In October 2004, we issued 15,400,000 shares of our common
stock to the Entrepreneurial Spirit Foundation, or the
Foundation, as consideration for the contribution to us of all
of the issued and outstanding capital stock of six of our
subsidiaries. The Foundation is a foundation organized under the
laws of Lichtenstein and is controlled by our Chairman and Chief
Executive Officer Mr. George Economou. Subsequent to the
issuance of the 15,400,000 shares discussed above,
2,772,000 shares of common stock were transferred from the
Foundation to Advice Investments S.A., a corporation organized
under the Republic of Liberia, all the issued and outstanding
capital stock of which is owned by Ms. Elisavet Manola of
Athens, Greece, the ex-wife of Mr. Economou. The Foundation
transferred 1,848,000 shares of common stock to Magic
Management Inc., all of the issued and outstanding capital stock
of which is owned by Ms. Rika Vosniadou of Athens, Greece,
the ex-wife of Mr. Economou. In February 2005, we issued
14,950,000 shares of common stock in connection with our
initial public offering. The net proceeds of the initial public
offering were $251.3 million. On February 14, 2006,
the Foundation transferred all of its shares to its wholly-owned
subsidiary, Elios Investments.
On May 10, 2006, we filed a universal shelf registration
statement and related prospectus for the issuance of 5,000,000
of common shares. From May 2006 through August 2006,
4,650,000 shares of common stock with a par value $0.01
were issued. The net proceeds after underwriting commissions of
2.5% and other issuance fees were $56.5 million.
Our shareholders voted to adopt a resolution at our annual
general shareholders meeting on July 11, 2006, which
increased the aggregate number of shares of common stock that we
are authorized to issue from 45,000,000 registered shares with
par value of $0.01 to 75,000,000 registered shares with par
value $0.01.
On October 24, 2006, our board of directors agreed to the
request of our major shareholders (Elios Investments Inc.,
Advice Investments S.A. and Magic Management Inc.) following the
declaration of our $0.20 quarterly dividend per share in
September 2006, to receive their dividend payment in the form of
our common shares in lieu of cash. One of these shareholders,
Elios Investments Inc., is controlled by our Chairman and Chief
Executive Officer, Mr. George Economou. In addition, the
board of directors also agreed on that date to the request of a
company related to Mr. Economou to accept repayment of the
outstanding balance of a sellers credit in respect of a
vessel purchased by us (as discussed in Note 3(e) of our
consolidated financial statements included in our annual report
on
Form 20-F
for the fiscal year ended December 31, 2006) in our
common shares. As a result of the agreement, an aggregate of
$3,080,000 in dividends and the sellers credit together
with interest amounting to $3,327,000 were settled with 235,585
and 254,512 of our common shares, respectively. The price used
as consideration for issuance of the above common shares was
equal to the average closing price of our common stock on the
Nasdaq Global Select Market over the 8 trading days ended
October 24, 2006, which was $13.07 per share.
In December 2006, we filed a registration statement on
Form F-3
on behalf of our major shareholders registering for resale an
aggregate of 15,890,097 of our common shares.
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On October 5, 2007, we filed an automatic shelf
registration statement for an undetermined amount of securities,
including common shares, preferred shares, debt securities,
guarantees, warrants, purchase contracts and units.
In January 2008, following a special shareholders meeting, we
increased the aggregate number of authorized shares of our
common stock from 75,000,000 registered shares with par value of
$0.01 to 1,000,000,000 registered shares with a par value of
$0.01 and increased the aggregate number of authorized shares of
preferred stock from 30,000,000 registered shares, par value
$0.01 per share, to 500,000,000 registered preferred shares with
a par value of $0.01 per share.
In January 2008, entered into a stockholder rights agreement and
declared a dividend of one preferred share purchase right, or a
right, to purchase one one-thousandth of the our Series A
Participating Preferred Stock for each outstanding common share.
Each right entitles the registered holder, upon the occurrence
of certain events, to purchase from us one one-thousandth of a
share of Series A Participating Preferred Stock at a
purchase price of $250, subject to adjustment.
In March 2008, we filed a prospectus supplement relating to the
offer and sale of up to 6,000,000 common shares, par value $0.01
per share, pursuant to our controlled equity offering. In May
2008, we issued 1,109,903 common shares pursuant to that
prospectus supplement. The net proceeds, after underwriting
commissions and other issuance fees, amounted to
$101.6 million.
On October 21, 2008, we filed a prospectus supplement
pursuant to our controlled equity offering for the sale of up to
4,940,097 common shares, pursuant to which we sold
2,069,700 shares. The net proceeds of this offering
amounted to $41.9 million.
On November 6, 2008, we filed a prospectus supplement
pursuant to our controlled equity offering for the sale of up to
25,000,000 common shares, pursuant to which we sold
24,980,300 shares. The net proceeds of this offering
amounted to $167.1 million.
On January 28, 2009, we entered into an ATM Equity Sales
Agreement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated and we filed a related prospectus supplement
relating to the offer and sale of up to $500 million of our
common shares, pursuant to which we sold 71,265,000 shares
through March 26, 2009. The net proceeds of this offering
were $370.5 million after commissions.
On March 19, 2009, we issued a total of 11,990,405 common
shares to the nominees of Central Mare Inc. in connection with
the disposal of three newbuilding Capesize vessels.
On April 2, 2009, we filed a prospectus supplement pursuant
to our controlled equity offering for the sale of the remaining
amount of $119,966,000 of common shares. We issued
24,404,595 shares of common stock with par value $0.01 per
share. The net proceeds of this offering amounted to
$116,949,000 after commissions.
On May 7, 2009, we filed a prospectus supplement pursuant
to our controlled equity offering for the sale of up to
$475 million of common shares, pursuant to which we sold
69,385,000 shares. The net proceeds of this offering
amounted to $464.9 million after commissions.
On July 9, 2009, we entered into an agreement with entities
affiliated with our Chairman and Chief Executive Officer to
acquire the remaining 25% of the total issued and outstanding
capital stock of Ocean Rig UDW. The consideration paid for the
25% interest in Ocean Rig UDW consisted of a one-time
$50 million cash payment upon the closing of the
transaction, and the issuance of 52,238,806 shares of
Series A Convertible Preferred Stock with an aggregate face
value of $280 million. The holders of our Series A
Convertible Preferred Stock have demand Registration Rights
exercisable at anytime.
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On November 25, 2009, we issued $460 million aggregate
principal amount of our 5.00% Convertible Senior Notes due
December 1, 2014, resulting in net proceeds of
$447.8 million. Concurrently with that offering, we offered
up to 26,100,000 common shares to loan Deutsche Bank AG, London
Branch pursuant to a share lending agreement.
As of April 6, 2010, we had 284,826,871 common shares and
52,238,806 Series A Convertible Preferred Shares issued and
outstanding including the 26,100,000 common shares outstanding
under the share lending agreement with Deutsche Bank AG, London
Branch.
Description of
Common Stock
Each outstanding share of common stock entitles the holder to
one vote on all matters submitted to a vote of stockholders.
Subject to preferences that may be applicable to any outstanding
shares of preferred stock, holders of shares of common stock are
entitled to receive ratably all dividends, if any, declared by
our board of directors out of funds legally available for
dividends. Holders of common stock do not have conversion,
redemption or preemptive rights to subscribe to any of our
securities. All outstanding shares of common stock are, and the
shares to be sold in this offering when issued and paid for will
be, fully paid and non-assessable. The rights, preferences and
privileges of holders of common stock are subject to the rights
of the holders of any shares of preferred stock which we may
issue in the future. Our common stock is listed on the Nasdaq
Global Select Market under the symbol DRYS.
Our Articles of
Incorporation and Bylaws
Our purpose, as stated in Section B of our Articles of
Incorporation, is to engage in any lawful act or activity for
which corporations may now or hereafter be organized under the
Marshall Islands Business Corporations Act. Our articles of
incorporation and bylaws do not impose any limitations on the
ownership rights of our shareholders.
Directors
Our directors are elected by a plurality of the votes cast by
stockholders entitled to vote in an election. Our articles of
incorporation provide that cumulative voting shall not be used
to elect directors. Our board of directors must consist of at
least three members. The exact number of directors is fixed by a
vote of at least
662/3%
of the entire board. Our by laws provide for a staggered board
of directors whereby directors shall be divided into three
classes: Class A, Class B and Class C which shall
be as nearly equal in number as possible. Shareholders, acting
at a duly constituted meeting, or by unanimous written consent
of all shareholders, initially designated directors as
Class A, Class B or Class C. Class A
directors serve for a term expiring at the 2011 annual meeting
of shareholders. Directors designated as Class B directors
served for a term expiring at the 2012 annual meeting. Directors
designated Class C directors served for a term expiring at
the 2010 annual meeting. At annual meetings for each initial
term, directors to replace those whose terms expire at such
annual meetings will be elected to hold office until the third
succeeding annual meeting. Each director serves his respective
term of office until his successor has been elected and
qualified, except in the event of his death, resignation,
removal or the earlier termination of his term of office. Our
board of directors has the authority to fix the amounts which
shall be payable to the members of the board of directors for
attendance at any meeting or for services rendered to us.
Stockholder
Meetings
Under our bylaws, annual stockholder meetings will be held at a
time and place selected by our board of directors. The meetings
may be held in or outside of the Marshall Islands. Special
meetings may be called by the board of directors, chairman of
the board or by the
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president. Our board of directors may set a record date between
15 and 60 days before the date of any meeting to determine
the stockholders that will be eligible to receive notice and
vote at the meeting.
Dissenters
Rights of Appraisal and Payment
Under the BCA, our stockholders have the right to dissent from
various corporate actions, including any merger or
consolidation, sale of all or substantially all of our assets
not made in the usual course of our business, and receive
payment of the fair value of their shares. In the event of any
further amendment of our amended and restated articles of
incorporation, a stockholder also has the right to dissent and
receive payment for his or her shares if the amendment alters
certain rights in respect of those shares. The dissenting
stockholder must follow the procedures set forth in the BCA to
receive payment. In the event that we and any dissenting
stockholder fail to agree on a price for the shares, the BCA
procedures involve, among other things, the institution of
proceedings in the high court of the Republic of the Marshall
Islands or in any appropriate court in any jurisdiction in which
our shares are primarily traded on a local or national
securities exchange.
Stockholders
Derivative Actions
Under the BCA, any of our stockholders may bring an action in
our name to procure a judgment in our favor, also known as a
derivative action, provided that the stockholder bringing the
action is a holder of common stock both at the time the
derivative action is commenced and at the time of the
transaction to which the action relates.
Indemnification
of Officers and Directors
Our bylaws includes a provision that entitles any director or
officer of the Corporation to be indemnified by the Corporation
upon the same terms, under the same conditions and to the same
extent as authorized by the BCA if he acted in good faith and in
a manner reasonably believed to be in and not opposed to the
best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
We are also authorized to carry directors and
officers insurance as a protection against any liability
asserted against our directors and officers acting in their
capacity as directors and officers regardless of whether we
would have the power to indemnify such director or officer
against such liability by law or under the provisions of our by
laws. We believe that these indemnification provisions and
insurance are useful to attract and retain qualified directors
and executive officers.
The indemnification provisions in our bylaws may discourage
stockholders from bringing a lawsuit against directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
Anti-takeover
Provisions of our Charter Documents
Several provisions of our articles of incorporation and by-laws
may have anti-takeover effects. These provisions are intended to
avoid costly takeover battles, lessen our vulnerability to a
hostile change of control and enhance the ability of our board
of directors to maximize stockholder value in connection with
any unsolicited offer to acquire us. However, these
anti-takeover provisions, which are summarized below, could also
discourage, delay or prevent (1) the merger or acquisition
of our company by means of a tender offer, a proxy contest or
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otherwise, that a stockholder may consider in its best interest
and (2) the removal of incumbent officers and directors.
Blank Check
Preferred Stock
Under the terms of our articles of incorporation, our board of
directors has authority, without any further vote or action by
our stockholders, to issue up to 447,761,194 shares of
blank check preferred stock. Our board of directors may issue
shares of preferred stock on terms calculated to discourage,
delay or prevent a change of control of our company or the
removal of our management.
Classified Board
of Directors
Our articles of incorporation provide for a board of directors
serving staggered, three-year terms. Approximately one-third of
our board of directors will be elected each year. The classified
board provision could discourage a third party from making a
tender offer for our shares or attempting to obtain control of
our company. It could also delay stockholders who do not agree
with the policies of the board of directors from removing a
majority of the board of directors for two years.
Stockholder
Rights Agreement
Each right entitles the registered holder, upon the occurrence
of certain events, to purchase from us one one-thousandth of a
share of our Series A Participating Preferred Stock for
each outstanding common share at a purchase price of $250,
subject to adjustment. The rights are issued pursuant to a
rights agreement between us and American Stock
Transfer & Trust Company, as rights agent. Until
a right is exercised, the holder of a right will have no rights
to vote or receive dividends or any other stockholder rights.
The rights may have anti-takeover effects. The rights will cause
substantial dilution to any person or group that attempts to
acquire us without the approval of our board of directors. As a
result, the overall effect of the rights may be to render more
difficult or discourage any attempt to acquire us. Because our
board of directors can approve a redemption of the rights or a
permitted offer, the rights should not interfere with a merger
or other business combination approved by our board of
directors. The adoption of the rights agreement was approved by
our existing stockholders prior to the offering.
Election and
Removal of Directors
Our articles of incorporation prohibit cumulative voting in the
election of directors. Our by-laws require shareholders to give
advance written notice of nominations for the election of
directors. Our by-laws also provide that our directors may be
removed only for cause and only upon affirmative vote of the
holders of at least
662/3%
of outstanding voting shares. These provisions may discourage,
delay or prevent the removal of incumbent officers and directors.
Limited Actions
by Stockholders
Our by-laws provide that if a quorum is present, and except as
otherwise expressly provided by law, the affirmative vote of a
majority of the shares of stock represented at the meeting shall
be the act of the shareholders. Shareholders may act by way of
written consent in accordance with the provisions of
Section 67 of the BCA.
Advance Notice
Requirements for Shareholder Proposals and Director
Nominations
Our bylaws provide that shareholders seeking to nominate
candidates for election as directors or to bring business before
an annual meeting of shareholders must provide timely
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notice of their proposal in writing to the corporate secretary.
Generally, to be timely, a shareholders notice must be
received at our principal executive offices not less than
150 days nor more than 180 days prior to the one year
anniversary of the preceding years annual meeting. Our
bylaws also specify requirements as to the form and content of a
shareholders notice. These provisions may impede
shareholders ability to bring matters before an annual
meeting of shareholders or make nominations for directors at an
annual meeting of shareholders.
Dividends
In light of a lower freight rate environment and a highly
challenged financing environment, our board of directors,
beginning with the fourth quarter of 2008, suspended our common
share dividend. Our dividend policy will be assessed by the
board of directors from time to time. The suspension allows us
to preserve capital and use the preserved capital to capitalize
on market opportunities as they may arise. Until market
conditions improve, it is unlikely that we will reinstate the
payment of dividends. In addition, other external factors, such
as our lenders imposing restrictions on our ability to pay
dividends under the terms of our loan agreements, may limit our
ability to pay dividends. Further, we may not be permitted to
pay dividends if we are in breach of the covenants contained in
our loan agreements. In addition, the waivers of our
non-compliance with covenants in our loan agreements that we
received from our lenders may prohibit us from paying our
dividends.
Declaration and payment of any dividend is subject to the
discretion of our board of directors. The timing and amount of
dividend payments will be dependent upon our earnings, financial
condition, cash requirements and availability, restrictions in
our loan agreements, the terms of the debt securities we offer,
the provisions of applicable law affecting the payment of
distributions to shareholders and other factors. Because we are
a holding company with no material assets other than the stock
of our subsidiaries, our ability to pay dividends will depend on
the earnings and cash flow of our subsidiaries and their ability
to pay dividends to us. The laws governing us and our
subsidiaries generally prohibit the payment of dividends other
than from surplus or while a company is insolvent or would be
rendered insolvent.
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TAXATION
The following discussion summarizes the material
U.S. federal income tax and Marshall Islands tax
consequences to U.S. Holders and
Non-U.S. Holders
(as defined below) of the purchase, ownership and disposition of
our common stock. This summary does not purport to deal with all
aspects of U.S. federal income taxation or Marshall Islands
taxation that may be relevant to an investors decision to
purchase common stock, nor any tax consequences arising under
the laws of any state, locality or other foreign jurisdiction.
This summary is not intended to be applicable to all categories
of investors, such as dealers in securities, banks, thrifts or
other financial institutions, insurance companies, regulated
investment companies, tax-exempt organizations,
U.S. expatriates, persons that hold the common stock as
part of a straddle, conversion transaction or hedge, persons who
own 10% or more of our outstanding stock, persons deemed to sell
the common stock under the constructive sale provisions of the
U.S. Internal Revenue Code of 1986, as amended, or the
Code, a U.S. Holder (as defined below) whose
functional currency is other than the
U.S. dollar, or holders subject to the alternative minimum
tax, each of which may be subject to special rules. In addition,
this discussion is limited to persons who acquire the common
stock as part of this offering hold the common stock as
capital assets (generally, property held for
investment) within the meaning of Code Section 1221.
If an entity treated as a partnership for U.S. federal
income tax purposes holds the common stock, the
U.S. federal income tax treatment of a partner will
generally depend upon the status of the partner and upon the
activities of the partnership. Partnerships holding the common
stock and partners in such partnerships are encouraged to
consult their own tax advisors.
U.S. Federal
Income Tax Considerations
In the opinion of Seward & Kissel LLP, our
U.S. counsel, the following are the material
U.S. federal income tax consequences to us of our
activities and to U.S. Holders and
Non-U.S. Holders
(both as defined below) of our common stock. The following
discussion of U.S. federal income tax matters is based on
the Code, judicial decisions, administrative pronouncements, and
existing and proposed regulations issued by the
U.S. Department of the Treasury, all of which are subject
to change, possibly with retroactive effect. Except as otherwise
noted, this discussion is based on the assumption that we will
not maintain an office or other fixed place of business within
the United States. References in the following discussion to
we and us are to DryShips Inc. and its
subsidiaries on a consolidated basis.
PROSPECTIVE PURCHASERS OF THE COMMON STOCK ARE ENCOURAGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES FEDERAL,
STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE COMMON STOCK.
Taxation of the
Companys Shipping Income
In
General
Unless exempt from U.S. federal income taxation under the
rules discussed below, a foreign corporation is subject to
U.S. federal income taxation in respect of any income that
is derived from the use of vessels, from the hiring or leasing
of vessels for use on a time, voyage or bareboat charter basis,
from the participation in a pool, partnership, strategic
alliance, joint operating agreement, code sharing arrangements
or other joint venture it directly or indirectly owns or
participates in that generates such income, or from the
performance of services directly related to those uses, which we
refer to as shipping income, to the extent that the
shipping income is derived from sources within the United
States. Shipping income includes income derived both from
vessels which are owned by a foreign corporation as well as
those
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vessels that are chartered in by a foreign corporation. For
these purposes, 50% of shipping income that is attributable to
transportation that begins or ends, but that does not both begin
and end, in the United States constitutes income from sources
within the United States, which we refer to as
U.S.-source
shipping income.
Shipping income attributable to transportation that both begins
and ends in the United States is considered to be 100% from
sources within the United States. We are not permitted by law to
engage in transportation that produces income which is
considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively
between
non-U.S. ports
will be considered to be 100% derived from sources outside the
United States. Shipping income derived from sources outside the
United States will not be subject to any U.S. federal
income tax.
In the absence of exemption from tax under Code
Section 883, our gross
U.S.-source
shipping income would be subject to a 4% tax imposed without
allowance for deductions as described below.
Exemption of
Operating Income from U.S. Federal Income Taxation
Under Code Section 883 and the regulations thereunder, we
will be exempt from U.S. federal income taxation on our
U.S.-source
shipping income if:
(1) we are organized in a foreign country (our
country of organization) that grants an
equivalent exemption to corporations organized in
the United States; and
(2) either
(A) more than 50% of the value of our stock is owned,
directly or indirectly, by individuals who are
residents of our country of organization or of
another foreign country that grants an equivalent
exemption to corporations organized in the United States,
which we refer to as the 50% Ownership Test, or
(B) our stock is primarily and regularly traded on an
established securities market in our country of
organization, in another country that grants an equivalent
exemption to United States corporations, or in the United
States, which we refer to as the Publicly-Traded
Test.
The Marshall Islands, the jurisdiction where we and our
ship-owning subsidiaries are incorporated, has been formally
recognized by the Internal Revenue Service, IRS, as a foreign
country that grants an equivalent exemption to
United States corporations. Therefore, we will be exempt from
United States federal income taxation with respect to our
U.S. source shipping income if we satisfy either the 50%
Ownership Test or the Publicly-Traded Test.
Due to the widely-held ownership of our stock, we do not
anticipate being able to satisfy the 50% Ownership Test. Our
ability to satisfy the Publicly-Traded Test is discussed below.
The regulations provide, in pertinent part, that stock of a
foreign corporation will be considered to be primarily
traded on an established securities market if the number
of shares of each class of stock that are traded during any
taxable year on all established securities markets in that
country exceeds the number of shares in each such class that are
traded during that year on established securities markets in any
other single country. Our common stock, which is our sole class
of our issued and outstanding stock, is currently
primarily traded on the Nasdaq Global Select Market.
Under the regulations, our stock will be considered to be
regularly traded on an established securities market
if one or more classes of our stock representing more than 50%
of our outstanding shares, by total combined voting power of all
classes of stock entitled to
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vote and total value, is listed on the market which we refer to
as the listing threshold. Since our common stock, our sole class
of stock, is listed on the Nasdaq Global Select Market, we will
satisfy the listing requirement.
It is further required that with respect to each class of stock
relied upon to meet the listing threshold (i) such class of
the stock is traded on the market, other than in minimal
quantities, on at least 60 days during the taxable year or
1/6
of the days in a short taxable year; and (ii) the aggregate
number of shares of such class of stock traded on such market is
at least 10% of the average number of shares of such class of
stock outstanding during such year or as appropriately adjusted
in the case of a short taxable year. We believe we currently
satisfy and will continue to satisfy the trading frequency and
trading volume tests. Even if this were not the case, the
regulations provide that the trading frequency and trading
volume tests will be deemed satisfied by a class of stock if, as
is the case with our common stock, such class of stock is traded
on an established securities market in the United States and
such class of stock is regularly quoted by dealers making a
market in such stock.
Notwithstanding the foregoing, the regulations provide, in
pertinent part, our common stock will not be considered to be
regularly traded on an established securities market
for any taxable year in which 50% or more of the outstanding
shares of our common stock are owned, actually or constructively
under specified stock attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more
of our common stock, which we refer to as the
5 Percent Override Rule.
For purposes of being able to determine the persons who own 5%
or more of our stock, or 5% Stockholders, the
regulations permit us to rely on Schedule 13G and
Schedule 13D filings with the United States Securities and
Exchange Commission, or the SEC, to identify persons who have a
5% or more beneficial interest in our common stock. The
regulations further provide that an investment company which is
registered under the Investment Company Act of 1940, as amended,
will not be treated as a 5% Stockholder for such purposes.
If 5% Stockholders were to come to own 50% or more of our common
stock, we would be subject to the 5% Override Rule unless we
were able to establish that among the closely-held group of 5%
Stockholders, there are sufficient 5% Stockholders that are
qualified stockholders for purposes of Section 883 to
preclude non-qualified 5% Stockholders in the closely-held group
from owning 50% or more of each class of our stock for more than
half the number of days during the taxable year. In order to be
a qualifying stockholder under section 883, a stockholder
must be a resident of a qualifying foreign country, may not own
its interest in the corporation in the form of bearer shares,
and must comply with certain documentation and reporting
requirements designed to substantiate its identity as a
qualified stockholder. These documentation and reporting
requirements are onerous and we may not be able to satisfy them.
Taxation in
Absence of Exemption
To the extent the benefits of Section 883 are unavailable,
our U.S. source shipping income, to the extent not
considered to be effectively connected with the
conduct of a U.S. trade or business, as described below,
would be subject to a 4% tax imposed by Section 887 of the
Code on a gross basis, without the benefit of deductions. Since
under the sourcing rules described above, no more than 50% of
our shipping income would be treated as being derived from
U.S. sources, the maximum effective rate of
U.S. federal income tax on our shipping income would never
exceed 2% (i.e., 50% of 4%) of gross shipping income under the
4% gross basis tax regime.
To the extent the benefits of the Section 883 exemption are
unavailable and our
U.S.-source
shipping income is considered to be effectively
connected with the conduct of a U.S. trade or
business, as described below, any such effectively
connected
U.S.-source
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shipping income, net of applicable deductions, would be subject
to the U.S. federal corporate income tax currently imposed
at rates of up to 35%. In addition, we may be subject to the 30%
branch profits tax on earnings effectively connected
with the conduct of such trade or business, as determined after
allowance for certain adjustments, and on certain interest paid
or deemed paid attributable to the conduct of its
U.S. trade or business.
Our
U.S.-source
shipping income would be considered effectively
connected with the conduct of a U.S. trade or
business only if:
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We have, or are considered to have, a fixed place of business in
the United States involved in the earning of shipping
income; and
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Substantially all of our
U.S.-source
shipping income is attributable to regularly scheduled
transportation, such as the operation of a tanker that follows a
published schedule with repeated sailings at regular intervals
between the same points for voyages that begin or end in the
United States.
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We do not intend to have, or permit circumstances that would
result in having any tanker operating to the United States on a
regularly scheduled basis. Based on the foregoing and on the
expected mode of our shipping operations and other activities,
we believe that none of our
U.S.-source
shipping income will be effectively connected with
the conduct of a U.S. trade or business.
United States
Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for the benefits of
Section 883, we will not be subject to U.S. federal
income taxation with respect to gain realized on a sale of a
vessel, provided the sale is considered to occur outside of the
United States under U.S. federal income tax principles. In
general, a sale of a vessel will be considered to occur outside
of the United States for this purpose if title to the vessel,
and risk of loss with respect to the vessel, pass to the buyer
outside of the United States. It is expected that any sale of a
vessel by us will be considered to occur outside of the United
States.
U.S. Taxation of
Our Other Income
In addition to our shipping operations, we provide drilling
services to third parties on the U.S. Outer Continental
Shelf through our indirect wholly-owned subsidiary, Ocean Rig
USA LLC. Ocean Rig USA LLC is engaged in a trade or business in
the United States. Therefore, Ocean Rig USA LLC is subject to
U.S. federal income tax on a net basis on its taxable
income. The amount of such taxable income and such
U.S. federal income tax liability will vary depending upon
the level of Ocean Rig USA LLCs operations in the United
States in any given taxable year. Distributions from Ocean Rig
USA LLC to our subsidiary that owns the interests in Ocean Rig
USA LLC may be subject to U.S. federal withholding tax at a
30% rate.
U.S. Federal
Income Taxation of U.S. Holders
As used in this section, a U.S. Holder is a
beneficial owner of common stock that is, for U.S. federal
income tax purposes: (1) an individual citizen or resident
alien of the United States, (2) a corporation or other
entity that is taxable as a corporation, created or organized
under the laws of the United States or any state or political
subdivision thereof (including the District of Columbia),
(3) an estate, the income of which is subject to
U.S. federal income taxation regardless of its source, or
(4) a trust, if a U.S. court can exercise primary
supervision over the administration of such trust and one or
more U.S. persons has the authority to control all
substantial decisions of the trust.
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Taxation of
Distributions on Common Stock
Subject to the discussion below under Passive Foreign
Investment Company Status and Significant Tax
Consequences, distributions, if any, paid on our common
stock generally will be includable in a U.S. Holders
income as dividend income to the extent made from our current
and/or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess
of our earnings and profits will be treated first as a
nontaxable return of capital to the extent of the
U.S. Holders tax basis in his common stock on a
dollar-for-dollar
basis and thereafter as capital gain. Such distributions will
not be eligible for the dividends-received deduction, but may
qualify for taxation at preferential rates (for taxable years
beginning on or before December 31, 2010) in the case
of a U.S. Holder which is an individual, trust or estate,
provided that the common stock is traded on an established
securities market in the United States (such as the Nasdaq
Global Select Market on which our common stock is currently
traded) and such holder meets certain holding period and other
requirements and provided further that we do not constitute a
passive foreign investment company, as described below, for the
taxable year of the distribution or the immediately preceding
year. Legislation has been previously introduced in the
U.S. Congress which, if enacted in its present form, would
preclude our dividends from qualifying for such preferential
rates prospectively from the date of the enactment. Dividends
paid on our common stock will be income from sources outside the
United States and will generally constitute passive
category income or, in the case of certain
U.S. Holders, general category income for
U.S. foreign tax credit limitation purposes.
Sale, Exchange
or Other Disposition of Common Stock
Subject to the discussion below under Passive Foreign
Investment Company Status and Significant Tax
Consequences, upon the sale, exchange or other disposition
of common stock, a U.S. Holder generally will recognize
capital gain or capital loss equal to the difference between the
amount realized on such sale or exchange and such holders
adjusted tax basis in such common stock. U.S. Holders are
encouraged to consult their tax advisors regarding the treatment
of capital gains (which may be taxed at lower rates than
ordinary income for U.S. Holders who are individuals,
trusts or estates) and capital losses (the deductibility of
which is subject to limitations). A U.S. Holders gain
or loss will generally be treated (subject to certain
exceptions) as gain or loss from sources within the United
States for U.S. foreign tax credit limitation purposes.
Spin-off of
our subsidiary, Ocean Rig UDW
If we spin off the stock of our subsidiary, Ocean Rig UDW, to
our shareholders, depending on the manner in which the spin-off
is structured, the transaction may be treated as an in-kind
distribution with respect to our common stock, and as a result
as a taxable dividend to U.S. Holders of our common stock,
or otherwise as a transaction resulting in taxable gain for
U.S. Holders of our common stock, notwithstanding that cash
has not been received. See Risk FactorsCompany
Specific Risk FactorsThe spin-off of our subsidiary, Ocean
Rig UDW, may have adverse tax consequences to shareholders.
Passive
Foreign Investment Company Status and Significant Tax
Consequences
Special U.S. federal income tax rules apply to a
U.S. Holder that holds stock in a foreign corporation
classified as a passive foreign investment company for
U.S. federal income tax
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purposes. In general, we will be treated as a passive foreign
investment company with respect to a U.S. Holder if, for
any taxable year in which such holder held our common stock,
either:
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at least 75% of our gross income for such taxable year consists
of passive income (e.g., dividends, interest, capital gains and
rents derived other than in the active conduct of a rental
business); or
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at least 50% of the average value of the assets held by the
corporation during such taxable year produce, or are held for
the production of, passive income.
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For purposes of determining whether we are a passive foreign
investment company, we will be treated as earning and owning our
proportionate share of the income and assets, respectively, of
any of our subsidiary corporations in which we own at least 25%
of the value of the subsidiarys stock. Income earned, or
deemed earned, by us in connection with the performance of
services would not constitute passive income. By contrast,
rental income would generally constitute passive
income unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or
business.
Based on our current operations and future projections, we do
not believe that we are, nor do we expect to become, a passive
foreign investment company with respect to any taxable year.
Although there is no legal authority directly on point, and we
are not relying upon an opinion of counsel on this issue, our
belief is based principally on the position that, for purposes
of determining whether we are a passive foreign investment
company, the gross income we derive or are deemed to derive from
the time chartering and voyage chartering activities of our
wholly-owned subsidiaries should constitute services income,
rather than rental income. Correspondingly, such income should
not constitute passive income, and the assets that we or our
wholly-owned subsidiaries own and operate in connection with the
production of such income, in particular, the tankers, should
not constitute passive assets for purposes of determining
whether we are a passive foreign investment company. We believe
there is substantial legal authority supporting our position
consisting of case law and IRS pronouncements concerning the
characterization of income derived from time charters and voyage
charters as services income for other tax purposes. However,
there is also authority which characterizes time charter income
as rental income rather than services income for other tax
purposes. It should be noted that in the absence of any legal
authority specifically relating to the statutory provisions
governing passive foreign investment companies, the IRS or a
court could disagree with our position. In addition, although we
intend to conduct our affairs in a manner to avoid being
classified as a passive foreign investment company with respect
to any taxable year, we cannot assure you that the nature of our
operations will not change in the future.
As discussed more fully below, if we were to be treated as a
passive foreign investment company for any taxable year, a
U.S. Holder would be subject to different taxation rules
depending on whether the U.S. Holder makes an election to
treat us as a Qualified Electing Fund, which
election we refer to as a QEF election. As an
alternative to making a QEF election, a U.S. Holder should
be able to make a
mark-to-market
election with respect to our common stock, as discussed below.
Taxation of U.S.
Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which
U.S. Holder we refer to as an Electing Holder,
the Electing Holder must report each year for U.S. federal
income tax purposes its pro rata share of our ordinary earnings
and our net capital gain, if any, for our taxable year that ends
with or within the taxable year of the Electing Holder,
regardless of whether or not distributions were received from us
by the Electing Holder. The Electing Holders adjusted tax
basis in the common stock will be increased to reflect taxed but
undistributed earnings and profits. Distributions of earnings
and profits that had been previously taxed will result in a
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corresponding reduction in the adjusted tax basis in the common
stock and will not be taxed again once distributed. An Electing
Holder would generally recognize capital gain or loss on the
sale, exchange or other disposition of our common stock. A
U.S. Holder would make a QEF election with respect to any
year that our company is a passive foreign investment company by
filing IRS Form 8621 with its U.S. federal income tax
return. If we were aware that we were to be treated as a passive
foreign investment company for any taxable year, we would
provide each U.S. Holder with all necessary information in
order to make the QEF election described above.
Taxation of U.S.
Holders Making a
Mark-to-Market
Election
Alternatively, if we were to be treated as a passive foreign
investment company for any taxable year and, as we anticipate,
our stock is treated as marketable stock, a
U.S. Holder would be allowed to make a
mark-to-market
election with respect to our common stock, provided the
U.S. Holder completes and files IRS Form 8621 in
accordance with the relevant instructions and related Treasury
Regulations. If that election is made, the U.S. Holder
generally would include as ordinary income in each taxable year
the excess, if any, of the fair market value of the common stock
at the end of the taxable year over such holders adjusted
tax basis in the common stock. The U.S. Holder would also
be permitted an ordinary loss in respect of the excess, if any,
of the U.S. Holders adjusted tax basis in the common
stock over its fair market value at the end of the taxable year,
but only to the extent of the net amount previously included in
income as a result of the
mark-to-market
election. A U.S. Holders tax basis in its common
stock would be adjusted to reflect any such income or loss
amount. Gain realized on the sale, exchange or other disposition
of our common stock would be treated as ordinary income, and any
loss realized on the sale, exchange or other disposition of the
common stock would be treated as ordinary loss to the extent
that such loss does not exceed the net
mark-to-market
gains previously included by the U.S. Holder. Any
additional loss would be treated as a capital loss, subject to
generally applicable limitations under the Code.
Taxation of U.S.
Holders Not Making a Timely QEF or
Mark-to-Market
Election
Finally, if we were to be treated as a passive foreign
investment company for any taxable year, a U.S. Holder who
does not make either a QEF election or a
mark-to-market
election for that year, whom we refer to as a Non-Electing
Holder, would be subject to special rules with respect to
(1) any excess distribution (i.e., the portion of any
distributions received by the Non-Electing Holder on our common
stock in a taxable year in excess of 125 percent of the
average annual distributions received by the Non-Electing Holder
in the three preceding taxable years, or, if shorter, the
Non-Electing Holders holding period for the common stock),
and (2) any gain realized on the sale, exchange or other
disposition of our common stock. Under these special rules:
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the excess distribution or gain would be allocated ratably over
the Non-Electing Holders aggregate holding period for the
common stock;
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the amount allocated to the current taxable year and any taxable
year before we became a passive foreign investment company would
be taxed as ordinary income; and
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the amount allocated to each of the other taxable years would be
subject to tax at the highest rate of tax in effect for the
applicable class of taxpayer for that year, and an interest
charge for the deemed deferral benefit would be imposed with
respect to the resulting tax attributable to each such other
taxable year.
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These penalties would not apply to a pension or profit sharing
trust or other tax-exempt organization that did not borrow funds
or otherwise utilize leverage in connection with its acquisition
of our common stock. If a Non-Electing Holder who is an
individual dies while
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owning our common stock, such holders successor generally
would not receive a
step-up in
tax basis with respect to such stock.
U.S. Federal Tax
Consequences to
Non-U.S.
Holders
A
Non-U.S. Holder
is a beneficial owner of the common stock that is not a
U.S. Holder, as defined above. In general,
distributions on the common stock to a
Non-U.S. Holder
and gain realized by a
Non-U.S. Holder
on the sale, exchange, or redemption of the common stock, will
not be subject to U.S. federal income or withholding tax,
unless:
(1) such income is effectively connected with a trade or
business conducted by such
Non-U.S. Holder
in the United States (and, in the case of an applicable tax
treaty, is attributable to the
Non-U.S. Holders
permanent establishment in the United States), or
(2) in the case of gain, such
Non-U.S. Holder
is a nonresident alien individual who is present in the United
States for more than 182 days in the taxable year of the
sale of the common stock and certain other requirements are met.
Except as may otherwise be provided in an applicable income tax
treaty between the United States and a foreign country, a
Non-U.S. Holder
will generally be subject to tax in the same manner as a
U.S. Holder with respect to payments of dividends if such
payments are effectively connected with the conduct of a trade
or business by the
Non-U.S. Holder
in the United States. Such
Non-U.S. Holder
will be required to provide the withholding agent with a
properly executed IRS
Form W-8ECI.
In addition, if the
Non-U.S. Holder
is a corporation, such holder may be subject to a branch profits
tax at a 30% rate (or such lower rate as provided by an
applicable tax treaty) on its effectively connected earnings and
profits for the taxable year, subject to certain adjustments. A
Non-U.S. Holder
will not be considered to be engaged in a trade or business
within the United States for U.S. federal income tax
purposes solely by reason of holding the common stock.
Information
Reporting and Backup Withholding
Under certain circumstances, the Code requires information
reporting annually to the IRS and to each U.S. Holder
and
Non-U.S. Holder
(collectively, a Holder), and backup
withholding with respect to certain payments made on or
with respect to the common stock. Certain Holders are exempt
from backup withholding, including corporations, tax-exempt
organizations, qualified pension and profit sharing trusts, and
individual retirement accounts that provide a properly completed
IRS
Form W-9.
Backup withholding will apply to a non-exempt U.S. Holder
if such U.S. Holder (1) fails to furnish its Taxpayer
Identification Number, or TIN, which, for an individual would be
his or her Social Security Number, (2) furnishes an
incorrect TIN, (3) is notified by the IRS that it has
failed to properly report payments of interest and dividends, or
(4) under certain circumstances, fails to certify, under
penalties of perjury, that it has furnished a correct TIN and
has not been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
A
Non-U.S. Holder
which receives payments made on or with respect to the common
stock through the U.S. office of a broker, will not be
subject to either IRS reporting requirements or backup
withholding if such
Non-U.S. Holder
provides to the withholding agent either IRS
Form W-8BEN
or W-8IMY,
as applicable, together with all appropriate attachments, signed
under penalties of perjury, identifying the
Non-U.S. Holder
and stating that the
Non-U.S. Holder
is not a U.S. person.
The payment of the proceeds on the disposition of the common
stock to or through the U.S. office of a broker generally
will be subject to information reporting and backup withholding
unless the Holder provides the certification described above or
otherwise establishes an exemption from such reporting and
withholding requirements.
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Backup withholding is not an additional tax. Rather, the
U.S. federal income tax liability of persons subject to
backup withholding will be offset by the amount of tax withheld.
If backup withholding results in an overpayment of
U.S. federal income tax, a refund or credit may be obtained
from the IRS, provided that certain required information is
furnished in a timely manner. Copies of the information returns
reporting such interest and withholding may be made available to
the tax authorities in the country in which a
Non-U.S. Holder
is a resident under the provisions of an applicable income tax
treaty or agreement.
Marshall Islands
Tax Considerations
In the opinion of Seward & Kissel LLP, the following
are the material Marshall Islands tax consequences of our
activities to us and U.S. Holders and
Non-U.S. Holders
of the our common stock. We are incorporated in the Marshall
Islands. Under current Marshall Islands law, we are not subject
to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us
to our stockholders.
Other Tax
Considerations
In addition to the tax consequences discussed above, we may be
subject to tax in one or more other jurisdictions where we
conduct activities. The amount of any such tax imposed upon our
operations may be material.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF
U.S. FEDERAL AND MARSHALL ISLANDS INCOME TAXATION THAT MAY
BE RELEVANT TO YOU IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.
YOU ARE ENCOURAGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO YOU OF ACQUIRING, HOLDING,
CONVERTING OR OTHERWISE DISPOSING OF THE NOTES AND
SHARES OF OUR COMMON STOCK.
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UNDERWRITING
The borrowed shares of our common stock being offered by this
prospectus supplement and the accompanying prospectus are shares
that we have agreed to loan to the share borrower pursuant to
the share lending agreement. We have entered into an
underwriting agreement, to be filed as an exhibit relating to
this prospectus supplement, with Deutsche Bank Securities Inc.
and the share borrower with respect to this offering.
The borrowed shares of our common stock may be offered for sale
in transactions, including block sales, on the Nasdaq Global
Select Market, in the
over-the-counter
market, in negotiated transactions or otherwise. The shares
initially borrowed by the share borrower will initially be
offered at $ per share. After the
initial offering of these borrowed shares, the offering price
and other selling terms may from time to time be varied by the
underwriter. Any subsequently borrowed shares will subsequently
be sold at prevailing market prices at the time of sale or at
negotiated prices.
Deutsche Bank Securities Inc. has informed us that it, or its
affiliates, intend to use the short position created by the
share loan and the concurrent short sale of the borrowed shares
to facilitate transactions by which investors in our convertible
notes may hedge their investments. Deutsche Bank Securities Inc.
will determine the offering price of up to approximately
10,000,000 of the borrowed shares of common stock offered
pursuant to this prospectus supplement and the accompanying
prospectus by initially soliciting indications of interest from
potential purchasers of our common stock and conducting
customary negotiations with those potential purchasers during
the offering period. The underwriters have informed us that
these potential purchasers will not include investors in our
convertible notes. The price at which investors in our
convertible notes establish their short positions through
Deutsche Bank Securities Inc. or its affiliates will be the
offering price of the borrowed shares of our common stock
offered hereby. As a result, during the offering period, while
Deutsche Bank Securities Inc. or its affiliates will negotiate a
purchase price with purchasers of our common stock, and will
solicit indications of interest, based on the purchase price
being negotiated with those potential purchasers, from note
investors seeking to establish a short position in our common
stock, Deutsche Bank Securities Inc. or its affiliates will
establish a clearing price for a number of borrowed
shares at which both purchasers of our common stock are willing
to purchase borrowed shares offered hereby and investors in our
convertible notes are willing to establish short positions. The
clearing price will be the offering price hereunder, and may be
at a discount to the market price of our common stock at the
time the offering is commenced.
In addition, in connection with facilitating such transactions,
Deutsche Bank Securities Inc. or its affiliates expects to
receive customary negotiated fees from investors in our
convertible notes, which may be deemed to be underwriters
compensation. Deutsche Bank Securities Inc. or its affiliates
may engage in such transactions at any time and from time to
time during the term of the share lending agreement in share
amounts to be determined by the share borrowers and such
affiliates.
To the extent that fewer than 10,000,000 shares are sold
concurrently with the offering of the convertible notes, the
share borrower may from time to time borrow additional shares
from us for additional offerings that may be made from time to
time. We refer to these shares as the supplemental
borrowed shares. Following the initial sale of borrowed
shares of our common stock pursuant to this offering, Deutsche
Bank Securities Inc. or its affiliates will sell, from time to
time, the supplemental borrowed shares in transactions,
including block sales, on the Nasdaq Global Select Market, in
the
over-the-counter
market, in negotiated transactions or otherwise. These
supplemental borrowed shares will be sold at market prices
prevailing at the time of sale or at negotiated prices. In
connection with the sale of these supplemental borrowed shares,
Deutsche Bank Securities Inc. or its affiliates may effect such
transactions by selling the shares to or through dealers, and
these dealers may receive compensation in the
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form of discounts, concessions or commissions from forward
counterparties
and/or from
purchasers of shares for whom the dealers may act as agents or
to whom they may sell as principals. Over the same period that
Deutsche Bank Securities Inc. or its affiliates sells these
supplemental borrowed shares, it or its affiliates may, in their
discretion, purchase at least an equal number of shares of our
common stock on the open market. Deutsche Bank Securities Inc.
or its affiliates may from time to time purchase shares of our
common stock in the market and use such shares, including shares
purchased in connection with the sale of the supplemental
borrowed shares, to facilitate transactions by which investors
in our convertible notes may hedge their investments. See
Description of Share Lending Agreement and Concurrent
Offering of Our Convertible Notes above.
These purchases may have the effect of raising or maintaining
the market price of our shares or preventing or retarding a
decline in the market price of our shares. As a result, the
price of our shares may be higher than the price that might
otherwise exist in the open market. These purchases may be
effected on the Nasdaq Global Select Market or otherwise and, if
commenced, may be discontinued at any time. The share borrowers
and their affiliates may from time to time purchase shares in
the market and use such shares, including shares purchased
contemporaneously with the sale of the supplemental borrowed
shares, to facilitate transactions by which investors in the
notes may hedge their investments in the notes.
We will not receive any proceeds from the sale of borrowed
shares of our common stock pursuant to this prospectus
supplement and accompanying prospectus, but we will receive a
nominal lending fee for their use from the share borrower as
described below.
Under the share lending agreement, we will receive a fee of
$0.01 per share from the share borrower for the use of the
borrowed shares. The expenses for this offering and the
concurrent offering of our convertible notes are estimated to be
$ (excluding underwriting
discounts and commissions payable in connection with the
concurrent offering of our convertible notes).
We and the underwriter have agreed to indemnify each other
against certain liabilities, including liabilities under the
Securities Act.
Our shares of common stock are listed on the Nasdaq Global
Select Market under the symbol DRYS.
We cannot assure you that prices at which our shares sell in the
public market after this offering will not be lower than the
offering price.
We and our Chief Executive Officer have agreed neither we nor he
and his affiliates will offer, sell, contract to sell or
otherwise dispose of, or enter into any transaction that is
designed to, or could be expected to, result in the disposition
of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of
our common stock or derivatives of our common stock or common
stock issuable upon exercise of options or warrants for a period
of 60 days after the date of this prospectus supplement
without the prior written consent of Deutsche Bank Securities
Inc. This consent may be given at any time without public notice.
Deutsche Bank Securities Inc. and its affiliates have provided
in the past and may in the future provide, various investment
banking, commercial banking and other financial services for us
for which they have received and may continue to receive
customary fees. In particular, affiliates of Deutsche Bank
Securities Inc. are lenders under certain of our credit
facilities. Because the share borrower, an affiliate of Deutsche
Bank Securities Inc., is receiving all of the proceeds of this
offering, this offering is being conducted in accordance with
NASD Rule 2720(a) of the Financial Industry Regulatory
Authority, or FINRA. Because a bona fide public market exists
for our common stock, FINRA does not require that we use a
qualified independent underwriter for this offering.
S-49
The underwriter may engage in over-allotment, stabilizing
transactions, covering transactions and passive market making in
accordance with Regulation M under the Exchange Act.
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Over-allotment transactions involve sales in excess of the
offering size, which creates a syndicate short position.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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Covering transactions involve purchases of shares in the open
market after the distribution has been completed in order to
cover syndicate short positions.
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In passive market making, market makers in the shares who are
underwriters or prospective underwriters may, subject to
limitations, make bids for or purchase shares until the time, if
any, at which a stabilization bid is made.
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Notice to
Prospective Investors in European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) an offer of the shares
to the public may not be made in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that an offer to the public in
that Relevant Member State of any shares may be made at any time
under the following exemptions under the Prospectus Directive if
they have been implemented in the Relevant Member State:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts; or
(c) in any other circumstances falling within
Article 3(2) of the Prospectus Directive;
provided that no such offer of shares shall result in a
requirement for the publication by us or any underwriter of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
For the purposes of this provision, the expression an
offer to the public in any Relevant Member State
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe the securities, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State.
Notice to
Prospective Investors in United Kingdom
The underwriter acknowledges and agrees that:
(i) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with
S-50
the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to the us; and
(ii) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons). The
shares are only available to, and any invitation, offer or
agreement to subscribe, purchase or otherwise acquire such
shares will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on
this document or any of its contents.
Notice to
Prospective Investors in Switzerland
This document, as well as any other material relating to the
borrowed shares which are the subject of the offering
contemplated by this prospectus supplement, does not constitute
an issue prospectus pursuant to Article 652a of the Swiss
Code of Obligations. The borrowed shares will not be listed on
the SWX Swiss Exchange and, therefore, the documents relating to
the borrowed shares, including, but not limited to, this
document, do not claim to comply with the disclosure standards
of the listing rules of SWX Swiss Exchange and corresponding
prospectus schemes annexed to the listing rules of the SWX Swiss
Exchange. The borrowed shares are being offered in Switzerland
by way of a private placement, i.e., to a small number of
selected investors only, without any public offer and only to
investors who do not purchase the borrowed shares with the
intention to distribute them to the public. The investors will
be individually approached by us from time to time. This
document, as well as any other material relating to the borrowed
shares, is personal and confidential and does not constitute an
offer to any other person. This document may only be used by
those investors to whom it has been handed out in connection
with the offering described herein and may neither directly nor
indirectly be distributed or made available to other persons
without our express consent. It may not be used in connection
with any other offer and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
Prospective Investors in France
Neither this prospectus supplement nor any other offering
material relating to the borrowed shares of common stock
described in this prospectus supplement has been submitted to
the clearance procedures of the Autorité des Marchés
Financiers or by the competent authority of another member state
of the European Economic Area and notified to the Autorité
des Marchés Financiers. The borrowed shares have not been
offered or sold and will not be offered or sold, directly or
indirectly, to the public in France. Neither this prospectus
supplement nor any other offering material relating to the
borrowed shares has been or will be:
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released, issued, distributed or caused to be released, issued
or distributed to the public in France; or
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used in connection with any offer for subscription or sale of
the borrowed shares to the public in France.
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Such offers, sales and distributions will be made in France only:
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to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as
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defined in, and in accordance with,
Article L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier;
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to investment services providers authorized to engage in
portfolio management on behalf of third parties; or
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in a transaction that, in accordance with article
L.41l-2-II-l°-or-2°-or
3° of the French Code monétaire et financier
and
article 211-2
of the General Regulations (Règlement
Général) of the Autorité des Marchés
Financiers, does not constitute a public offer (appel public
à lépargne).
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The borrowed shares may be resold directly or indirectly, only
in compliance with
Articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier.
Other
Relationships
The underwriter and its affiliates may have provided in the past
and may in the future provide, various investment banking,
commercial banking and other financial services for us for which
they have received and may continue to receive customary fees.
In particular, affiliates of Deutsche Bank Securities Inc. are
lenders under certain of our credit facilities.
S-52
LEGAL
MATTERS
Certain legal matters in connection with the sale of the common
shares offered hereby are being passed upon for us by
Seward & Kissel LLP, New York, New York. The
underwriter is being represented by Morgan, Lewis &
Bockius LLP, New York, New York. The underwriters special
counsel is Cleary Gottlieb Steen & Hamilton LLP.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated financial statements, and the related financial
statement schedule of DryShips Inc. and its subsidiaries (the
Company), incorporated into this prospectus
supplement by reference from the Companys Annual Report on
Form 20-F
for the year ended December 31, 2009 (the Annual
Report) and the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2009, except Ocean Rig UDW and its
subsidiaries for the year ended December 31, 2009 and Ocean
Rig and its subsidiaries, prior to the allocation of the
Companys purchase price to the net assets of Ocean Rig and
its subsidiaries for the period May 15, 2008 to
December 31, 2008, have been audited by Deloitte.
Hadjipavlou Sofianos & Cambanis S.A., an independent
registered public accounting firm, as stated in its reports
(which reports: (1) express an unqualified opinion on the
consolidated financial statements and financial statement
schedule and include an explanatory paragraph regarding
substantial doubt about the Companys ability to continue
as a going concern and (2) express an unqualified opinion
on the effectiveness of internal control over financial
reporting), which are incorporated herein by reference.
The consolidated financial statements of Ocean Rig UDW and its
subsidiaries for the year ended December 31, 2009 (not
presented separately in the Companys Annual Report) and
the effectiveness of the internal controls of Ocean Rig UDW and
its subsidiaries over financial reporting as of
December 31, 2009, have been audited by Ernst &
Young AS, independent public accounting firm, as set forth in
its reports thereon (which contain an explanatory paragraph
regarding substantial doubt about the ability of Ocean Rig UDW
and its subsidiaries to continue as a going concern), included
therein, and incorporated herein by reference. The consolidated
financial statements of Ocean Rig and its subsidiaries,
excluding any allocation of the Companys purchase price to
Ocean Rig and its subsidiaries, for the period May 15, 2008
to December 31, 2008 (not presented separately in the
Companys Annual Report), have been audited by
Ernst & Young AS, independent registered public
accounting firm, as set forth in its report thereon (which
contains an explanatory paragraph regarding substantial doubt
about the ability of Ocean Rig and its subsidiaries to continue
as a going concern), included therein, and incorporated herein
by reference.
Such financial statements of the Company and the related
financial statement schedule have been so incorporated in
reliance upon the respective reports of such firms given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN
FIND ADDITIONAL INFORMATION
As required by the Securities Act of 1933, we filed a
registration statement relating to the securities offered by
this prospectus supplement and its accompanying prospectus with
the Commission. This prospectus supplement and prospectus are a
part of that registration statement, which includes additional
information.
Government
Filings
We file annual and special reports within the Commission. You
may read and copy any document that we file at the public
reference facilities maintained by the Commission at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the
S-53
operation of the public reference room by calling 1
(800) SEC-0330, and you may obtain copies at prescribed
rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. 20549. The Commission
maintains a website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding registrants that file electronically
with the Commission.
Information
Incorporated by Reference
The SEC allows us to incorporate by reference
information that we file with it. This means that we can
disclose important information to you by referring you to those
filed documents. The information incorporated by reference is
considered to be a part of this prospectus supplement and
accompanying prospectus, and information that we file later with
the SEC prior to the termination of this offering will also be
considered to be part of this prospectus supplement and
prospectus and will automatically update and supersede
previously filed information, including information contained in
this document.
We incorporate by reference in this prospectus supplement the
following documents filed with the SEC pursuant to the
Securities Exchange Act of 1934, as amended (the Exchange
Act):
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Annual Report on
Form 20-F
for the year ended December 31, 2009, filed with the SEC on
April 9, 2010, which contains audited consolidated
financial statements for the most recent fiscal year for which
those statements have been filed.
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Report on
Form 6-K
filed with the SEC on April 15, 2010, as amended by the
Report on
Form 6-K/A
filed with the SEC on April 19, 2010 announcing the
engagement of Ernst & Young (Hellas) Certified
Auditors Accountants S.A. as the Companys independent
registered public accounting firm for the year ending
December 31, 2010.
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We are also incorporating by reference all subsequent annual
reports on
Form 20-F
that we file with the Commission and certain Reports on
Form 6-K
that we furnish to the Commission after the date of this
prospectus supplement (if they state that they are incorporated
by reference into this prospectus supplement or prospectus)
until we file a post-effective amendment indicating that the
offering of the securities made by this prospectus supplement
has been terminated. In all cases, you should rely on the later
information over different information included in this
prospectus supplement or the prospectus.
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You should rely only on the information contained or
incorporated by reference in this prospectus and any
accompanying prospectus supplement. We have not, and any
underwriter has not, authorized any other person to provide you
with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. We are not, and the underwriter is not, making an offer to
sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in this prospectus and any accompanying prospectus
supplement as well as the information we previously filed with
the Commission and incorporated by reference, is accurate as of
the dates on the front cover of those documents only. Our
business, financial condition and results of operations and
prospects may have changed since those dates.
S-54
You may read and copy any document we file with the SEC at the
SEC public reference room located at:
100 F Street,
N.E.
Room 1580
Washington, D.C. 20549
Please call the SEC at
1-800-SEC-0330
for further information on the public reference room and its
copy charges. Our SEC filings are also available to the public
on the SECs web site at
http://www.sec.gov
and through the Nasdaq Global Select Market, 1 Liberty Plaza,
New York, New York 10006, on which our common shares are traded.
The information contained in or accessible from the SECs
website is not part of this prospectus supplement.
You may obtain a copy of above mentioned filing or any
subsequent filing we incorporated by reference to this
prospectus by writing or telephoning us at the following address:
DryShips Inc.
80 Kifissias Avenue,
Amaroussion 15125,
Athens, Greece.
Attention: George Economou
Telephone: (011) (30) (210) 809 0570
Information
Provided by the Company
We will furnish holders of our common stock with annual reports
containing audited financial statements and a report by our
independent registered public accounting firm. The audited
financial statements will be prepared in accordance with
U.S. generally accepted accounting principles. As a
foreign private issuer, we are exempt from the rules
under the Securities Exchange Act prescribing the furnishing and
content of proxy statements to shareholders. While we furnish
proxy statements to shareholders in accordance with the rules of
the Nasdaq Global Select Market, those proxy statements do not
conform to Schedule 14A of the proxy rules promulgated
under the Securities Exchange Act. In addition, as a
foreign private issuer, our officers and directors
are exempt from the rules under the Securities Exchange Act
relating to short swing profit reporting and liability.
S-55
Prospectus
DRYSHIPS INC.
Through this prospectus, we or any selling shareholder may
periodically offer:
(1) our common stock (including preferred share purchase
rights),
(2) our preferred shares,
(3) our debt securities, which may be guaranteed by one or
more of our subsidiaries,
(4) our warrants,
(5) our purchase contracts, and
(6) our units.
The prices and terms of the securities that we or any selling
shareholder will offer will be determined at the time of their
offering and will be described in a supplement to this
prospectus. We will not receive any of the proceeds from the
sale of securities by any selling shareholder.
Our common stock is currently listed on the Nasdaq Global Market
under the symbol DRYS.
The securities issued under this prospectus may be offered
directly or through underwriters, agents or dealers. The names
of any underwriters, agents or dealers will be included in a
supplement to this prospectus.
An investment in these securities involves risks. See the
section entitled Risk Factors beginning on
page 19 of this prospectus, and other risk factors
contained in the applicable prospectus supplement and in the
documents incorporated by reference herein and therein.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is October 17, 2008
TABLE OF
CONTENTS
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ii
We prepare our financial statements, including all of the
financial statements included or incorporated by reference in
this prospectus, in U.S. dollars and in conformity with
U.S. generally accepted accounting principles , or
U.S. GAAP. We have a fiscal year end of
December 31.
This prospectus is part of a registration statement we filed
with the Securities and Exchange Commission, or the Commission,
using a shelf registration process. Under the shelf registration
process, we or any selling shareholder may sell the common stock
(including preferred share purchase rights), preferred shares,
debt securities (and related guarantees), warrants, purchase
contracts and units described in this prospectus in one or more
offerings. This prospectus provides you with a general
description of the securities we or any selling shareholder may
offer. Each time we or a selling shareholder offer securities,
we will provide you with a prospectus supplement that will
describe the specific amounts, prices and terms of the offered
securities. We may file a prospectus supplement in the future
that may also add, update or change the information contained in
this prospectus. You should read carefully both this prospectus
and any prospectus supplement, together with the additional
information described below.
This prospectus does not contain all the information provided in
the registration statement we filed with the Commission. For
further information about us or the securities offered hereby,
you should refer to that registration statement, which you can
obtain from the Commission as described below under Where
You Can Find More Information.
iii
This section summarizes some of the information that is
contained later in this prospectus or in other documents
incorporated by reference into this prospectus. As an investor
or prospective investor, you should review carefully the risk
factors and the more detailed information that appears later in
this prospectus or is contained in the documents that we
incorporate by reference into this prospectus.
PROSPECTUS
SUMMARY
Unless the context otherwise requires, as used in this
prospectus, the terms Company, we,
us, and our refer to DryShips Inc. and
all of its subsidiaries, and DryShips Inc. refers
only to DryShips Inc. and not to its subsidiaries.
We use the term deadweight ton, or dwt, in describing the size
of vessels. Dwt, expressed in metric tons each of which is
equivalent to 1,000 kilograms, refers to the maximum weight of
cargo and supplies that a vessel can carry.
Our
Company
We are a Marshall Islands corporation with our principal
executive offices in Athens, Greece. We were incorporated in
September 2004. As of October 17, 2008, we own, through our
subsidiaries, a fleet of 49 drybulk carriers comprised of 7
Capesize, 30 Panamax, 2 Supramax, and 10 newbuilding drybulk
vessels, which have a combined deadweight tonnage of
approximately 4.7 dwt. We have agreed to acquire an additional
nine Capesize drybulk vessels, five of which are newbuildings,
which will result in an additional deadweight tonnage of
approximately 1.6 million dwt. Since our inception in 2004,
we have increased the size and carrying capacity of our drybulk
fleet from six vessels and approximately 514,890 dwt to
58 vessels of approximately 6.3 million dwt, inclusive
of the nine Capesize vessels, five of which are newbuildings, we
have agreed to acquire. Our drybulk fleet principally carries a
variety of drybulk commodities including major bulks such as
coal, iron ore, and grains, and minor bulks such as bauxite,
phosphate, fertilizers and steel products. The average age of
the vessels in our drybulk fleet is 7.8 years.
In addition, through our acquisition of Ocean Rig ASA, or Ocean
Rig, a Norwegian offshore drilling services company whose shares
were listed on the Oslo Stock Exchange, we own and operate two
ultra-deep water, harsh environment, semi-submersible drilling
rigs, the Leiv Eiriksson and the Eirik Raude. In April 2008, we,
through our subsidiary, DrillShips Investment Inc., or
DrillShips Investment, exercised an option to acquire two
newbuilding advanced capability drillships for use in ultra-deep
water locations, identified as Hull 1865 and Hull 1866, for an
expected cost of approximately $800 million per drillship.
We have entered into a share purchase agreement with related
parties to acquire two additional newbuilding ultra-deep water
drillships, identified as Hull 1837 and 1838, in exchange for
shares of our subsidiary Primelead Shareholders. See below under
Recent DevelopmentsAcquisition of DrillShips
Holdings Inc. and Spin Off of Primelead.
We employ our vessels under period time charters, in the spot
charter market and in drybulk carrier pools. Two of the Panamax
drybulk carriers in our fleet are currently operated in a
Panamax drybulk carrier pool. Pools have the size and scope to
combine spot market voyages, time charters and contracts of
affreightment with freight forward agreements for hedging
purposes and to perform more efficient vessel scheduling thereby
increasing fleet utilization. Thirty of our vessels are
currently on time charter.
All of our drybulk carriers are managed by Cardiff Marine Inc.,
or Cardiff, under separate ship management agreements.
Mr. Economou, our Chairman, Chief Executive Officer and
Interim Chief Financial Officer, has been active in shipping
since 1976 and formed Cardiff in 1991. We are affiliated with
Cardiff. Cardiff, a Liberian corporation with offices in Greece,
is
1
responsible for all technical and commercial management
functions of our drybulk fleet. We believe that Cardiff has
established a reputation in the international drybulk shipping
industry for operating and maintaining a fleet with high
standards of performance, reliability and safety. Seventy
percent of the issued and outstanding capital stock of Cardiff
is owned by a foundation which is controlled by
Mr. Economou. The remaining 30% of the issued and
outstanding capital stock of Cardiff is owned by a company
controlled by Mr. Economous sister, who is also a
member of our board of directors. For information on management
with respect to our offshore drilling operations, please see
Management of Our Offshore Drilling Operations.
Cardiff provides comprehensive ship management services
including technical supervision, such as repairs, maintenance
and inspections, safety and quality, crewing and training, as
well as supply provisioning. Cardiffs commercial
management services include operations, chartering, sale and
purchase, post-fixture administration, accounting, freight
invoicing and insurance. Cardiff completed early implementation
of the International Maritime Organizations, or IMO,
International Management Code for the Safe Operation of Ships
and Pollution Prevention, or ISM Code, in 1996. Cardiff has
obtained documents of compliance for its office and safety
management certificates for its vessels as required by the ISM
Code and has been ISO 14001 certified since 2003, in recognition
of its commitment to overall quality.
Our
Fleet
As of October 17, 2008, our fleet is comprised of the
following vessels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
Current
|
|
Rate
|
|
Redelivery
|
|
|
Built
|
|
DWT
|
|
Type
|
|
Employment
|
|
per Day
|
|
Earliest
|
|
Latest
|
|
Capesize:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alameda
|
|
2001
|
|
|
170,269
|
|
|
|
Capesize
|
|
|
T/C*
|
|
$
|
41,982
|
|
|
Feb-2009
|
|
Apr-2009
|
Brisbane
|
|
1995
|
|
|
151,066
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
57,000
|
|
|
Dec-2011
|
|
Apr-2012
|
Capri
|
|
2001
|
|
|
172,579
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
61,000
|
|
|
Apr-2018
|
|
Jun-2018
|
Flecha
|
|
2004
|
|
|
170,012
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
55,000
|
|
|
Jul-2018
|
|
Nov-2018
|
Manasota
|
|
2004
|
|
|
171,061
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
67,000
|
|
|
Feb-2013
|
|
Apr-2013
|
Mystic
|
|
2008
|
|
|
170,500
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
52,310
|
|
|
Aug-2018
|
|
Dec-2018
|
Samsara
|
|
1996
|
|
|
150,393
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
139,000
|
|
|
Oct-2008
|
|
Dec-2008
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
|
|
$
|
57,000
|
|
|
Dec-2011
|
|
Apr-2012
|
Capesize We Have Agreed to Acquire:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fernantina
|
|
2006
|
|
|
174,315
|
|
|
|
Capesize
|
|
|
T/C*
|
|
$
|
41,159
|
|
|
Apr-2014
|
|
Jun-2014
|
Morgiana
|
|
1998
|
|
|
186,001
|
|
|
|
Capesize
|
|
|
T/C **
|
|
$
|
67,500
|
|
|
Oct-2012
|
|
Dec-2012
|
Pompano
|
|
2006
|
|
|
174,219
|
|
|
|
Capesize
|
|
|
T/C*
|
|
$
|
41,159
|
|
|
Mar-2014
|
|
May-2014
|
Ventura
|
|
2006
|
|
|
174,315
|
|
|
|
Capesize
|
|
|
T/C*
|
|
$
|
41,159
|
|
|
Apr-2014
|
|
Jun-2014
|
|
|
6.6 years
|
|
|
1,864,730
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Panamax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avoca
|
|
2004
|
|
|
76,500
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
60,000
|
|
|
Prompt
|
|
Prompt
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
T/C
|
|
$
|
45,500
|
|
|
Sep-2013
|
|
Dec-2013
|
Bargara
|
|
2002
|
|
|
74,832
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
43,750
|
|
|
May-2012
|
|
Jul-2012
|
Capitola
|
|
2001
|
|
|
74,832
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
39,500
|
|
|
Jun-2013
|
|
Aug-2013
|
Catalina
|
|
2005
|
|
|
74,432
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
40,000
|
|
|
Jun-2013
|
|
Aug-2013
|
Conquistador
|
|
2001
|
|
|
75,607
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
37,500
|
|
|
Prompt
|
|
Prompt
|
Coronado
|
|
2000
|
|
|
75,706
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
81,750
|
|
|
Sep-2008
|
|
Oct-2008
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
Spot
|
|
$
|
8,000
|
|
|
Prompt
|
|
Prompt
|
Ecola
|
|
2001
|
|
|
73,931
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
43,500
|
|
|
Jun-2012
|
|
Aug-2012
|
Heinrich Oldendorff
|
|
2001
|
|
|
73,931
|
|
|
|
Panamax
|
|
|
BB
|
|
$
|
20,633
|
|
|
Mar-2009
|
|
Jun-2009
|
Iguana
|
|
1996
|
|
|
70,349
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
77,000
|
|
|
Oct-2008
|
|
Nov-2008
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
Spot
|
|
$
|
16,500
|
|
|
Prompt
|
|
Prompt
|
La Jolla
|
|
1997
|
|
|
72,126
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
26,000
|
|
|
Prompt
|
|
Prompt
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
Spot
|
|
$
|
16,500
|
|
|
Prompt
|
|
Prompt
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Year
|
|
|
|
|
|
Current
|
|
Rate
|
|
Redelivery
|
|
|
Built
|
|
DWT
|
|
Type
|
|
Employment
|
|
per Day
|
|
Earliest
|
|
Latest
|
|
Lacerta
|
|
1994
|
|
|
71,862
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
10,000
|
|
|
Prompt
|
|
Prompt
|
Ligari
|
|
2004
|
|
|
75,583
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
55,500
|
|
|
Jun-2012
|
|
Aug-2012
|
Maganari
|
|
2001
|
|
|
75,941
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
40,000
|
|
|
Prompt
|
|
Prompt
|
Majorca
|
|
2005
|
|
|
74,364
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
43,750
|
|
|
Jun-2012
|
|
Aug-2012
|
Marbella
|
|
2000
|
|
|
72,561
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
82,500
|
|
|
Oct-2008
|
|
Nov-2008
|
Mendocino
|
|
2002
|
|
|
76,623
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
56,500
|
|
|
Jun-2012
|
|
Sep-2012
|
Ocean Crystal
|
|
1999
|
|
|
73,688
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
69,000
|
|
|
Prompt
|
|
Prompt
|
Oregon
|
|
2002
|
|
|
74,204
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
16,000
|
|
|
Prompt
|
|
Prompt
|
Padre
|
|
2004
|
|
|
73,601
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
81,000
|
|
|
Oct-2008
|
|
Nov-2008
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
|
|
$
|
46,500
|
|
|
Sept-2012
|
|
Dec-2012
|
Paragon
|
|
1995
|
|
|
71,259
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
33,000
|
|
|
Prompt
|
|
Prompt
|
Positano
|
|
2000
|
|
|
73,288
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
28,000
|
|
|
Prompt
|
|
Prompt
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
|
|
$
|
42,500
|
|
|
Sept-2013
|
|
Dec-2013
|
Primera
|
|
1998
|
|
|
72,495
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
78,600
|
|
|
Sep-2008
|
|
Oct-2008
|
Redondo
|
|
2000
|
|
|
74,716
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
34,500
|
|
|
Apr-2013
|
|
Jun-2013
|
Saldanha
|
|
2004
|
|
|
75,500
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
52,500
|
|
|
Jun-2012
|
|
Sep-2012
|
Samatan
|
|
2001
|
|
|
74,823
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
39,500
|
|
|
May-2013
|
|
Jul-2013
|
Sonoma
|
|
2001
|
|
|
74,786
|
|
|
|
Panamax
|
|
|
Baumarine
|
|
$
|
42,355
|
|
|
|
|
|
Sorrento
|
|
2004
|
|
|
76,633
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
39,500
|
|
|
Prompt
|
|
Prompt
|
Tonga
|
|
1984
|
|
|
66,798
|
|
|
|
Panamax
|
|
|
Spot
|
|
$
|
58,500
|
|
|
Prompt
|
|
Prompt
|
Toro
|
|
1995
|
|
|
73,034
|
|
|
|
Panamax
|
|
|
Baumarine
|
|
$
|
40,314
|
|
|
|
|
|
Xanadu
|
|
1999
|
|
|
72,270
|
|
|
|
Panamax
|
|
|
T/C
|
|
$
|
39,750
|
|
|
Jul-2013
|
|
Sep-2013
|
|
|
8.9 years
|
|
|
2,216,275
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
Supramax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clipper Gemini
|
|
2003
|
|
|
51,201
|
|
|
|
Supramax
|
|
|
BB
|
|
$
|
27,000
|
|
|
Nov-2008
|
|
Jan-2009
|
VOC Galaxy
|
|
2002
|
|
|
51,201
|
|
|
|
Supramax
|
|
|
BB
|
|
$
|
27,000
|
|
|
Sept-2008
|
|
Sept-2008
|
|
|
Next
|
|
|
Employment
|
|
|
|
|
|
|
|
|
$
|
20,250
|
|
|
Sept-2010
|
|
Feb-2011
|
|
|
6.5 years
|
|
|
102,402
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
N/B Vessels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/B-Hull No: 1128
|
|
2008
|
|
|
177,000
|
|
|
|
Capesize
|
|
|
T/C
|
|
$
|
60,000
|
|
|
|
|
|
N/B-Hull No: 0002
|
|
2009
|
|
|
180,000
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: 2089
|
|
2009
|
|
|
180,000
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: 0003
|
|
2010
|
|
|
180,000
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: SS058
|
|
2010
|
|
|
82,100
|
|
|
|
Panamax
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: SS059
|
|
2010
|
|
|
82,100
|
|
|
|
Panamax
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: 1518A
|
|
2009
|
|
|
75,000
|
|
|
|
Panamax
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: 1519A
|
|
2010
|
|
|
75,000
|
|
|
|
Panamax
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: 1568
|
|
2008
|
|
|
75,000
|
|
|
|
Panamax
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B-Hull No: 1569
|
|
2009
|
|
|
75,000
|
|
|
|
Panamax
|
|
|
Spot
|
|
|
|
|
|
N/A
|
|
|
N/B Vessels We Have Agreed to Acquire:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/B-Hull No: 1106
|
|
2009
|
|
|
177,926
|
|
|
|
|
|
|
Capesize
|
|
|
T/C
|
|
|
$56,000
|
|
|
N/B-Hull No: 1119
|
|
2010
|
|
|
177,926
|
|
|
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
N/A
|
N/B-Hull No: 1129
|
|
2009
|
|
|
177,926
|
|
|
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
N/A
|
N/B-Hull No: 1154
|
|
2009
|
|
|
177,926
|
|
|
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
N/A
|
N/B-Hull No: 1155
|
|
2009
|
|
|
177,926
|
|
|
|
|
|
|
Capesize
|
|
|
Spot
|
|
|
|
|
N/A
|
|
|
|
|
|
2,070,830
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
Totals
|
|
7.82 years
|
|
|
6,254,237
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
Rig:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross
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Year
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Current
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Rate
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Redelivery
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Built
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DWT
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Type
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Employment
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per Day
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Earliest
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Latest
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Leiv Eiriksson
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2001
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Fifth-generation
semi-submersible
drilling unit
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Contract with Shell U.K. Limited, A/S Norske Shell and Shell
E&P Ireland Limited for a Two-Year Term at dayrates ranging
between $475,000 and $510,000
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Eirik Raude
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2002
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Fifth-generation
semi-submersible
drilling unit
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Contract with Tullow Oil PLC for a Three-Year Term at a dayrates
of $635,000
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N/B Drillships:
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N/B-Hull No: 1865
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Q3 2011
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UDW Drillship
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N/B-Hull No: 1866
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Q3 2011
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UDW Drillship
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N/B Drillships We Agreed to Acquire:
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N/B-Hull No: 1837
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Q4 2010
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UDW Drillship
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N/B-Hull No: 1838
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Q1 2011
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UDW Drillship
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*
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Linked to the Baltic Index
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**
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Staggered at a gross daily rate of
$122,500, $95,000, $55,000, $35,000 and $30,000 for years one
through five respectively.
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(1)
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For vessels trading in the spot
market, the TCE rate is for the current voyage.
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(2)
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For vessels trading in the
Baumarine pool the TCE rate is the Pools estimate for
earnings in the month of September.
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(3)
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For vessels trading in the spot
market or in the Baumarine pool, the quoted rates are not
indications of future earnings and the company gives no
assurance or guarantee of future rates.
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(4)
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The MV Heinrich Oldendorff,
MV Clipper Gemini and MV VOC Galaxy are employed
under a bareboat charter.
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Our Drybulk
Shipping Business Strategy
We focus our business strategy on providing reliable seaborne
transportation services for drybulk cargoes at a competitive
cost. We believe we can achieve our business objectives and
increase shareholder value through our business strategy. The
elements of our business strategy consist of:
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Fleet Expansion Through Second Hand and Newbuilding Vessel
Acquisitions. We intend to grow our fleet through
timely and selective acquisitions of drybulk carriers. We will
seek to identify potential second hand and newbuilding vessel
acquisition candidates among all size categories of drybulk
carriers in order to gain a worldwide presence in the drybulk
carrier market with a fleet capable of servicing virtually all
major ports and routes used for the seaborne transportation of
key commodities and raw materials. We expect to maintain an
average fleet age of less than 10 years.
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Focused Fleet Profile. We intend to maintain a
focused fleet profile that is comprised of drybulk carriers in
the larger size categories: Capesize, Panamax, and Supramax. We
believe that larger drybulk carriers, such as Capesize, Panamax
and Supramax vessels, offer greater potential compared to
smaller vessels such as Handysize and Handymax vessels. Our
Capesize, Panamax and Supramax vessels transport predominantly
coal and iron ore for energy and steel production as well as
grain and steel products, fertilizers, minerals, forest
products, ores, bauxite, alumina, cement and other construction
materials. These raw materials and products are used as
production inputs in a number of
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industries. Our vessels are able to trade worldwide in a
multitude of trade routes carrying a wide range of cargoes for a
number of industries. We transport these various cargoes on
several geographical routes thereby reducing our dependency on
any one cargo, trade route or industry and maximizing fleet
utilization.
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Combined Fleet Employment. As we expand our
fleet of drybulk carriers, we will actively and strategically
employ our fleet between fixed employment contracts, including
time or bareboat charters, which can last up to several years,
and spot charters, which generally last for periods of ten days
to four months. We will also continue to participate in drybulk
carrier pools. Drybulk carriers operating on fixed employment
contracts provide more predictable cash flows, while drybulk
carriers operating in the spot market may generate increased or
decreased profit margins during periods of improvement or
deterioration in freight (or charter) rates. We may also enter
into freight forward agreements in order to hedge our exposure
to market volatility.
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Our Offshore
Drilling Units
Through our acquisition of Ocean Rig, we own and operate two
ultra-deep water, harsh environment, semi-submersible drilling
rigs, the Leiv Eiriksson and the Eirik Raude.
The Leiv Eiriksson is currently operating under a
two-year contract with Shell U.K. Limited, A/S Norske Shell and
Shell E&P Ireland Limited for drilling operations in Irish,
UK and Norwegian waters, which we refer to as the Shell
contract. The rig operated in Irish waters in the second quarter
of 2008 and relocated to Norwegian waters in the third quarter
of 2008. On July 11, 2008, we obtained the requisite
approvals from the Norwegian authorities and commenced
operations in Norwegian waters. In 2008, a day rate of $476,000
applied while the rig was operating in Ireland and in the UK,
and a day rate of $511,000 applies while the rig is operating in
Norwegian waters.
During 2008, the Eirik Raude operated under a two-year
contract with a subsidiary of ExxonMobil Corporation, which we
refer to as the ExxonMobil contract. On July 25, 2008, the
Eirik Raude contract with ExxonMobil expired; however, we
were obligated to complete the well that was in progress. In
October 2008, we expect to commence with a contract entered in
February 2008 for a three-year term with Tullow Oil PLC for
development drilling in offshore Ghana at an average day rate
over the contract period of $637,000, based upon 100%
utilization, which we refer to as the Tullow Oil contract. The
Tullow Oil contract may be extended for one or two additional
years if Tullow Oil exercises such option by December 31,
2008. Following mobilization of the Eirik Raude to Ghana,
we expect to commence drilling in December 2008.
In April 2008, our wholly-owned subsidiary, Drillships
Investment Inc., or Drillships Investment, exercised its option
to acquire two advanced capability drillships for use in
ultra-deepwater drilling locations, identified as Hull 1865 and
Hull 1866, for an expected cost of approximately
$800 million per unit. The drillships will be constructed
by Samsung Heavy Industries Co. Ltd., or Samsung Heavy
Industries, located in Korea and are expected to be delivered
from the shipyard in the third quarter of 2011. As of
June 30, 2008, Drillships Investment paid a total of
$198.3 million as installment payments for both hulls.
Our wholly-owned subsidiary, Primelead Shareholders Inc., or
Primelead, entered into a share purchase agreement to acquire
the equity interests of DrillShips Holdings Inc., or DrillShips
Holdings, which owns two newbuilding advanced capability
drillships for use in ultra-deep water drilling locations,
identified as Hull 1837 and Hull 1838, and is controlled by
clients of Cardiff, including Mr. George Economou. See
Recent DevelopmentsIntended Acquisition of
DrillShips Holdings Inc.
5
Recent
Developments
Financing
Arrangements Relating to Newbuilding Vessels and Newbuilding
Drillships
We have agreements to acquire 6 newbuilding Panamax vessels and
9 newbuilding Capesize vessels (including the 5 newbuildings
described below) for delivery between 2008 and 2010. As of
October 17, 2008, the remaining installment payment
obligations to the shipyards for the Panamax and Capesize
newbuildings total $605.5 million, with $323.0 million
due within the next twelve months and $282.5 million due
thereafter. In addition, installment payments in respect of the
four newbuilding drillships described below total
$2,238.9 million, with $226.9 million due within the
next twelve months and $2,010.0 million due thereafter. We
have not yet obtained financing for the third and subsequent
pre-delivery installment payments for Hulls 1837 and 1838, which
payments amount to 70% of the purchase price of the drillships.
Disposal of
Vessels
The Memorandum of Agreement for the vessel Primera entered into
on May 19, 2008 for $75 million was subsequently
cancelled on October 15, 2008 and the deposit of
$9 million was returned to the Company.
Financing
Arrangements by Ocean Rig
On September 17, 2008, the Companys subsidiary, Ocean
Rig, entered into a new five-year secured credit facility for
the amount of $1,040 million in order to refinance Ocean
Rigs existing loan indebtedness and for general corporate
purposes. On September 30, 2008, Ocean Rig drew down
$750,000 of the new credit facility, of which $52,500 was
repayable in the short term. The drawdown proceeds were used to
repay all other Ocean Rig outstanding debt at the date of the
drawdown amounting to $776,000 including the $250,000 loan
discussed above. The credit facility consists of a guarantee
facility, three revolving credit facilities and a term loan. The
aggregate amount of the term loan is up to $400,000 and the
aggregate amount under the revolving credit facility A is up to
$350,000, the aggregate amount under the revolving credit
facility B is up to $250,000, the aggregate amount under the
revolving credit facility C is up to $20,000, and the guarantee
facility provides us with a letter of credit of up to $20,000.
The undrawn amounts under credit facility A will be reduced by
$17,500 on December 17, 2008 and quarterly thereafter until
September 17, 2013, which is 60 months after the date
of the agreement. The loan bears interest at Libor plus a margin
and is repayable in twenty quarterly installments plus a balloon
payment of $400,000 payable together with the last installment,
on September 2013.
Acquisition of
Nine Capesize Vessels
In October 2008, we entered into agreements to purchase the
equity interests of single purpose companies owning nine
Capesize drybulk carriers, including five newbuildings, with a
total carrying capacity of 1.6 million dwt and an average
age of approximately two years, from entities controlled by
clients of Cardiff, including Mr. George Economou. We
expect the five newbuildings to be delivered in 2009 and 2010.
Pursuant to these agreements, we will issue
19,431,840 shares of our common stock to the sellers of the
single purpose companies in exchange for the shares of these
companies. We will also assume $217.7 million of existing
debt and $262.0 million in remaining shipyard installments
related to these vessels, which will be financed by existing
credit facilities except for $16 million which will be
funded by our working capital.
6
All nine vessels are subject to existing financing arrangements.
In accordance with the terms of the agreements, on the initial
closing date, the sellers will transfer to us all of the
economic benefits and obligations arising from ownership of the
vessels. Specifically, for the four existing vessels, upon the
initial closing date, the seller will cause all charter hire
received in respect of such vessel to be credited to the account
of the vessel owning company and applied to pay the
vessels operating expenses and other liabilities with the
surplus, if any, to be distributed to the buyer on request as
permitted by the existing loan and security documents related to
such vessel. On the final closing date, the sellers will
transfer to us the shares of the vessel owning companies
following receipt of the consent from the applicable lenders
with respect to the transfer of such shares. The purchase price
in exchange for shares of each vessel owning company is subject
to adjustment where the amount of outstanding indebtedness
assumed per vessel on the initial closing date is less than the
amount outstanding on the date of the share purchase agreement,
such that the difference is payable in cash or in additional
common shares at the option of the sellers.
Pending the final closing, the common shares issued to the
sellers in respect of the purchase price of the vessels will be
held in escrow but the sellers will have the right to vote such
shares and to receive dividends. The common shares will be
issued to the sellers in transactions exempt from the
registration requirements of the Securities Act of 1933. The
newly issued shares will not be freely transferable under the
federal securities laws.
Following the issuance the 19,431,840 common shares to the
sellers of the nine Capesize vessels, our total number of shares
outstanding will be 62,981,840.
Acquisition of
DrillShips Holdings Inc.
Our wholly-owned subsidiary, Primelead, entered into a share
purchase agreement to acquire the equity interests of DrillShips
Holdings which owns two newbuilding advanced capability
drillships for use in ultra-deep water drilling locations,
identified as Hull 1837 and Hull 1838, and is controlled by
clients of Cardiff, including Mr. George Economou. The
drillships are to be constructed by Samsung Heavy Industries and
are expected to be delivered from the shipyard in the fourth
quarter of 2010 and the first quarter of 2011, respectively. The
drillships are sister vessels to the two drillships ordered by
us earlier in the year at Samsung Heavy Industries and which are
expected to be delivered in the third quarter of 2011.
The consideration payable to the sellers for these two
ultra-deep water drillships will be in the form of newly issued
shares of Primelead. The number of shares to be received by the
sellers will be equal to 25% of all the then issued and
outstanding shares of Primelead common stock. We refer to the
issuance of common shares of Primelead Shareholders to the
sellers of DrillShips Holdings as the DrillShips Holdings
Transaction. Upon the Spin Off (as described below), Primelead
will assume approximately $252.3 million of existing debt
and approximately $1,085.5 million in remaning shipyard
installments relating to these drillships.
Spin-Off of
Primelead
We intend to enter into a share purchase agreement with
Primelead whereby we will transfer the shares of our subsidiary,
DrillShips Investments, which, as discussed above, exercised its
option to purchase two newbuilding ultra-deepwater drillships
identified as Hull 1865 and Hull 1866 which are expected to be
delivered from the shipyard in the third quarter of 2011, in
exchange for shares of Primelead. We refer to this transaction
as the DrillShips Investment Transaction. After the closing of
the DrillShips Investment Transaction and the DrillShips
Holdings Transaction, we will own 75% of all the then issued and
outstanding shares of Primelead common stock.
Our board of directors has determined that, following the
closing of the DrillShips Holdings Transaction and the
DrillShips Investment Transaction and the effectiveness of the
7
registration of Primeleads common stock and depending on
market conditions, we will spin off Primelead to our
shareholders by means of a distribution to our shareholders of
one share of Primelead for each of our outstanding common
shares, or the Spin Off. Following the Spin Off, interests
connected with Mr. Economou are expected to hold 25% of
Primeleads common shares.
After completion of the Spin Off, Primelead will own, through
its subsidiaries, four newbuilding contracts for ultra-deepwater
drillships and two ultra-deep water, harsh environment,
semi-submersible drilling rigs. The purpose of the Spin Off is
to provide a separate management and operating structure for our
offshore drilling rig segment, which we believe will maximize
the value of Primeleads drilling rigs and provide
Primelead with access to financing in order to further develop
its drilling operations. Primelead intends to apply to have its
common stock listed for trading on the Nasdaq Global Market.
Recent
Developments in the International Drybulk Shipping
Industry
We currently employ fourteen of our vessels in the spot market.
Their charters will expire over the next two months. Vessels
trading in the spot market are exposed to increased risk of
declining charter rates and freight rate volatility compared to
vessels employed on time charters. Since mid-August 2008, the
spot dayrates in the drybulk charter market have declined very
significantly, and drybulk vessel values have also declined both
as a result of a slowdown in the availability of global credit
and the significant deterioration in charter rates. Charter
rates and vessel values have been affected in part by the lack
of availability of credit to finance both vessel purchases and
purchases of commodities carried by sea, resulting in a decline
in cargo shipments, and the excess supply of iron ore in China
which resulted in falling iron ore prices and increased
stockpiles in Chinese ports. There can be no assurance as to how
long charter rates and vessel values will remain at their
currently low levels or whether they will improve to any
significant degree. Charter rates may remain at depressed levels
for some time which will adversely affect our revenue and
profitability.
In August 2008, Capesize rates averaged $100,000/day, while
rates fell to approximately $20,000 per day in October 2008. We
believe that the root cause of the fall has been a sharp
slowdown in Chinese steel demand and prices leading to reduced
demand for iron ore. Iron ore price negotiations between
Companhia Vale do Rio Doce and Chinese steel mills in the third
and fourth quarter of 2008 resulted in 15 Chinese mills turning
to domestic mining companies for iron ore.
Chinese iron ore demand is a significant driver for the drybulk
charter rates. Out of a total iron ore market in China of around
800 million tons this year, around 350 million tons is
sourced from domestic Chinese mines and around 450 million
tons are imported. Demand for iron ore is in turn affected by
steel prices and global steel production which also affects
another steelmaking feedstock, coking coal, which is in short
supply arising from mining capacity and infrastructure
constraints. In August 2008, Chinas steelmakers produced a
total of 42.6 million tons, which is a decrease of about
4 million tons, or over 8.5%, compared with the record
output in June 2008. Meeting 40% of the worlds steel
demand, Chinese steelmakers are currently exporting about
one-fifth of their total output and servicing domestic
requirements with the remaining production.
Over 90 percent of global trade is carried by sea, and as
such the international shipping industry is drive in large part
by economic cycles. At the start of October, the drybulk carrier
fleet comprised 6,958 vessels totaling 413.9 million
dwt. The fleet is larger by 2.7 million dwt than it was at
the end of August, which equates to an increase of 0.7%
month-on-month.
By the end of 2008, the fleet is now forecast to reach
424.8 million dwt, which reflects an increase of 8.1%, or
32.0 million dwt from the end of 2007. Deliveries in
September reached 1.2 million dwt, bringing deliveries for
2008 thus far to 16.0 million dwt.
8
During the last seven years, deliveries were made by
well-established yards with negligible slippage or cancellation
in newbuilding contracts, while in the next couple of years it
is estimated that 30% of the orderbook will come from new
shipyards where slippage may occur as a result of the crisis in
the world financial markets.
Although the growth rate for Chinese iron ore imports has
decreased, we believe that it remains high compared to
historical levels and that the outlook for future demand will
depend on the actions of the Chinese authorities aimed at
keeping economic growth intact such as increasing public
investment in infrastructure. We believe that the Central-East
and Central-South regions may be targeted areas for more
construction because those regions account for over half the
1.3 billion Chinese population and nearly two-thirds of
economic activity in China. Moreover, we believe that increased
public investment may be injected into the Northwest and
Southwest regions in an effort to attain a more balanced
regional development, which is an important factor for steel
demand, as Chinas construction sector consumes more than
half of all steel produced nationally.
Recent
Developments in Environmental Regulation
The information provided below should be read together with the
information set forth in our Annual Report on
Form 20-F
for the year ended December 31, 2007, filed on
March 31, 2008, under the heading Business
OverviewEnvironmental and Other Regulations.
International
Maritime Organization
Air
Emissions
The United Nations International Maritime Organization, or
IMO, has negotiated international conventions that impose
liability for oil pollution in international waters and a
signatorys territorial waters. In September 1997, the IMO
adopted Annex VI to the International Convention for the
Prevention of Pollution from Ships, or MARPOL, to address air
pollution from ships. Annex VI was ratified in May 2004,
and became effective in May 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. We believe that all our vessels are currently
compliant in all material respects with these regulations. In
October 2008, IMOs Maritime Environment Protection
Committee, or MEPC, adopted amendments to the Annex VI
regulations that will require a progressive reduction of sulfur
oxide levels in heavy bunker fuels and create more stringent
nitrogen oxide emissions standards for marine engines beginning
in 2011. We may incur costs to comply with these revised
standards.
Oil Pollution
Liability
Although the U.S. is not a party to these conventions, many
countries have ratified and follow the liability plan adopted by
the IMO and set out in the International Convention on Civil
Liability for Oil Pollution Damage of 1969, as amended in 2000,
or the CLC. Under this convention and depending on whether the
country in which the damage results is a party to the 1992
Protocol to the CLC, a vessels registered owner is
strictly liable for pollution damage caused in the territorial
waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses. Under an amendment to the
Protocol that became effective on November 1, 2003, for
vessels of 5,000 to 140,000 gross tons (a unit of
measurement for the total enclosed spaces within a vessel),
liability will be limited to approximately $7.1 million
plus $987 for each additional gross ton over 5,000. For vessels
of over 140,000 gross tons, liability will be limited to
approximately $140 million. As the convention calculates
liability in terms of a basket of currencies, these figures are
based on currency exchange rates on
9
September 1, 2008. The right to limit liability is
forfeited under the CLC where the spill is caused by the
owners actual fault and under the 1992 Protocol where the
spill is caused by the owners intentional or reckless
conduct. Vessels trading to states that are parties to these
conventions must provide evidence of insurance covering the
liability of the owner. In jurisdictions where the International
Convention on Civil Liability for Oil Pollution Damage has not
been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a
manner similar to that convention. We believe that our P&I
insurance will cover the liability under the plan adopted by the
IMO.
In 2001, the IMO adopted the International Convention on Civil
Liability for Bunker Oil Pollution Damage, or the Bunker
Convention, which imposes strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states
caused by discharges of bunker fuel. The Bunker Convention
requires registered owners of ships over 1,000 gross tons
to maintain insurance for pollution damage in an amount equal to
the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount
calculated in accordance with the Convention on Limitation of
Liability for Maritime Claims of 1976, as amended). The Bunker
Convention has been ratified by a sufficient number of nations
for entry into force, and it will become effective on
November 21, 2008. Until the Bunker Convention comes into
force, liability for spills or releases of oil carried as fuel
in ships bunkers typically is determined by the national
or other domestic laws in the jurisdiction where the events or
damages occur.
Other
Requirements
The IMO also adopted the International Convention on the Control
of Harmful Anti-fouling Systems on Ships (the Anti-fouling
Convention) in 2001. The Anti-fouling Convention prohibits
the use of organotin compound coatings to prevent the attachment
of mollusks and other sea life to the hulls of vessels after
September 1, 2003. The exteriors of vessels constructed
prior to January 1, 2003 that have not been in dry-dock
must, by September 13, 2008 (the effective date of the
convention), either not contain the prohibited compounds or have
coatings applied to the vessel exterior that act as a barrier to
the leaching of the prohibited compounds. Vessels of over
400 gross tons engaged in international voyages must obtain
an International Anti-fouling System Certificate and undergo a
survey before the vessel is put into service or when the
antifouling systems are altered or replaced. We have obtained
Anti-fouling System Certificates for all of our vessels that are
subject to the Anti-Fouling Convention.
In 2005, the European Union adopted a directive on ship-source
pollution, imposing criminal sanctions for intentional, reckless
or negligent pollution discharges by ships. The directive could
result in criminal liability for pollution from vessels in
waters of European countries that adopt implementing
legislation. Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.
U.S. Oil
Pollution Act of 1990 and Comprehensive Environmental Response,
Compensation, and Liability Act
In 1990, the U.S. Congress enacted the Oil Pollution Act,
or OPA, to establish an extensive regulatory and liability
regime for environmental protection and cleanup of oil spills.
OPA affects all owners and operators whose vessels trade with
the U.S. or its territories or possessions, or whose
vessels operate in the waters of the U.S., which include the
U.S. territorial sea and the 200 nautical mile exclusive
economic zone around the U.S. The Comprehensive
Environmental Response, Compensation and Liability Act, or
CERCLA, was adopted in 1980 and it imposes liability for cleanup
and natural resource damage from the release of hazardous
substances (other than oil) whether on land or at sea. Both OPA
and CERCLA impact our operations.
10
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:
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natural resources damage and the costs of assessment thereof;
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real and personal property damage;
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net loss of taxes, royalties, rents, fees and other lost
revenues;
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lost profits or impairment of earning capacity due to property
or natural resources damage; and
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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.
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Amendments to OPA that came into effect on July 11, 2006
increased the liability limits for responsible parties for any
vessel other than a tank vessel to $950 per gross ton or
$800,000, whichever is greater (subject to periodic adjustment
for inflation). These limits of liability do not apply if an
incident was directly caused by violation of applicable
U.S. federal safety, construction or operating regulations
or by a responsible partys 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. On September 24, 2008, the
U.S. Coast Guard proposed adjustments to the limits of
liability for non-tank vessels that would increase the limits to
the greater of $1,000 per gross ton or $848,000 and establish a
procedure for adjusting the limits for inflation every three
years. The Coast Guard is currently soliciting comments on the
proposal.
CERCLA contains a liability regime similar to OPA and provides
for cleanup, removal and natural resource damages. Liability per
vessel under CERCLA is limited to the greater of $300 per gross
ton or $0.5 million, unless the incident is caused by gross
negligence, willful misconduct, or a violation of certain
regulations, in which case liability is unlimited.
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. Current U.S. Coast Guard regulations require
evidence of financial responsibility in the amount of $900 per
gross ton for non-tank vessels, which includes the OPA
limitation on liability of $600 per gross ton and the CERCLA
liability limit of $300 per gross ton. The U.S. Coast Guard
recently adopted regulations that increase the amounts of
financial responsibility to reflect the July 2006 increases in
liability under OPA. Vessel operators must establish evidence of
financial responsibility in the increased amounts by
January 15, 2009. 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. We
have complied with the U.S. Coast Guard regulations by
providing a certificate of responsibility from third party
entities that are acceptable to the U.S. Coast Guard
evidencing sufficient self-insurance.
We currently maintain pollution liability coverage insurance in
the amount of $624 million per incident for each of our
vessels. If the damages from a catastrophic spill were to exceed
our insurance coverage it could have an adverse effect on our
business and results of operation.
The U.S. Coast Guards regulations concerning
certificates of financial responsibility provide, in accordance
with OPA, that claimants may bring suit directly against an
insurer or
11
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 are required to waive insurance
policy defenses.
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. In
some cases, states, which have enacted such legislation, have
not yet issued implementing regulations defining vessels
owners responsibilities under these laws. We intend to
comply with all applicable state regulations in the ports where
our vessels call.
The U.S. Clean
Water Act
The U.S. Clean Water Act, or CWA, prohibits the discharge
of oil or hazardous substances in navigable waters and imposes
strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages and complements the
remedies available under OPA and CERCLA.
The U.S. Environmental Protection Agency, or EPA,
historically exempted the discharge of ballast water and other
substances incidental to the normal operation of vessels in
U.S. ports from CWA permitting requirements. However, the
U.S. District Court for the Northern District of California
held in September 2006 that the EPA exceeded its authority in
creating such exemptions. The court ordered EPA to develop a
permit program for such discharges by September 30, 2008.
Although EPA appealed the decision to the Ninth Circuit Court of
Appeals, it proceeded with the development of a draft vessel
general permit, or VGP, that would apply to commercial vessels
and large recreational vessels. The draft VGP includes
management practices for various types of vessel discharges and
incorporates the U.S. Coast Guards ballast management
requirements described below. The Ninth Circuit upheld the
District Court decision on July 23, 2008, and the deadline
for having the permit program in place has been extended to
December 19, 2008. Owners and operators of vessels visiting
U.S. ports will be required to comply with this CWA
permitting program to be finalized by the EPA or face penalties.
Subjecting our vessels to CWA permit requirements including
ballast water treatment obligations could increase the cost of
operating in the U.S. For example, this could require the
installation of equipment on our vessels to treat ballast water
before it is discharged or the implementation of other port
facility disposal arrangements or procedures at potentially
substantial cost,
and/or
otherwise restrict our vessels from entering U.S. waters.
Various states have also enacted legislation restricting ballast
water discharges and the introduction of non-indigenous species
considered to be invasive. These and any similar restrictions
enacted in the future could increase the costs of operating in
the relevant waters.
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.
In addition to the requirements of MARPOL Annex VI
(described above), the U.S. Clean Air Act of 1970, as
amended by the Clean Air Act Amendments of 1977 and 1990, or the
CAA, required the EPA to promulgate standards applicable to
emissions of volatile organic compounds and other air
contaminants. Our vessels are subject to vapor control and
recovery
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requirements for certain cargoes when loading, unloading,
ballasting, cleaning and conducting other operations in
regulated port areas. Our vessels that operate in such port
areas with restricted cargoes are equipped with vapor recovery
systems that satisfy these requirements. The CAA also requires
states to draft State Implementation Plans, or SIPs, designed to
attain national health-based air quality standards in primarily
major metropolitan
and/or
industrial areas. Several SIPs regulate emissions resulting from
vessel loading and unloading operations by requiring the
installation of vapor control equipment. As indicated above, our
vessels operating in covered port areas are already equipped
with vapor recovery systems that satisfy these existing
requirements. The EPA and some states, however, have each
proposed more stringent regulations of air emissions from
ocean-going vessels. For example, on July 24, 2008, the Air
Resources Board of the State of California, or CARB, held a
public hearing on proposed clean-fuel regulations that would be
applicable to all vessels sailing within 24 miles of the
California coastline whose itineraries call for them to enter
any California ports, terminal facilities, or internal or
estuarine waters. The proposed CARB regulations would require
such vessels to use low sulfur marine fuels rather than bunker
fuel. By July 1, 2009, such vessels would be required to
switch either to marine gas oil with a sulfur content of no more
than 1.5% or marine diesel oil with a sulfur content of no more
than 0.5%. By 2012, only marine gas oil and marine diesel oil
fuels with 0.1% sulfur would be allowed. CARBs previous
attempts to regulate marine vessel fuel were struck down by the
Ninth Circuit Court of Appeals as preempted by the CAA. In the
event such new regulations were to become effective and our
vessels were to travel to such destinations, these new
regulations may increase our costs.
Additionally, the EPA has proposed new emissions standards for
new Category 3 marine diesel engines. These are engines with
per-cylinder displacement at or above 30 liters and are
typically found on large oceangoing vessels such as drybulk
vessels. The EPA proposed to require the application of advanced
emission control technologies, as well as controls on the sulfur
content of fuels.
The U.S. National Invasive Species Act, or NISA, was
enacted in 1996 in response to growing reports of harmful
organisms being released into U.S. ports through ballast
water taken on by vessels in foreign ports. The U.S. Coast
Guard adopted regulations under NISA in July 2004 that impose
mandatory ballast water management practices for all vessels
equipped with ballast water tanks entering U.S. waters.
These requirements can be met by performing mid-ocean ballast
exchange, by retaining ballast water on board the vessel, or by
using environmentally sound alternative ballast water management
methods approved by the U.S. Coast Guard. Mid-ocean ballast
exchange is the primary method for compliance with the
U.S. Coast Guard regulations, since holding ballast water
can prevent vessels from performing cargo operations upon
arrival in the U.S., and alternative methods are still under
development. Vessels that are unable to conduct mid-ocean
ballast exchange due to voyage or safety concerns may discharge
minimum amounts of ballast water, provided that they comply with
recordkeeping requirements and document the reasons they could
not follow the required ballast water management requirements.
The U.S. Coast Guard is developing a proposal to establish
ballast water discharge standards, which could set maximum
acceptable discharge limits for various invasive species,
and/or lead
to requirements for active treatment of ballast water. The
U.S. House of Representatives has recently passed a bill
that amends NISA by prohibiting the discharge of ballast water
unless it has been treated with specified methods or acceptable
alternatives. Similar bills have been introduced in the
U.S. Senate, but we cannot predict which bill, if any, will
be enacted into law. In the absence of federal standards, states
have enacted legislation or regulations to address invasive
species through ballast water and hull cleaning management and
permitting requirements. For instance, the state of California
has recently enacted legislation extending its ballast water
management program to regulate the management of hull
fouling organisms attached to vessels and adopted
regulations limiting the number of organisms in ballast water
discharges.
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Resource
Conservation and Recovery Act
Our operations occasionally generate and require the
transportation, treatment and disposal of both hazardous and
non-hazardous solid wastes that are subject to the requirements
of the U.S. Resource Conservation and Recovery Act or
comparable state, local or foreign requirements. In addition,
from time to time we arrange for the disposal of hazardous waste
or hazardous substances at offsite disposal facilities. If such
materials are improperly disposed of by third parties, we may
still be held liable for clean up costs under applicable laws.
Greenhouse Gas
Regulation
In February 2005, the Kyoto Protocol to the United Nations
Framework Convention on Climate Change, which we refer to as the
Kyoto Protocol, entered into force. Pursuant to the Kyoto
Protocol, adopting countries are required to implement national
programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of
contributing to global warming. Currently, emissions of
greenhouse gases from international shipping are not subject to
the Kyoto Protocol. However, the European Union has indicated
that it intends to propose an expansion of the existing European
Union emissions trading scheme to include emissions of
greenhouse gases from vessels. In the U.S., the California
Attorney General and a coalition of environmental groups in
October 2007 petitioned the EPA to regulate greenhouse gas
emissions from ocean-going vessels under the CAA. Any passage of
climate control legislation or other regulatory initiatives by
the IMO, European Union or individual countries where we operate
that restrict emissions of greenhouse gases could entail
financial impacts on our operations that we cannot predict with
certainty at this time.
Our Offshore
Drilling Operations
We are an international provider of offshore drilling contractor
services in the area of offshore exploration, development and
production. Our drilling units are marketed for exploration and
development drilling programs worldwide, with particular focus
on operation in ultra-deepwater and harsh environments.
Management of our
Offshore Drilling Operations
Our subsidiary, Ocean Rig, directly manages its two drill rigs,
the Eirik Raude and the Leiv Eiriksson. At year
end 2007, the Ocean Rig group had 323 employees, of which
302 were directly employed by Ocean Rig and 21 employees
were permanent crew engaged through agencies. 125 persons
are employed on Eirik Raude and 130 on Leiv
Eiriksson. The remaining 47 are shore based support and
management positions, of which 36 employees are based at
the Forus, Norway headquarters and a total of 11 employees
are located at the shore bases in Stavanger, Norway and Houston,
Texas.
The supervision of the construction of our two newbuilding
drillships identified as Hulls 1865 and 1866 is performed by our
subsidiary Ocean Rig AS pursuant to two separate management
agreements, each dated August 1, 2008.
On August 1, 2008, the owning companies of the two
newbuilding drillships indentified as Hulls 1837 and 1838, which
we entered into a share purchase agreement to acquire, each
entered into a separate management agreement with Ocean Rig AS
for the supervision of the construction of these drillships on
the same terms as our agreements with Ocean Rig AS.
Under the terms and conditions of these agreements, Ocean Rig
AS, among other things, is responsible for (i) assisting in
construction contract technical negotiations, (ii) securing
contracts for the future employment the drillships, and
(iii) providing commercial, technical and operational
management for the drillships.
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Pursuant to each of these agreements, Ocean Rig AS is entitled
to: (i) a fee of $250 per day until steel cutting,
(ii) a fee of $2,500 per day from the date of steel cutting
until the date of delivery of the applicable drillship to its
owner and (iii) $8,000 per day thereafter. The management
fees are subject to an increase based on the U.S. Consumer
Price Index for the preceding 12 months. Ocean Rig AS is
also entitled to a commission fee equal to 0.75% of gross hire
and charter hire for contracts or charter parties entered into
during the -term of the management agreement, payable on the
date that the gross or charter hire money is collected.
The agreements each terminate on December 31, 2020, unless
earlier terminated by Ocean Rig AS for non-payment within
fifteen working days of request.
We expect to enter into separate managements agreements with
Cardiff, pursuant to which Cardiff will provide additional
supervisory services in connection with the newbuilding
drillships identified as Hull 1837, Hull 1838, Hull 1865 and
Hull 1866 and will be responsible for, among other things:
(i) arranging insurance, (ii) identifying and
arranging financing and acting as the intermediary with the bank
after entering into any loan, (iii) providing sale and
purchase management services, (iv) cooperating with
Sarbanes-Oxley Act compliance and (v) handling and settling
all claims arising under the management agreements.
Pursuant to each of these agreements, Cardiff will be entitled
to: (i) a fee of 500 Euros per day per person, plus
expenses, for
on-site
visits to the newbuilding construction site; (ii) a daily
fee of $40 per from October 1, 2008 to the date of steel
cutting and a fee of $400 per day thereafter until 90 days
after the delivery of the drillship; (iii) a commission of
5% of total insurance premiums, (iv) a commission of 0.20%
of any loan amount financed or re-financed, (v) a monthly
fee of $30,000 per loan for which Cardiff serves as
intermediary, (vi) a commission of 1% of the purchase price
set forth in any memorandum of agreement for any vessel bought
or sold on our behalf and a fee of 400 Euros per day for
inspection of vessels for purchase, (vii) a daily fee of 20
Euros per vessel for services in respect of Sarbanes-Oxley
compliance and (viii) a fee of 150 Euros per man per day of
eight hours for time spent carrying out obligations with respect
to the handling and settling of claims.
Financing for
Newbuilding Drillships
Deutsche Bank Loan Agreement dated July 18,
2008. On July 18, 2008, Drillship Kithira
Owners Inc., the rig owning company of the newbuilding drillship
identified as DrillShip Hull 1865, entered into loan agreement
with a syndicate of lenders including Deutsche, in the amount of
$562.5 million to partially finance the construction cost
of Drillship Hull 1865. The loan bears interest (i) during
the pre-construction period at LIBOR plus a margin plus certain
additional lender costs and (ii) during the
post-construction period at LIBOR plus a margin per annum plus
certain additional lender costs. The loan is repayable in
eighteen semi-annual installments of $31.3 million
commencing on March 30, 2012. As of October 13, 2008,
the balance under this loan agreement was $85.6 million.
Deutsche Bank Loan Agreement dated July 18,
2008. On July 18, 2008, Drillship Skopelos
Owners Inc., the rig owning company of the newbuilding drillship
identified as DrillShip Hull 1866, entered into a loan agreement
with a syndicate of lenders including Deutsche, in the amount of
$562.5 million to partially finance the construction cost
of Drillship Hull 1866. The loan bears interest (i) during
the pre-construction period at LIBOR plus a margin plus certain
additional lender costs and (ii) during the
post-construction period at LIBOR plus a margin plus certain
additional lender costs. The loan is repayable in eighteen
semi-annual installments of $31.3 commencing on March 30,
2012. As of October 13, 2008, the balance under this loan
agreement was $85.6 million.
The Deutsche Bank loan agreements are secured by assignment of
the shipbuilding contracts for the pre-constuction period and
first priority mortgage for the post-construction period of Hull
1865 and Hull 1866. These loan agreements contain certain
financial covenants,
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including (i) a leverage ratio, which is the ratio of the
market value of the respective Drillship Hull to the amount
outstanding under the respective loan facility, not less than
125%; (ii) vessel insurance not less than the greater of
125% of the aggregate of the outstanding loans or the fair
market value of the vessel; (iii) protection and indemnity
insurance during sea trials not less that $300.0 million
and general third party liability insurance, effective from the
commencement of the sea trials, not less than
$25.0 million; and (iv) the rig owning company must
pay $25.0 million into the debt service reserve account
prior to the drilling charter cut-off date, which is the earlier
of January 31, 2010 and the drawdown of the second
installment under the respective loan agreements.
Dryships Inc. has extended guarantees that each of Drillship
Skopelos Owners Inc. and Drillship Kithira Owners Inc. has
sufficient funds to pay their equity contribution with regards
to the construction of Drillship Hull 1865 and Drillship Hull
1866. For the post-construction period, Dryships Inc. has
guaranteed up to $214 million and $225 million for
Drillship Kithira Owners Inc. and Drillship Skopelos Owners
Inc., respectively.
The loan agreements contain the following financial covenants at
the Dryships Inc. level: (i) market adjusted equity ratio
of 0.25:1 up to December 31, 2008 and 0.3:1 for each
subsequent year; (ii) interest coverage ratio of not less
than 3:1; (iii) market value adjusted net worth of not less
than $500 million and (iv) minimum liquidity of not
less than $40 million.
These loan agreements also contain covenants that include
restrictions on selling, transferring, or otherwise disposing of
the vessel-owning companys assets, giving possession of
the vessel for repair constituting an amount greater than
$15.0 million, the profits from the sale or total loss of
the vessel, including losses during the pre-delivery period, the
chartering of the vessels for any period and minimum collateral
requirements. No security interest may be created aside from
permitted liens and the vessel owning company may not make any
distributions.
As of October 17, 2008, our outstanding borrowings under
these credit facilities was $171.1 million.
The Offshore
Contract Drilling Industry
Over the last three to four years, developments in the drilling
market have been positive for suppliers of drilling units,
equipment and services. Offshore drilling activity has continued
to increase and deep-water projects make up a significant
portion of the increased activity, which provides support for
higher dayrates for deep-water drilling units. The demand for
offshore drilling services is currently global in nature, and
activity has extended from the previously highly active
golden triangle of West Africa, Brazil and the
U.S. Gulf of Mexico, to Asia and the Far East, and to the
broader West Africa region beyond Angola and Nigeria. The
industry is also experiencing an increase in demand in the North
Sea and Atlantic Margin areas.
According to industry sources, the worldwide fleet of ultra-deep
water drilling units as of September 26, 2008 consists of
32 units, comprised of 16 rigs and 16 drillships. An
additional 39 rigs and 40 drill-ships are under construction or
on order, which would bring the total fleet to 111 units in
2011 when the last ordered units are scheduled to be delivered.
During 2007, a total of 25 drilling units were ordered and 28
drilling units have been ordered through September 2008.
Based on publicly available data, following the recent contract
award for two newbuildings owned by Seadrill Ltd., an Oslo
Exchange listed company scheduled for delivery in late 2008, and
the awards for drilling units owned by Transocean Inc., a listed
company and for the Eirik Raude, we believe there is no
ultra-deepwater drilling capacity available in 2008. We expect
that the lack of ultra-deepwater drilling capacity in 2008 might
lead to upward pressure on
16
dayrates in 2009. For 2009, we believe that the Leiv
Eiriksson is the only available drilling rig with
7,500 feet depth of water drilling capability. For 2010, we
expect that eight newbuildings and four existing drilling units
will be available in the deepwater market.
Based on publicly available data, several new contracts for
ultra-deepwater semi-submersibles commencing in 2008 to 2010
have been secured by our competitors at rates of approximately
$550,000 to $600,000 per day. The duration of these contracts is
generally from three to five years, with some units contracted
to 2015. This compares to $350,000 to $405,000 for work
performed during 2006 and to $400,000 to $500,000 for work
performed during 2007.
Environmental and
Other Regulations in the Offshore Drilling Industry
Our operations in the offshore drilling sector include
activities that are subject to numerous international, federal,
state and local laws and regulations, including MARPOL, OPA and
CERCLA, each of which is discussed above, and the
U.S. Outer Continental Shelf Lands Act. These laws govern
the discharge of materials into the environment or otherwise
relate to environmental protection.
For example, the IMO adopted MARPOL and Annex VI to MARPOL
to regulate the discharge of harmful air emissions from ships,
which include rigs and drillships. Rigs and drillships must
comply with MARPOL limits on sulfur oxide and nitrogen oxide
emissions, chlorofluorocarbons, and the discharge of other air
pollutants, except that the MARPOL limits do not apply to
emissions that are directly related to drilling, production, or
processing activities.
Our drill units are subject not only to MARPOL regulation of air
emissions, but also to the Bunker Conventions strict
liability for pollution damage caused by discharges of bunker
fuel in ratifying states. We believe that all of our drill units
are currently compliant in all material respects with these
regulations. As described above, in October 2008, MEPC adopted
amendments to the Annex VI regulations that require a
progressive reduction of sulfur oxide levels in heavy bunker
fuels and create more stringent nitrogen oxide emissions
standards for marine engines. We may incur costs to comply with
these revised standards.
Furthermore, any drillships we operate in the waters of the
U.S., including the U.S. territorial sea and the 200
nautical mile exclusive economic zone around the U.S., would
have to comply with OPA and CERCLA regulations, as described
above, that impose liability (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 of oil or other
hazardous substances, other than discharges related to drilling.
Numerous governmental agencies issue such regulations to
implement and enforce the laws of the applicable jurisdiction,
which often involve lengthy permitting procedures, impose
difficult and costly compliance measures particularly in
ecologically sensitive areas, and subject operators to
substantial administrative, civil and criminal penalties or
injunctive relief for failure to comply. Changes in
environmental laws and regulations occur frequently, and any
changes that result in more stringent and costly compliance
could adversely affect our consolidated financial statements.
While we believe that we are in substantial compliance with the
current laws and regulations, there is no assurance that
compliance can be maintained in the future.
Implementation of new environmental laws or regulations that may
apply to ultra-deepwater drilling units may subject us to
increased costs or limit the operational capabilities of our
drilling units and could materially and adversely affect our
operations and financial condition. See Risk
FactorsGovernmental laws and regulations, including
environmental laws and regulations, may add to our costs or
limit our drilling activity.
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In addition to the MARPOL, OPA, and CERCLA requirements
described above, our international operations in the offshore
drilling segment are subject to various laws and regulations in
countries in which we operate, including laws and regulations
relating to the importation of and operation of drilling units
and equipment, currency conversions and repatriation, oil and
natural gas exploration and development, environmental
protection, taxation of offshore earnings and earnings of
expatriate personnel, the use of local employees and suppliers
by foreign contractors and duties on the importation and
exportation of drilling units and other equipment. New
environmental or safety laws and regulations could be enacted,
which could adversely affect our ability to operate in certain
jurisdictions. Governments in some foreign countries have become
increasingly active in regulating and controlling the ownership
of concessions and companies holding concessions, the
exploration for oil and natural gas and other aspects of the oil
and natural gas industries in their countries. In some areas of
the world, this governmental activity has adversely affected the
amount of exploration and development work done by major oil and
natural gas companies and may continue to do so. Operations in
less developed countries can be subject to legal systems that
are not as mature or predictable as those in more developed
countries, which can lead to greater uncertainty in legal
matters and proceedings.
Insurance for Our
Offshore Drilling Rigs
We maintain insurance for our drilling units in accordance with
industry standards. Our insurance is intended to cover normal
risks in our current operations, including insurance against
property damage, loss of hire, war risk and third-party
liability, including pollution liability.
We have obtained insurance for the full assessed market value of
our drilling units. Our insurance provides for premium
adjustments based on claims and is subject to deductibles and
aggregate recovery limits. In the case of pollution liabilities,
our deductible is $25,000 per event and in the case of other
hull and machinery claims, our deductible is $1.5 million
per event. Our insurance coverage may not protect fully against
losses resulting from a required cessation of rig operations for
environmental or other reasons.
We also have loss of hire insurance which becomes effective
after 30 days of off-hire and coverage extends for
approximately one year.
The principal risks which may not be insurable are various
environmental liabilities and liabilities resulting from
reservoir damage caused by our negligence. In addition,
insurance may not be available to us at all or on terms
acceptable to us, that we will maintain insurance or, if we are
so insured, that our policy will be adequate to cover our loss
or liability in all cases.
Our Corporate
Structure
Dryships Inc. is a holding company existing under the laws of
the Marshall Islands. We maintain our principal executive
offices at 80 Kifissias Avenue, Amaroussion 15125, Athens,
Greece. Our telephone number at that address is (011) (30)
(210) 809 0570. Our website address is
www.dryships.com. The information on our website is not a
part of this prospectus.
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RISK
FACTORS
We have identified a number of risk factors which you should
consider before buying the securities we may offer using this
prospectus. These risk factors are incorporated by reference
into this registration statement from the Companys Annual
Report on
Form 20-F
filed on March 31, 2008. Please see Information
Incorporated by Reference. In addition, you should also
consider carefully the risks set forth below, as well as those
under the heading Risk Factors in any prospectus
supplement, before investing in the securities offered by this
prospectus. The occurrence of one or more of these risk factors
could adversely affect our results of operations or financial
condition.
International
Drybulk Shipping IndustrySpecific Risk Factors
Charterhire rates
for drybulk carriers are volatile and may decrease in the
future, which would adversely affect our earnings
The drybulk shipping industry is cyclical with attendant
volatility in charterhire rates and profitability. The degree of
charterhire rate volatility among different types of drybulk
carriers varies widely. Since mid-August 2008, charterhire rates
for Capesize, Panamax and Supramax drybulk carriers have
decreased sharply from their historically high levels. Charter
rates may remain at depressed levels for some time. If the
drybulk shipping market is depressed in the future, our earnings
and available cash flow may decrease. Our ability to re-charter
our vessels on the expiration or termination of their current
time charters and the charter rates payable under any renewal or
replacement charters will depend upon, among other things,
economic conditions in the drybulk shipping market. Fluctuations
in charter rates and vessel values result from changes in the
supply and demand for drybulk cargoes carried internationally at
sea, including coal, iron, ore, grains and minerals.
The factors affecting the supply and demand for vessel capacity
are outside of our control, and the nature, timing and degree of
changes in industry conditions are unpredictable.
The factors that influence demand for vessel capacity include:
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demand for and production of drybulk products;
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global and regional economic and political conditions;
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the distance drybulk cargo is to be moved by sea; and
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changes in seaborne and other transportation patterns.
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The factors that influence the supply of vessel capacity include:
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the number of new building deliveries;
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port and canal congestion;
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the scrapping of older vessels;
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vessel casualties; and
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the number of vessels that are out of service.
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We anticipate that the future demand for our drybulk carriers
will be dependent upon continued economic growth in the
worlds economies, including China and India, seasonal and
regional changes in demand, changes in the capacity of the
global drybulk carrier fleet and the sources and supply of
drybulk cargo to be transported by sea. The capacity of the
global drybulk carrier fleet seems likely to increase and
economic growth may not continue. Adverse economic, political,
social or other developments could have a material adverse
effect on our business and operating results.
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The market values
of our vessels may decrease, which could limit the amount of
funds that we can borrow or trigger certain financial covenants
under our current or future credit facilities and or we may
incur a loss if we sell vessels following a decline in their
market value
The fair market values of our vessels is related to prevailing
freight charter rates. While the fair market value of vessels
and the freight charter market have a very close relationship as
the charter market moves from trough to peak, the time lag
between the effect of charter rates on market values of ships
can vary.
The fair market value of our vessels may increase and decrease
depending on a number of factors including:
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prevailing level of charter rates;
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general economic and market conditions affecting the shipping
industry;
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types and sizes of vessels;
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supply and demand for vessels;
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other modes of transportation;
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cost of newbuildings;
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governmental or other regulations; and
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technological advances.
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In addition, as vessels grow older, they generally decline in
value. If the fair market value of our vessels declines, we may
not be in compliance with certain provisions of our credit
facilities, and our lenders could accelerate our indebtedness or
require us to pay down our indebtedness to a level where we are
again in compliance with our loan covenants. If our indebtedness
is accelerated, we may not be able to refinance our debt or
obtain additional financing. In addition, if we sell one or more
of our vessels at a time when vessel prices have fallen and
before we have recorded an impairment adjustment to our
consolidated financial statements, the sale may be less than the
vessels carrying value on our consolidated financial
statements, resulting in a loss and a reduction in earnings.
Furthermore, if vessel values fall significantly we may have to
record an impairment adjustment in our financial statements
which could adversely affect our financial results.
Changes in the
economic and political environment in China and policies adopted
by the government to regulate its economy may have a material
adverse effect on our business, financial condition and results
of operations
The Chinese economy differs from the economies of most countries
belonging to the Organization for Economic Cooperation and
Development, or OECD, in such respects as structure, government
involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and
balance of payments position. Prior to 1978, the Chinese economy
was a planned economy. Since 1978, increasing emphasis has been
placed on the utilization of market forces in the development of
the Chinese economy. Annual and five year State Plans are
adopted by the Chinese government in connection with the
development of the economy. Although state-owned enterprises
still account for a substantial portion of the Chinese
industrial output, in general, the Chinese government is
reducing the level of direct control that it exercises over the
economy through State Plans and other measures. There is an
increasing level of freedom and autonomy in areas such as
allocation of resources, production, pricing and management and
a gradual shift in emphasis to a market economy and
enterprise reform. Limited price reforms were undertaken, with
the result that prices for certain commodities are principally
determined by market forces. Many of the reforms are
20
unprecedented or experimental and may be subject to revision,
change or abolition based upon the outcome of such experiments.
If the Chinese government does not continue to pursue a policy
of economic reform the level of imports to and exports from
China could be adversely affected by changes to these economic
reforms by the Chinese government, as well as by changes in
political, economic and social conditions or other relevant
policies of the Chinese government, such as changes in laws,
regulations or export and import restrictions, all of which
could, adversely affect our business, operating results and
financial condition.
Offshore Drilling
IndustrySpecific Risk Factors
Our business in
the offshore drilling sector depends on the level of activity in
the offshore oil and gas industry, which is significantly
affected by, among other things, volatile oil and gas prices and
may be materially and adversely affected by a decline in the
offshore oil and gas industry.
The offshore contract drilling industry is cyclical and
volatile. Our business in the offshore drilling sector depends
on the level of activity in oil and gas exploration, development
and production in offshore areas worldwide. The availability of
quality drilling prospects, exploration success, relative
production costs, the stage of reservoir development and
political and regulatory environments affect customers
drilling campaigns. Oil and gas prices and market expectations
of potential changes in these prices also significantly affect
this level of activity and demand for drilling units.
Oil and gas prices are extremely volatile and are affected by
numerous factors beyond our control, including the following:
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worldwide demand for oil and gas;
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the cost of exploring for, developing, producing and delivering
oil and gas;
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expectations regarding future energy prices;
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advances in exploration and development technology;
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the ability of the Organization of Petroleum Exporting
Countries, or OPEC, to set and maintain levels and pricing;
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the level of production in non-OPEC countries;
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government regulations;
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local and international political, economic and weather
conditions;
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domestic and foreign tax policies;
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the development and exploitation of alternative fuels;
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the policies of various governments regarding exploration and
development of their oil and gas reserves; and
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the worldwide military and political environment, including
uncertainty or instability resulting from an escalation or
additional outbreak of armed hostilities or other crises in the
Middle East or other geographic areas or further acts of
terrorism in the United States, or elsewhere.
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Declines in oil and gas prices for an extended period of time
could negatively affect our business in the offshore drilling
sector. Sustained periods of low oil prices typically result in
reduced exploration and drilling because oil and gas
companies capital expenditure budgets are subject to their
cash flow and are therefore sensitive to changes in energy
prices. These changes in commodity prices can have a dramatic
effect on rig demand, and periods of low
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demand can cause excess rig supply and intensify the competition
in the industry which often results in drilling units,
particularly lower specification drilling units, being idle for
long periods of time. We cannot predict the future level of
demand for our services or future conditions of the oil and gas
industry. Any decrease in exploration, development or production
expenditures by oil and gas companies could reduce our revenues
and materially harm our business and results of operations.
In addition to oil and gas prices, the offshore drilling
industry is influenced by additional factors, including:
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the availability of competing offshore drilling vessels;
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the level of costs for associated offshore oilfield and
construction services;
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oil and gas transportation costs;
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the discovery of new oil and gas reserves; and
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the cost of non-conventional hydrocarbons, such as the
exploitation of oil sands.
The offshore
drilling industry is highly competitive and there is intense
price competition, and as a result, we may be unable to compete
successfully with other providers of contract drilling services
that have greater resources than we have.
The offshore contract drilling industry is highly competitive
with numerous industry participants, none of which has a
dominant market share. Drilling contracts are traditionally
awarded on a competitive bid basis. Intense price competition is
often the primary factor in determining which qualified
contractor is awarded the drilling contract, although rig
availability, location, and the quality and technical capability
of service and equipment are key factors which are considered.
Some of our competitors in the drilling industry are larger than
we are and have more diverse fleets, or fleets with generally
higher specifications, and greater resources than us. In
addition, because of the relatively small size of our offshore
drilling segment, we may be unable to take advantage of
economies of scale to the same extent as some of our larger
competitors. Given the high capital requirements that are
inherent in the offshore drilling industry, we may also be
unable to invest in new technologies or expand our fleet in the
future as may be necessary for us to succeed in this industry,
while our larger competitors superior financial resources
may enable them to respond more rapidly to changing market
demands. In addition, mergers among oil and natural gas
exploration and production companies have reduced the number of
available customers, resulting in increased competition for
projects. We may not be able to maintain our competitive
position, and we believe that competition for contracts will
continue to be intense in the foreseeable future. Our inability
to compete successfully may reduce our revenues and
profitability.
An over-supply of
drilling units may lead to a reduction in dayrates and therefore
may materially impact our profitability in our offshore drilling
segment.
During the recent period of high utilization and high dayrates,
industry participants have increased the supply of drilling
units by ordering the construction of new drilling units.
Historically, this has resulted in an oversupply of drilling
units and has caused a subsequent decline in utilization and
dayrates when the drilling units enter the market, sometimes for
extended periods of time until the units have been absorbed into
the active fleet. According to industry sources, the worldwide
fleet of ultra-deepwater drilling units currently consists of
32 units, comprised of 16 rigs and 16 drill-ships. An
additional 39 rigs and 40 drillships are under construction or
on order, which would bring the total fleet to 111 units in
2011 when the last ordered drilling units are scheduled to be
delivered. In addition, two drillships and three drilling rigs
have been ordered for delivery in 2012. During 2007, a total of
25 drilling units were ordered, however new orders appear to
have slowed in 2008 as only three orders for new
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drilling units were placed in the first quarter. Not all of the
drilling units currently under construction have been contracted
for future work, which may intensify price competition as
scheduled delivery dates occur. The entry into service of these
new, upgraded or reactivated drilling units will increase supply
and could curtail a further strengthening, or trigger a
reduction, in dayrates as drilling units are absorbed into the
active fleet. Any further increase in construction of new
drilling units could have a negative impact on utilization and
dayrates. In addition, the new construction of
high-specification rigs, as well as changes in our
competitors drilling rig fleets, could require us to make
material additional capital investments to keep our fleet
competitive. Lower utilization and dayrates could adversely
affect our revenues and profitability. Prolonged periods of low
utilization and dayrates could also result in the recognition of
impairment charges on our drilling units if future cash flow
estimates, based upon information available to management at the
time, indicate that the carrying value of these drilling units
may not be recoverable.
The market value
of our current drilling units and drilling units we may acquire
in the future may decrease, which could cause us to incur losses
if we decide to sell them following a decline in their market
values.
If the offshore contract drilling industry suffers adverse
developments in the future, the fair market value of our
drilling units may decline. The fair market value of the
drilling units we currently own or may acquire in the future may
increase or decrease depending on a number of factors, including:
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prevailing level of drilling services contract dayrates;
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general economic and market conditions affecting the offshore
contract drilling industry, including competition from other
offshore contract drilling companies;
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types, sizes and ages of drilling units;
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supply and demand for drilling units;
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costs of newbuildings;
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governmental or other regulations; and
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technological advances.
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If we sell any drilling unit when drilling unit prices have
fallen and before we have recorded an impairment adjustment to
our financial statements, the sale may be at less than the
drilling units carrying amount on our financial
statements, resulting in a loss. Additionally, our lenders may
accelerate loan prepayments should there be a loss in the market
value of our drilling units. Such loss or prepayment could
materially and adversely affect our business prospects,
financial condition, liquidity, results of operations, and our
ability to pay dividends to our shareholders.
Consolidation of
suppliers may limit our ability to obtain supplies and services
at an acceptable cost, on our schedule or at all, which may have
a material adverse effect on our results of operations and
financial condition.
We rely on certain third parties to provide supplies and
services necessary for our offshore drilling operations,
including but not limited to drilling equipment suppliers,
catering and machinery suppliers. Recent mergers have reduced
the number of available suppliers, resulting in fewer
alternatives for sourcing of key supplies. We may not be able to
obtain supplies and services at an acceptable cost, at the times
we need them or at all. Such consolidation, combined with a high
volume of drilling units under construction, may result in a
shortage of supplies and services thereby potentially inhibiting
the ability of suppliers to deliver on time.
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These cost increases or delays could have a material adverse
affect on our results of operations and financial condition.
Our international
operations in the offshore drilling sector involve additional
risks not associated with our U.S. operations.
We operate in the offshore drilling sector in various regions
throughout the world, including Ghana, that may expose us to
political and other uncertainties, including risks of:
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terrorist acts, war and civil disturbances;
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seizure, nationalization or expropriation of property or
equipment;
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political unrest;
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foreign and U.S. monetary policy and foreign currency
fluctuations and devaluations;
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the inability to repatriate income or capital;
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complications associated with repairing and replacing equipment
in remote locations;
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piracy;
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import-export quotas, wage and price controls, imposition of
trade barriers and other forms of government regulation and
economic conditions that are beyond our control;
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regulatory or financial requirements to comply with foreign
bureaucratic actions; and
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changing taxation policies.
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In addition, international contract drilling operations are
subject to various laws and regulations in countries in which we
operate, including laws and regulations relating to:
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the equipping and operation of drilling units; repatriation of
foreign earnings;
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oil and gas exploration and development;
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taxation of offshore earnings and earnings of expatriate
personnel; and
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use and compensation of local employees and suppliers by foreign
contractors.
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Some foreign governments favor or effectively require the
awarding of drilling contracts to local contractors, require use
of a local agent or require foreign contractors to employ
citizens of, or purchase supplies from, a particular
jurisdiction. These practices may adversely affect our ability
to compete in those regions. It is difficult to predict what
governmental regulations may be enacted in the future that could
adversely affect the international drilling industry. The
actions of foreign governments, including initiatives by OPEC,
may adversely affect our ability to compete.
We are indemnified to some extent against loss of capital
assets, but generally not loss of revenue, from most of these
risks through provisions in our drilling contracts.
Governmental laws
and regulations, including environmental laws and regulations,
may add to our costs or limit our drilling activity.
Our business in the offshore drilling industry is affected by
public policy and laws and regulations relating to the energy
industry and the environment in the geographic areas where we
operate.
The offshore drilling industry is dependent on demand for
services from the oil and gas exploration and production
industry, and accordingly, we are directly affected by the
adoption of laws and regulations that for economic,
environmental or other policy reasons curtail exploration and
development drilling for oil and gas. We may be required to make
significant
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capital expenditures to comply with governmental laws and
regulations. It is also possible that these laws and regulations
may in the future add significantly to our operating costs or
significantly limit drilling activity. Governments in some
countries are increasingly active in regulating and controlling
the ownership of concessions, the exploration for oil and gas,
and other aspects of the oil and gas industries. In recent
years, increased concern has been raised over protection of the
environment. Offshore drilling in certain areas has been opposed
by environmental groups, and has in certain cases been
restricted.
To the extent new laws are enacted or other governmental actions
are taken that prohibit or restrict offshore drilling or impose
additional environmental protection requirements that result in
increased costs to the oil and gas industry in general or the
offshore drilling industry in particular, our business or
prospects could be materially adversely affected. The operation
of our drilling units will require certain governmental
approvals, the number and prerequisites of which cannot be
determined until we identify the jurisdictions in which we will
operate upon securing contracts for the drilling units.
Depending on the jurisdiction, these governmental approvals may
involve public hearings and costly undertakings on our part. We
may not obtain such approvals or such approvals may not be
obtained in a timely manner. If we fail to timely secure the
necessary approvals or permits, our customers may have the right
to terminate or seek to renegotiate their drilling contracts to
our detriment. The amendment or modification of existing laws
and regulations or the adoption of new laws and regulations
curtailing or further regulating exploratory or development
drilling and production of oil and gas could have a material
adverse effect on our business, operating results or financial
condition. Future earnings may be negatively affected by
compliance with any such new legislation or regulations. In
addition, we may become subject to additional laws and
regulations as a result of future rig operations or
repositioning.
We may be subject
to liability under environmental laws and regulations, which
could have a material adverse effect on our results of
operations and financial condition.
Our operations in the offshore drilling industry may involve the
use or handling of materials that may be classified as
environmentally hazardous substances. Environmental laws and
regulations applicable in the countries in which we conduct
operations have generally become more stringent. Such laws and
regulations may expose us to liability for the conduct of or for
conditions caused by others, or for our acts that were in
compliance with all applicable laws at the time such actions
were taken.
During our drilling operations in the past, we have caused the
release of oil, waste and other pollutants into the sea and into
protected areas, such as the Barents Sea. While we conduct
maintenance on our drilling rigs in an effort to prevent such
releases, future releases could occur, especially as our rigs
age. Such releases may be large in quantity, above our permitted
limits or in protected or other areas in which public interest
groups or governmental authorities have an interest. These
releases could result in fines and other costs to us, such as
costs to upgrade our drilling rigs, costs to clean up the
pollution, and costs to comply with more stringent requirements
in our discharge permits. Moreover, these releases may result in
our customers or governmental authorities suspending or
terminating our operations in the affected area, which could
have a material adverse effect on our business, results of
operation and financial condition.
We expect that we will be able to obtain some degree of
contractual indemnification from our customers in most of our
drilling contracts against pollution and environmental damages,
but such indemnification may not be enforceable in all
instances, the customer may not be financially capable in all
cases of complying with its indemnity obligations and we may not
be able to obtain such indemnification agreements in the future.
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We currently maintain insurance coverage against certain
environmental liabilities, including pollution caused by sudden
and accidental oil spills. However, such insurance may not
continue to be available or carried by us or, if available and
carried, may not be adequate to cover any liability in all
circumstances, which could have a material adverse effect on our
business, operating results and financial conditions.
Acts of terrorism
and political and social unrest could affect the markets for
drilling services, which may have a material adverse effect on
our results of operations.
Acts of terrorism and political and social unrest, brought about
by world political events or otherwise, have caused instability
in the worlds financial and insurance markets in the past
and may occur in the future. Such acts could be directed against
companies such as ours. In addition, acts of terrorism and
social unrest could lead to increased volatility in prices for
crude oil and natural gas and could affect the markets for
drilling services and result in lower dayrates. Insurance
premiums could increase and coverages may be unavailable in the
future. U.S. government regulations may effectively
preclude us from actively engaging in business activities in
certain countries. These regulations could be amended to cover
countries where we currently operate or where we may wish to
operate in the future. Increased insurance costs or increased
cost of compliance with applicable regulations may have a
material adverse effect on our results of operations.
CompanySpecific
Risk Factors
A failure to
obtain financing for our newbuilding drillships may result in a
loss of investment and may have a material adverse effect on our
business and results of operations.
Each of the contracts for construction and sale for newbuilding
drillships Hulls 1837 and 1838 require us to make certain
pre-delivery installment payments. In September 2007, Drillship
Paros and Drillship Hydra, the contract owners of these
newbuilding drillships, entered into an agreement with DVB for a
term loan agreement in the aggregate amount of
$230.0 million, representing $115.0 million per Hull,
which may be used to partially fund the first and second
pre-delivery installment payments to the shipyard under such
newbuilding contracts. However, we have not yet obtained
financing for subsequent pre-delivery installment payments,
which amount to 70% of the purchase price of the drillships. If
we are unable to obtain financing for such payments, we may
default under these contracts. A default would entitle the
builder (i) to six percent interest from the due date of
any installment payment and (ii) to rescind the contract.
Rescission of a contract would enable the builder to retain any
installment payments already made and entitle the builder to
sell the applicable drillship to another buyer, which would
result in a loss of our investment and have a material adverse
effect on our business and results of operations.
Disruptions in
world financial markets and the resulting governmental action in
the United States and in other parts of the world could have a
material adverse impact on our ability to obtain financing, our
results of operations, financial condition and cash flows and
could cause the market price of our common stock to
decline.
There are signs that the United States and other parts of the
world are exhibiting deteriorating economic trends and may be
entering into a recession. For example, the credit markets in
the United States have experienced significant contraction,
de-leveraging and reduced liquidity, and the United States
federal government and state governments have implemented and
are considering a broad variety of governmental action
and/or new
regulation of the financial markets. Securities and futures
markets and the credit markets are subject to comprehensive
statutes, regulations and other requirements. The SEC, other
regulators,
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self-regulatory organizations and exchanges are authorized to
take extraordinary actions in the event of market emergencies,
and may effect changes in law or interpretations of existing
laws.
Recently, a number of financial institutions have experienced
serious financial difficulties and, in some cases, have entered
bankruptcy proceedings or are in regulatory enforcement actions.
The uncertainty surrounding the future of the credit markets in
the United States has resulted in reduced access to credit
worldwide. As of October 17, 2008, we have total
outstanding indebtedness of $3.345 billion under our
existing credit facilities. As of October 17, 2008, we have
a total of $973.0 million available under our existing
credit facilities, all of which we expect to draw down in
connection with the construction of the newbuiling drillships
identified as Hulls 1865 and 1866 and vessel acquisitions.
We face risks attendant to changes in economic environments,
changes in interest rates, and instability in certain securities
markets, among other factors. Major market disruptions and the
current adverse changes in market conditions and regulatory
climate in the United States and worldwide may adversely affect
our business or impair our ability to borrow amounts under our
credit facilities or any future financial arrangements. The
current market conditions may last longer than we anticipate.
However, these recent and developing economic and governmental
factors may have a material adverse effect on our results of
operations, financial condition or cash flows and could cause
the price of our common stock to decline significantly.
Sharp declines in
the spot drybulk charter market will affect our earnings and
cash flows from the 14 vessels we operate in the spot
market.
We currently employ fourteen of our vessels in the spot market.
Their charters will expire over the next two months. Vessels
trading in the spot market are exposed to increased risk of
declining charter rates and freight rate volatility compared to
vessels employed on time charters. Since mid-August 2008, the
spot dayrates in the drybulk charter market have declined very
significantly, and drybulk vessel values have also declined both
as a result of a slowdown in the availability of global credit
and the significant deterioration in charter rates. Charter
rates and vessel values have been affected in part by the lack
of availability of credit to finance both vessel purchases and
purchases of commodities carried by sea, resulting in a decline
in cargo shipments, and the excess supply of iron ore in China
which resulted in falling iron ore prices and increased
stockpiles in Chinese ports. There can be no assurance as to how
long charter rates and vessel values will remain at their
currently low levels or whether they will improve to any
significant degree. Charter rates may remain at depressed levels
for some time which will adversely affect our revenue and
profitability.
We are subject to
certain risks with respect to our counterparties under our time
charter agreements and failure of such counterparties to meet
their obligations could cause us to suffer losses or otherwise
adversely affect our business.
Thirty-one of our vessels are currently employed under time
charters with sixteen customers. The ability of each of our
counterparties to perform its obligations under a time charter
agreement with us will depend on a number of factors that are
beyond our control and may include, among other things, general
economic conditions, the condition of the drybulk shipping
industry and the overall financial condition of the
counterparty. In addition, in depressed market conditions, our
customers may fail to pay charterhire. Should a counterparty
fail to honor its obligations under agreements with us, we could
sustain significant losses which could have a material adverse
effect on our business, financial condition, results of
operations and cash flows.
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The preferential
tax rates applicable to qualified dividend income are temporary,
and the enactment of proposed legislation could affect whether
dividends paid by us constitute qualified dividend income
eligible for the preferential rate.
Certain of our distributions may be treated as qualified
dividend income eligible for preferential rates of
U.S. federal income tax to non-corporate
U.S. shareholders. In the absence of legislation extending
the term for these preferential tax rates, all dividends
received by such U.S. taxpayers in tax years beginning on
January 1, 2011 or later will be taxed at graduated tax
rates applicable to ordinary income.
In addition, legislation has been proposed in the
U.S. Congress that would, if enacted, deny the preferential
rate of U.S. federal income tax currently imposed on
qualified dividend income with respect to dividends received
from a
non-U.S. corporation
if the
non-U.S. corporation
is created or organized under the laws of a jurisdiction that
does not have a comprehensive income tax system. Because the
Marshall Islands imposes only limited taxes on entities
organized under its laws, it is likely that if this legislation
were enacted, the preferential tax rates of federal income tax
may no longer be applicable to distributions received from us.
As of the date of this prospectus, it is not possible to predict
with certainty whether this proposed legislation will be enacted.
Our shareholders
that are subject to U.S. federal income taxation in respect of
their ownership of our shares could be subject to adverse U.S.
federal income tax rules if we were to qualify as a
passive foreign investment company.
Generally, a
non-U.S. corporation
will be treated as a passive foreign investment
company, or PFIC, for U.S. federal income tax
purposes if either (i) at least 75% of its gross income for
any taxable year consists of certain types of passive
income or (ii) at least 50% of the average value of
the corporations assets are assets that produce or are
held for the production of passive income. For
purposes of this test, passive income includes
dividends, interest and gains from the sale or exchange of
investment property and rents and royalties other than rents and
royalties from unrelated parties in connection with the active
conduct of a trade or business. For purposes of these tests,
income derived from the performance of services does not
constitute passive income.
We intend to take the position that income that we derive from
time and voyage charters is services income, rather than rental
income, and accordingly that our income from time and voyage
chartering activities does not constitute passive
income and the assets that we own and operate in
connection with the production of that income do not constitute
passive assets. There is, however, no direct legal authority
under the PFIC rules addressing these issues. Accordingly, no
assurance can be given that the United States Internal Revenue
Service or a court of law would agree with our position.
In general, U.S. shareholders of a PFIC are subject to
disadvantageous U.S. federal income tax rules with respect
to their ownership of shares in the PFIC. Generally, under the
PFIC rules, unless U.S. shareholders make an election
available under the United States Internal Revenue Code (which
election could itself have adverse consequences for such
shareholders), such shareholders would be liable to pay
U.S. federal income tax at the then-prevailing highest
income tax rates on ordinary income plus interest on excess
distributions and upon any disposition of our shares, as if the
excess distribution or gain had been recognized ratably over the
shareholders holding period in our shares. Regardless of
the elections made by shareholders, distributions in respect of
our shares will not be treated as qualified dividend income
eligible for preferential rates of U.S. federal income tax
for non-corporate U.S. shareholders if we were treated as a
PFIC for the year of the distribution or the immediately
preceding tax year.
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While there are legal uncertainties involved in this
determination, and this determination is based on part on our
estimates of and expectations regarding the relative fair market
values of our assets, we believe that we should not be treated
as a PFIC for the taxable year ending December 31, 2008.
There can be no assurance, however, that the nature of our
assets, income or operations will not change or that we can
avoid being a PFIC for any subsequent year.
The Spin Off may
result in tax liabilities for shareholders in the absence of the
receipt of cash.
While not all details regarding the Spin Off are currently
known, it is possible that the Spin Off may be treated in some
jurisdictions, such as the United States, as a taxable
distribution, in which case shareholders that are subject to tax
in such jurisdictions would have a tax liability as a result of
the Spin Off even though they do not receive cash with which to
pay such liability.
If market
conditions continue to deteriorate, the Spin Off may be
delayed.
If market conditions in the United States and other parts of the
world continue to exhibit deteriorating economic trends, we may
delay the Spin Off. Such a delay could be substantial and would
result in our offshore drilling operations remaining within
subsidiaries of DryShips Inc.
Currently, our
revenues from the offshore drilling segment depend on two
drilling rigs, which are designed to operate in harsh
environments. The damage or loss of either of these drilling
rigs could have a material adverse effect on our results of
operations and financial condition.
Our revenues from the offshore drilling segment are dependent on
two drilling rigs, the Eirik Raude, which is preparing
for operations offshore Ghana and the Leiv Eiriksson,
which is currently operating in the North Sea. Both drilling
rigs may be exposed to risks inherent in deepwater drilling and
operating in harsh environments that may cause damage or loss.
The drilling of oil and gas wells, particularly exploratory
wells where little is known of the subsurface formations
involves risks, such as extreme pressure and temperature,
blowouts, reservoir damage, loss of production, loss of well
control, lost or stuck drill strings, equipment defects,
punch-throughs, craterings, fires, explosions, pollution and
natural disasters such as hurricanes and tropical storms. In
addition, offshore drilling operations are subject to perils
peculiar to marine operations, either while
on-site or
during mobilization, including capsizing, sinking, grounding,
collision, marine life infestations, and loss or damage from
severe weather. The replacement or repair of a rig could take a
significant amount of time, and we may not have any right to
compensation for lost revenues during that time, despite our
comprehensive loss of hire insurance policy. As long as we have
only two drilling rigs in operation, loss of or serious damage
to one of the drilling rigs could materially reduce our revenues
for the time that a rig is out of operation. In view of the
sophisticated design of the drilling rigs, we may be unable to
obtain a replacement rig that could perform under the conditions
that our drilling rigs are expected to operate, which could have
a material adverse effect on our results of operations and
financial condition.
We are subject to
certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations
could cause us to suffer losses or otherwise adversely affect
our business.
We enter into drilling services contracts with our customers,
newbuilding contracts with shipyards, interest rate swap
agreements and forward exchange contracts, and have employed and
may employ our drilling rigs and newbuild drillships on
fixed-term and well contracts. Our drilling contracts,
newbuilding contracts, and hedging agreements subject us to
counterparty
29
risks. The ability of each of our counterparties to perform its
obligations under a contract with us will depend on a number of
factors that are beyond our control and may include, among other
things, general economic conditions, the condition of the
offshore contract drilling industry, the overall financial
condition of the counterparty, the dayrates received for
specific types of drilling rigs and drillships and various
expenses. In addition, in depressed market conditions, our
customers may no longer need a drilling unit that is currently
under contract or may be able to obtain a comparable drilling
unit at a lower day rate. As a result, customers may seek to
renegotiate the terms of their existing drilling contracts or
avoid their obligations under those contracts. Should a
counterparty fail to honor its obligations under agreements with
us, we could sustain significant losses which could have a
material adverse effect on our business, financial condition,
results of operations and cash flows.
Construction of
drillships are subject to risks, including delays and cost
overruns, which could have an adverse impact on our available
cash resources and results of operations.
We, through our subsidiaries, have entered into contracts with
Samsung Heavy Industries Co. Ltd., or Samsung Heavy Industries,
for the construction of two ultra-deepwater newbuild drillships,
which we expect to take delivery of in the third quarter of
2011. We have also entered into a share purchase agreement to
acquire the owning companies of two additional newbuilding
drillships from a related party. We may also undertake new
construction projects and conversion projects in the future. In
addition, we make significant upgrade, refurbishment, conversion
and repair expenditures for our fleet from time to time,
particularly as our drilling units become older. Some of these
expenditures are unplanned. These projects and other efforts of
this type are subject to risks of cost overruns or delays
inherent in any large construction project as a result of
numerous factors, including the following:
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shipyard unavailability;
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shortages of equipment, materials or skilled labor;
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unscheduled delays in the delivery of ordered materials and
equipment;
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local customs strikes or related work slowdowns that could delay
importation of equipment or materials;
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engineering problems, including those relating to the
commissioning of newly designed equipment;
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latent damages or deterioration to hull, equipment and machinery
in excess of engineering estimates and assumptions;
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work stoppages;
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client acceptance delays;
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weather interference or storm damage;
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disputes with shipyards and suppliers;
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shipyard failures and difficulties;
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failure or delay of third-party equipment vendors or service
providers;
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unanticipated cost increases; and
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difficulty in obtaining necessary permits or approvals or in
meeting permit or approval conditions.
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These factors may contribute to cost variations and delays in
the delivery of our ultra-deepwater newbuild drillships. Delays
in the delivery of these newbuild drillships or the
30
inability to complete construction in accordance with their
design specifications may, in some circumstances, result in
delay in contract commencement, resulting in a loss of revenue
to us, and may also cause customers to renegotiate, terminate or
shorten the term of the drilling contract for the drillship
pursuant to applicable late delivery clauses. In the event of
termination of one of these contracts, we may not be able to
secure a replacement contract on as favorable terms.
Additionally, capital expenditures for drillship upgrades,
refurbishment and construction projects could materially exceed
our planned capital expenditures. Moreover, our drillships that
may undergo upgrade, refurbishment and repair may not earn a day
rate during the periods they are out of service. In addition, in
the event of a shipyard failure or other difficulty, we may be
unable to enforce certain provisions under our newbuilding
contracts such as our refund guarantee, to recover amounts paid
as installments under such contracts. The occurrence of any of
these events may have a material adverse effect on our results
of operations, financial condition or cash flows.
New technologies
may cause our current drilling methods to become obsolete,
resulting in an adverse effect on our business.
The offshore contract drilling industry is subject to the
introduction of new drilling techniques and services using new
technologies, some of which may be subject to patent protection.
As competitors and others use or develop new technologies, we
may be placed at a competitive disadvantage and competitive
pressures may force us to implement new technologies at
substantial cost. Although we purchased the right to use the
Bingo 9000 design, or the Bingo Design, for our drilling rigs,
neither we nor the company from which we purchased those rights
has obtained or applied for any patents or other intellectual
property protection relating to the Bingo Design. As a result,
other parties may challenge our right to use the Bingo Design or
seek damages for the alleged infringement of intellectual
property rights that they may claim to own. We may also lose the
competitive advantage that we sought to achieve through the use
of the Bingo Design if our competitors duplicate key aspects of
the Bingo Design without our permission, and we may be unable to
prevent our competitors from doing so.
Our insurance may
not be adequate to cover our losses that may result from our
operations due to the inherent operational risks of the offshore
drilling contract industry.
We maintain insurance in accordance with industry standards. Our
insurance is intended to cover normal risks in our current
operations, including insurance against property damage, loss of
hire, war risk and third-party liability, including pollution
liability.
Although we have obtained insurance for the full assessed market
value of our drilling units, insurance coverage may not, under
certain circumstances, be available, and if available, may not
provide sufficient funds to protect us from all losses and
liabilities that could result from our operations. We have also
obtained loss of hire insurance which becomes effective after
30 days of downtime and coverage extends for approximately
one year. The principal risks which may not be insurable are
various environmental liabilities and liabilities resulting from
reservoir damage caused by our negligence. Moreover, our
insurance provides for premium adjustments based on claims and
is subject to deductibles and aggregate recovery limits. In the
case of pollution liabilities, our deductible is $25,000 per
event and in the case of other claims, our deductible is
$1.5 million per event and our aggregate recovery limits
are $624 million. Our insurance coverage may not protect
fully against losses resulting from a required cessation of rig
operations for environmental or other reasons. The occurrence of
a casualty, loss or liability against which we may not be fully
insured could significantly reduce our revenues, make it
financially impossible for us to obtain a replacement rig or to
repair a damaged rig, cause us to pay fines or damages which are
generally not insurable and that may
31
have priority over the payment obligations under our
indebtedness or otherwise impair our ability to meet our
obligations under our indebtedness and to operate profitably.
Insurance may not be available to us at all or on terms
acceptable to us, we may not maintain insurance or, if we are so
insured, our policy may not be adequate to cover our loss or
liability in all cases.
Our customers may
be involved the handling of environmentally hazardous substances
and if discharged into the ocean may subject us to pollution
liability which could have a negative impact on our cash flows,
results of operations and ability to pay dividends
Our operations may involve the use or handling of materials that
may be classified as environmentally hazardous substances.
Environmental laws and regulations applicable in the countries
in which we conduct operations have generally become more
stringent. Such laws and regulations may expose us to liability
for the conduct of or for conditions caused by others, or for
our acts that were in compliance with all applicable laws at the
time such actions were taken.
During our drilling operations in the past, we, through our
subsidiary, Ocean Rig, have caused the release of oil, waste and
other pollutants into the sea and into protected areas, such as
the Barents Sea where on April 12, 2005, we discharged less
than one cubic meter of hydraulic oil. While we conduct
maintenance on our drilling rigs in an effort to prevent such
releases, we cannot assure you that future releases will not
occur, especially as our rigs age. Such releases may be large in
quantity, above our permitted limits or in protected or other
areas in which public interest groups or governmental
authorities have an interest. These releases could result in
fines and other costs to us, such as costs to upgrade our
drilling rigs, costs to clean up the pollution, and costs to
comply with more stringent requirements in our discharge
permits. Moreover, these releases may result in our customers or
governmental authorities suspending or terminating our
operations in the affected area, which could have a material
adverse effect on our business, results of operation and
financial condition.
We expect that we will be able to obtain some degree of
contractual indemnification from our customers in most of our
drilling contracts against pollution and environmental damages,
but such indemnification may not be enforceable in all
instances, that the customer will be financially capable in all
cases of complying with its indemnity obligations or that the
Company will be able to obtain such indemnification agreements
in the future.
Because we
generate all of our revenues from the offshore drilling sector
in U.S. dollars but incur a significant portion of our employee
salary and administrative and other expenses in other
currencies, exchange rate fluctuations could have an adverse
impact on our results of operations from the offshore drilling
sector.
Our principal currency for our operations and financing for the
offshore drilling sector is the U.S. Dollar. The dayrates
for the drilling rigs, the Companys principal source of
revenues, are quoted and received in U.S. Dollars. The
principal currency for operating expenses in the offshore
drilling sector is also the U.S. Dollar; however, a
significant portion of employee salaries and administration
expenses, as well as parts of the consumables and repair and
maintenance expenses for the drilling rigs, are paid in
Norwegian Kroner (NOK), Great British Pound (GBP), Canadian
dollar (CAD) and Euro (EUR). The Company is also exposed to
changes in other currencies including the Euro. This could lead
to fluctuations in net income due to changes in the value of the
U.S. Dollar relative to the other currencies. Expenses
incurred in foreign currencies against which the
U.S. Dollar falls in value can increase, resulting in
higher U.S. Dollar denominated expenses. We employ
derivative instruments in order to hedge our currency exposure;
however, we may not be successful in hedging our currency
exposure and
32
our U.S. Dollar denominated results of operations could be
materially and adversely affected upon exchange rate
fluctuations determined by events outside of our control.
Failure to
attract or retain key personnel, labor disruptions or an
increase in labor costs could hurt our operations in the
offshore drilling sector.
We require highly skilled personnel to operate and provide
technical services and support for our business in the offshore
drilling sector worldwide. Competition for the labor required
for drilling operations has intensified as the number of rigs
activated, added to worldwide fleets or under construction has
increased, leading to shortages of qualified personnel in the
industry and creating upward pressure on wages and higher
turnover. If turnover increases, we could see a reduction in the
experience level of our personnel, which could lead to higher
downtime, more operating incidents and personal injury and other
claims, which in turn could decrease revenues and increase
costs. In addition, labor disruptions could hinder our
operations from being carried our normally and if not resolved
in a timely cost-effective manner, could have a material impact
our business. In response to these labor market conditions, we
are increasing efforts in our recruitment, training, development
and retention programs as required to meet our anticipated
personnel needs for offshore drilling. If these labor trends
continue, we may experience further increases in costs or limits
on operations in the offshore drilling sector. Some of our
employees are covered by collective bargaining agreements. If we
choose to cease operations in one of those countries or if
market conditions reduce the demand for our drilling services in
such a country, we would incur costs, which may be material,
associated with workforce reductions. In addition, upon their
expiration, these agreements may be renegotiated, and as a
result, we could experience higher personnel expenses, other
increased costs and increased operating restrictions, which may
be material to our business in the offshore drilling sector.
Our operating and
maintenance costs with respect to our offshore drilling rigs
will not necessarily fluctuate in proportion to changes in
operating revenues, which may have a material adverse effect on
our results of operations, financial condition and cash
flows.
Our operating and maintenance costs with respect to our offshore
drilling rigs will not necessarily fluctuate in proportion to
changes in operating revenues. Operating revenues may fluctuate
as a function of changes in day rate. However, costs for
operating a rig are generally fixed or only semi-variable
regardless of the day rate being earned. In addition, should our
drilling units incur idle time between contracts, we typically
will not de-man those drilling units because we will use the
crew to prepare the rig for its next contract. During times of
reduced activity, reductions in costs may not be immediate as
portions of the crew may be required to prepare rigs for
stacking, after which time the crew members are assigned to
active rigs or dismissed. In addition, as our drilling units are
mobilized from one geographic location to another, the labor and
other operating and maintenance costs can vary significantly. In
general, labor costs increase primarily due to higher salary
levels and inflation. Equipment maintenance expenses fluctuate
depending upon the type of activity the unit is performing and
the age and condition of the equipment. Contract preparation
expenses vary based on the scope and length of contract
preparation required and the duration of the firm contractual
period over which such expenditures are incurred. If we
experience increased operating costs without a corresponding
increase in earnings, this may have a material adverse effect on
our results of operations, financial condition and cash flows.
33
We may be subject
to litigation that, if not resolved in our favor and not
sufficiently insured against, could have a material adverse
effect on us.
We may be, from time to time, involved in various litigation
matters. These matters may include, among other things, contract
disputes, personal injury claims, environmental claims or
proceedings, asbestos and other toxic tort claims, employment
matters, governmental claims for taxes or duties, and other
litigation that arises in the ordinary course of our business.
Although we intend to defend these matters vigorously, we cannot
predict with certainty the outcome or effect of any claim or
other litigation matter, and the ultimate outcome of any
litigation or the potential costs to resolve them may have a
material adverse effect on us. Insurance may not be applicable
or sufficient in all cases, insurers may not remain solvent, and
policies may not be located.
A change in tax laws, treaties or regulations, or their
interpretation, of any country in which we operate our drilling
rigs could result in a high tax rate on our worldwide earnings,
which could result in a significant negative impact on our
earnings and cash flows from operations.
We conduct our worldwide drilling operations through various
subsidiaries. Tax laws and regulations are highly complex and
subject to interpretation. Consequently, we are subject to
changing tax laws, treaties and regulations in and between
countries in which we operate. Our income tax expense is based
upon our interpretation of tax laws in effect in various
countries at the time that the expense was incurred. A change in
these tax laws, treaties or regulations, or in the
interpretation thereof, or in the valuation of our deferred tax
assets, could result in a materially higher tax expense or a
higher effective tax rate on our worldwide earnings, and such
change could be significant to our financial results. If any tax
authority successfully challenges our operational structure,
inter-company pricing policies or the taxable presence of our
key subsidiaries in certain countries; or if the terms of
certain income tax treaties are interpreted in a manner that is
adverse to our structure; or if we lose a material tax dispute
in any country, particularly in the U.S., Canada, the U.K., or
Norway, our effective tax rate on our worldwide earnings from
our offshore drilling operations could increase substantially
and our earnings and cash flows from these operations could be
materially adversely affected. You are encouraged to consult
your own tax advisors concerning the overall tax consequences
arising in your own particular situation under United States
federal, state, local or foreign law of the ownership of common
stock.
34
USE OF
PROCEEDS
Unless we specify otherwise in any prospectus supplement, we
will use the net proceeds from the sale of securities offered by
this prospectus for capital expenditures, repayment of
indebtedness, working capital, to make vessel acquisitions and
for general corporate purposes.
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This document includes assumptions, expectations, projections,
intentions and beliefs about future events. These statements are
intended as forward-looking statements. We caution
that assumptions, expectations, projections, intentions and
beliefs about future events may and often do vary from actual
results and the differences can be material.
All statements in this document that are not statements of
historical fact are forward-looking statements. Forward-looking
statements include, but are not limited to, such matters as:
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future operating or financial results;
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statements about planned, pending or recent acquisitions,
business strategy and expected capital spending or operating
expenses, including drydocking and insurance costs;
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statements about drybulk shipping market trends, including
charter rates and factors affecting supply and demand;
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our ability to obtain additional financing;
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expectations regarding the availability of vessel
acquisitions; and
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anticipated developments with respect to pending litigation.
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The forward-looking statements in this document are based upon
various assumptions, many of which are based, in turn, upon
further assumptions, including without limitation,
managements examination of historical operating trends,
data contained in our records and other data available from
third parties. Although DryShips Inc. believes that these
assumptions were reasonable when made, because these assumptions
are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and
are beyond our control, DryShips Inc. cannot assure you that it
will achieve or accomplish these expectations, beliefs or
projections described in the forward looking statements
contained in this prospectus.
Important factors that, in our view, could cause actual results
to differ materially from those discussed in the forward-looking
statements include the strength of world economies and
currencies, general market conditions, including changes in
charter rates and vessel values, failure of a seller to deliver
one or more vessels, failure of a buyer to accept delivery of a
vessel, inability to procure acquisition financing, default by
one or more charterers of our ships, changes in demand for
drybulk commodities, changes in demand that may affect attitudes
of time charterers, scheduled and unscheduled drydocking,
changes in DryShips Inc.s voyage and operating expenses,
including bunker prices, dry-docking and insurance costs,
changes in governmental rules and regulations, potential
liability from pending or future litigation, domestic and
international political conditions, potential disruption of
shipping routes due to accidents, international hostilities and
political events or acts by terrorists.
When used in this document, the words anticipate,
estimate, project, forecast,
plan, potential, may,
should, and expect reflect
forward-looking statements.
35
RATIO OF EARNINGS
TO FIXED CHARGES
Effective November 1, 2004, we changed our fiscal reporting
year-end from October 31st to December 31st. The
following table sets forth our unaudited ratio of earnings to
fixed charges for the fiscal years ended October 31, 2003
and 2004, the two-month period ended December 31, 2004, the
fiscal years ended December 31, 2005, 2006 and 2007 and the
six month period ended June 30, 2008(1).
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2-Month
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Year Ended
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Period Ended
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6-Month Period
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October 31,
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December 31,
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Year Ended December 31,
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Ended June 30,
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2003
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2004
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2004
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2005
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2006
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2007
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2008
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(in thousands of US dollars)
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Earnings
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Income from continuing operations before income taxes and
minority interest
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$
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7,189
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$
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39,113
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10,713
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$
|
111,017
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|
$
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56,731
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|
$
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474,617
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$
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500,659
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Add: Fixed charges less interest capitalized
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896
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1,410
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368
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20,341
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41,149
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53,370
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46,336
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Less:
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Capitalized interest
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(110
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)
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(2,597
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)
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(3,539
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)
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Add: Equity in net loss of an associate
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299
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6,893
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Total Earnings
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$
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8,085
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$
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40,523
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11,081
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$
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131,358
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$
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97,770
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$
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525,689
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$
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550,349
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Fixed Charges
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Interest expense and capitalized interest
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758
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1,278
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|
257
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19,797
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|
|
|
37,364
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|
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51,180
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|
|
|
36,576
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Amortization and write-off of capitalized expenses relating to
indebtedness
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|
138
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|
132
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|
111
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|
|
544
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|
|
|
3,785
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|
|
|
2,190
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|
|
|
9,760
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|
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Total Fixed Charges
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$
|
896
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$
|
1,410
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|
|
|
368
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|
$
|
20,341
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|
$
|
41,149
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|
$
|
53,370
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|
|
$
|
46,336
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Ratio of Earnings to Fixed Charges
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9.0
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x
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28.7
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x
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30.1
|
x
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6.5
|
x
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2.4
|
x
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|
9.8
|
x
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|
|
11.9x
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|
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|
|
(1)
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|
We have not issued any preferred
shares as of the date of this prospectus
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36
CAPITALIZATION
A prospectus supplement will include information on the
Companys consolidated capitalization.
37
TAXATION
Taxation of Our
Drilling Operations
United States
Federal Income Tax Considerations
We operate in the United States through our subsidiary, Ocean
Rig USA LLC. Ocean Rig USA LLC is engaged in the trade or
business of providing drilling services to third parties on the
United States Outer Continental Shelf. Therefore, Ocean Rig USA
LLC is subject to United States federal income tax on a net
basis on its taxable income. The amount of such taxable income
and such United States federal income tax liability will vary
depending upon the level of Ocean Rig USA LLCs operations
in the United States in any given taxable year.
Other Tax
Considerations
In addition to the tax consequences discussed above, we may be
subject to income tax in jurisdictions where we conduct drilling
activities. The amount of any such tax imposed upon our
operations may be material.
PLAN OF
DISTRIBUTION
We or any selling shareholder may sell or distribute the
securities included in this prospectus through underwriters,
through agents, to dealers, in private transactions, at market
prices prevailing at the time of sale, at prices related to the
prevailing market prices, or at negotiated prices.
In addition, we or any selling shareholders may sell some or all
of our securities included in this prospectus through:
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a block trade in which a broker-dealer may resell a portion of
the block, as principal, in order to facilitate the transaction;
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purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
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ordinary brokerage transactions and transactions in which a
broker solicits purchasers.
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In addition, we or any selling shareholders may enter into
option or other types of transactions that require us or them to
deliver our securities to a broker-dealer, who will then resell
or transfer the securities under this prospectus. We or any
selling shareholder may enter into hedging transactions with
respect to our securities. For example, we or any selling
shareholder may:
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enter into transactions involving short sales of our shares of
common stock by broker-dealers;
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sell shares of common stock short themselves and deliver the
shares to close out short positions;
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enter into option or other types of transactions that require us
or any selling shareholder to deliver shares of common stock to
a broker-dealer, who will then resell or transfer the shares of
common stock under this prospectus; or
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loan or pledge the shares of common stock to a broker-dealer,
who may sell the loaned shares or, in the event of default, sell
the pledged shares.
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We or any selling shareholder may enter into derivative
transactions with third parties, or sell securities not covered
by this prospectus to third parties in privately negotiated
transactions. If the applicable prospectus supplement indicates,
in connection with those derivatives,
38
the third parties may sell securities covered by this prospectus
and the applicable prospectus supplement, including in short
sale transactions. If so, the third party may use securities
pledged by us or any selling shareholder or borrowed from us,
any selling shareholder or others to settle those sales or to
close out any related open borrowings of stock, and may use
securities received from us or any selling shareholder in
settlement of those derivatives to close out any related open
borrowings of stock. The third party in such sale transactions
will be an underwriter and, if not identified in this
prospectus, will be identified in the applicable prospectus
supplement (or a post-effective amendment). In addition, we or a
selling shareholder may otherwise loan or pledge securities to a
financial institution or other third party that in turn may sell
the securities short using this prospectus. Such financial
institution or other third party may transfer its economic short
position to investors in our securities or in connection with a
concurrent offering of other securities.
Any broker-dealers or other persons acting on our behalf or the
behalf of the selling shareholders that participates with us or
any selling shareholders in the distribution of the securities
may be deemed to be underwriters and any commissions received or
profit realized by them on the resale of the securities may be
deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended, or the Securities Act.
At the time that any particular offering of securities is made,
to the extent required by the Securities Act, a prospectus
supplement will be distributed, setting forth the terms of the
offering, including the aggregate number of securities being
offered, the purchase price of the securities, the initial
offering price of the securities, the names of any underwriters,
dealers or agents, any discounts, commissions and other items
constituting compensation from us and any discounts, commissions
or concessions allowed or reallowed or paid to dealers.
Underwriters and agents in any distribution contemplated hereby,
including but not limited to at the market equity offerings, may
from time to time include Cantor Fitzgerald & Co.
Underwriters or agents could make sales in privately negotiated
transactions
and/or any
other method permitted by law, including sales deemed to be an
at-the-market
offering as defined in Rule 415 promulgated under the
Securities Act, which includes sales made directly on or through
the Nasdaq, the existing trading market for our shares of common
stock , or sales made to or through a market maker other than on
an exchange.
On October 1, 2008, Cantor Fitzgerald & Co.
issued an opinion to the audit committee of our board of
directors as to the fairness from a financial point of view of
our acquisition of the nine Capesize vessels in exchange for our
common shares.
We will bear costs relating to all of the securities being
registered under this Registration Statement.
Securities being offered by this prospectus and any accompanying
prospectus supplement may be sold directly by the Company to
shareholders and others, including broker dealers, pursuant to
dividend reinvestment and stock purchase plans.
As a result of requirements of the Financial Industry Regulatory
Authority (FINRA), formerly the National Association of
Securities Dealers, Inc. (NASD), the maximum commission or
discount to be received by any FINRA member or independent
broker/dealer may not be greater than eight percent (8%) of the
gross proceeds received by us or any selling shareholder for the
sale of any securities. If more than 10% of the net proceeds of
any offering of shares of common stock made under this
prospectus will be received by FINRA members participating in
the offering or affiliates or associated persons of such FINRA
members, the offering will be conducted in accordance with NASD
Conduct Rule 2710(h).
39
ENFORCEMENT OF
CIVIL LIABILITIES
DryShips Inc. is a Marshall Islands company and our executive
offices are located outside of the U.S. in Athens, Greece.
A majority of our directors, officers and the experts named in
the prospectus reside outside the U.S. In addition, a
substantial portion of our assets and the assets of our
directors, officers and experts are located outside of the
U.S. As a result, you may have difficulty serving legal
process within the U.S. upon us or any of these persons.
You may also have difficulty enforcing, both in and outside the
U.S., judgments you may obtain in U.S. courts against us or
these persons in any action, including actions based upon the
civil liability provisions of U.S. federal or state
securities laws.
Furthermore, there is substantial doubt that the courts of the
Marshall Islands or Greece would enter judgments in original
actions brought in those courts predicated on U.S. federal
or state securities laws.
PRICE RANGE OF
COMMON STOCK
Our common stock currently trades on the NASDAQ Global Market
under the symbol DRYS. Since the filing of our
Annual Report on
Form 20-F
for the fiscal year ended December 31, 2007, the high and
low closing price of our common stock were as follows:
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Closing Price
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For the Period 2008
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High
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Low
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Third quarter
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$
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79.61
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$
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33.15
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September
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68.78
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33.15
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August
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79.61
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66.30
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July
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79.13
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70.58
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Second quarter
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$
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110.74
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$
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59.98
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June
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95.23
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71.33
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May
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110.74
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83.21
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April
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86.54
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59.98
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First quarter
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$
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87.45
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$
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52.18
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March
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75.09
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55.93
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February
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87.45
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65.42
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January
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79.57
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52.18
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On October 16, the closing price for our common stock on
the Nasdaq Global Market was $19.50 per share.
40
DESCRIPTION OF
CAPITAL STOCK
Authorized and
Outstanding Capital Stock
Under our amended and restated articles of incorporation, our
authorized capital stock consists of 1,000,000,000 shares
of common stock, par value $0.01 per share, of which
43,550,000 shares are issued and outstanding as of
October 17, 2008, and 500,000,000 shares of preferred
stock, none of which were issued as of October 17, 2008.
All of our shares of stock are in registered form.
Share
History
In October 2004, we issued 15,400,000 shares of our common
stock to the Entrepreneurial Spirit Foundation, or the
Foundation, as consideration for the contribution to us of all
of the issued and outstanding capital stock of six of our
subsidiaries. The Foundation is a foundation organized under the
laws of Lichtenstein and is controlled by our Chairman and Chief
Executive Officer Mr. George Economou. Subsequent to the
issuance of the 15,400,000 shares discussed above,
2,772,000 shares of common stock were transferred from the
Foundation to Advice Investments S.A., a corporation organized
under the Republic of Liberia, all the issued and outstanding
capital stock of which is owned by Ms. Elisavet Manola of
Athens, Greece, the ex-wife of Mr. Economou. The Foundation
transferred 1,848,000 shares of common stock to Magic
Management Inc., all of the issued and outstanding capital stock
of which is owned by Ms. Rika Vosniadou of Athens, Greece,
the ex-wife of Mr. Economou. In February 2005, we issued
14,950,000 shares of common stock in connection with our
initial public offering. The net proceeds of the initial public
offering were $251.3 million. On February 14, 2006,
the Foundation transferred all of its shares to its wholly-owned
subsidiary, Elios Investments.
On May 10, 2006, the company filed its universal shelf
registration statement and related prospectus for the issuance
of 5,000,000 shares of common stock. From May 2006 through
August 2006, 4,650,000 shares of common stock with a par
value $0.01 were issued. The net proceeds after underwriting
commissions of 2.5% and other issuance fees were
$56.5 million.
Our shareholders voted to adopt a resolution at our annual
general shareholders meeting on July 11, 2006, which
increased the aggregate number of shares of common stock that
the Company is authorized to issue from 45,000,000 registered
shares with par value of $0.01 to 75,000,000 registered shares
with par value $0.01.
On October 24, 2006, the Companys Board of Directors
agreed to the request of the Companys major shareholders
(Elios Investments Inc., Advice Investments S.A. and Magic
Management Inc.) following the declaration of our $0.20
quarterly dividend per share in September 2006, to receive their
dividend payment in the form of our common stock in lieu of
cash. One of these shareholders, Elios Investments Inc., is
controlled by our Chairman and Chief Executive Officer,
Mr. George Economou. In addition, the Board of Directors
also agreed on that date to the request of a company related to
Mr. Economou to accept repayment of the outstanding balance
of a sellers credit in respect of a vessel purchased by us
(as discussed in Note 3(e) of our consolidated financial
statements included in our annual report on
Form 20-F
for the fiscal year ended December 31, 2006) in shares
of our common stock. As a result of the agreement, an aggregate
of $3,080,000 in dividends and the sellers credit together
with interest amounting to $3,327,000 were settled with 235,585
and 254,512 shares of our common stock, respectively. The
price used as consideration for issuance of the above common
stock was equal to the average closing price of our common stock
on the Nasdaq Global Market over the 8 trading days ended
October 24, 2006, which was $13.07 per share.
In December 2006, the Company filed a registration statement on
Form F-3
on behalf of the Companys major shareholders registering
for resale an aggregate of 15,890,097 shares of our common
stock.
41
In October 2007, the Company filed a universal shelf
registration statement on
Form F-3
ASR (Registration
No. 333-146540)
relating to the offer and sale of an indeterminate amount of
common shares, preferred shares, debt securities, which may be
guaranteed by one or more of our subsidiaries, our warrants, our
purchase contracts and units (the Registration
Statement). In October 2007, the Company filed a
prospectus supplement pursuant to Rule 424(b) relating to
the offer and sale of up to 6,000,000 shares of common
stock, par value $0.01 per share, pursuant to the Companys
Registration Statement, which was amended and supplemented by a
prospectus supplement filed pursuant to Rule 424(b) on
November 7, 2007. From October 2007 through December 2007,
we issued an aggregate of 1,191,000 shares of common stock
with par value $0.01 per share. The net proceeds, after
underwriting commissions ranging between 2% to 2.5% and other
issuance fees, amounted to $127.1 million.
In January 2008, the Company increased the aggregate number of
authorized shares of common stock of the Company from 75,000,000
registered shares with par value of $0.01 to 1,000,000,000
registered shares with a par value of $0.01 and increased the
aggregate number of authorized shares of preferred stock from
30,000,000 registered shares; par value $0.01 per share to
500,000,000 registered preferred shares with a par value of
$0.01 per share.
During the three months ended March 31, 2008, the Company
issued 4,759,000 shares of common stock with par value
$0.01 pursuant to the Registration Statement and related
prospectus supplements filed pursuant to Rule 424(b) on
October 12, 2007 and November 7, 2007. The net
proceeds, after underwriting commissions ranging between 1.5% to
2% and other issuance fees, amounted to $352.6 million.
In March 2008, the Company filed a prospectus supplement
pursuant to Rule 424(b) relating to the offer and sale of
up to an additional 6,000,000 shares of common stock, par
value $0.01 per share, pursuant to the Companys
Registration Statement.
On April 10, 2008, we issued 1,000,000 shares of
common stock out of the 1,834,055 shares reserved in the
Companys 2008 Equity Incentive Plan to Fabiana Services
S.A., or Fabiana. Fabiana, a related party entity incorporated
in the Marshall Islands, provides the services of the
individuals who serve in the positions of Chief Executive and
Interim Chief Financial Officer of the Company. Our Chief
Executive Officer also serves as our Interim Chief Financial
Officer. The shares vest quarterly in eight equal installments
with the first installment of 125,000 shares vesting on
May 28, 2008, in accordance with the consultancy agreement
with Fabiana.
In May 2008, the Company issued 1,109,903 shares of common
stock with par value $0.01 per share pursuant to the
Registration Statement and related prospectus supplement. The
net proceeds, after underwriting commissions of 1.75% and other
issuance fees, amounted to $101.6 million.
We will issue a total of 19,431,840 common shares to the sellers
of the nine Capesize vessels that we have agreed to acquire from
clients of Cardiff. The purchase price for each of the vessel
owning companies is subject to adjustment such that we may issue
additional common shares to the sellers in accordance with the
terms of the respective share purchase agreement. See
Recent DevelopmentsAcquisition of Nine Capesize
Vessels.
Description of
Common Stock
Each outstanding share of common stock entitles the holder to
one vote on all matters submitted to a vote of stockholders.
Subject to preferences that may be applicable to any outstanding
shares of preferred stock, holders of shares of common stock are
entitled to receive ratably all dividends, if any, declared by
our board of directors out of funds legally available for
dividends. Holders of common stock do not have conversion,
redemption or preemptive rights to subscribe to any of our
securities. All outstanding shares of common stock are, and the
shares to be sold in this offering when issued and paid for will
be, fully paid
42
and non-assessable. The rights, preferences and privileges of
holders of common stock are subject to the rights of the holders
of any shares of preferred stock which we may issue in the
future. Our common stock is quoted on the Nasdaq Global Market
under the symbol DRYS.
Our Amended and
Restated Articles of Incorporation and Bylaws
Our purpose, as stated in Section B of our amended and
restated articles of incorporation, is to engage in any lawful
act or activity for which corporations may now or hereafter be
organized under the Marshall Islands Business Corporations Act.
Our amended and restated articles of incorporation and bylaws do
not impose any limitations on the ownership rights of our
shareholders.
Directors
Our directors are elected by a plurality of the votes cast by
stockholders entitled to vote in an election. Our amended and
restated articles of incorporation provide that cumulative
voting shall not be used to elect directors. Our board of
directors must consist of at least three members. The exact
number of directors is fixed by a vote of at least
662/3%
of the entire board. Our by laws provide for a staggered board
of directors whereby directors shall be divided into three
classes: Class A, Class B and Class C which shall
be as nearly equal in number as possible. Shareholders, acting
as at a duly constituted meeting, or by unanimous written
consent of all shareholders, initially designated directors as
Class A, Class B or Class C. Directors designated
as Class B directors served for a term expiring at the 2006
annual meeting. Directors designated Class C directors
served for a term expiring at the 2007 annual meeting.
Class A directors served for a term expiring at the 2008
annual meeting of shareholders. At annual meetings for each
initial term, directors to replace those whose terms expire at
such annual meetings will be elected to hold office until the
third succeeding annual meeting. Each director serves his
respective term of office until his successor has been elected
and qualified, except in the event of his death, resignation,
removal or the earlier termination of his term of office. Our
board of directors has the authority to fix the amounts which
shall be payable to the members of the board of directors for
attendance at any meeting or for services rendered to us.
Stockholder
Meetings
Under our bylaws, annual stockholder meetings will be held at a
time and place selected by our board of directors. The meetings
may be held in or outside of the Marshall Islands. Special
meetings may be called by the board of directors, chairman of
the board or by the president. Our board of directors may set a
record date between 15 and 60 days before the date of any
meeting to determine the stockholders that will be eligible to
receive notice and vote at the meeting.
Dissenters
Rights of Appraisal and Payment
Under the BCA, our stockholders have the right to dissent from
various corporate actions, including any merger or
consolidation, sale of all or substantially all of our assets
not made in the usual course of our business, and receive
payment of the fair value of their shares. In the event of any
further amendment of our amended and restated articles of
incorporation, a stockholder also has the right to dissent and
receive payment for his or her shares if the amendment alters
certain rights in respect of those shares. The dissenting
stockholder must follow the procedures set forth in the BCA to
receive payment. In the event that we and any dissenting
stockholder fail to agree on a price for the shares, the BCA
procedures involve, among other things, the institution of
proceedings in the high court of the Republic of the Marshall
Islands or in any appropriate court in any jurisdiction in which
the Companys shares are primarily traded on a local or
national securities exchange.
43
Stockholders
Derivative Actions
Under the BCA, any of our stockholders may bring an action in
our name to procure a judgment in our favor, also known as a
derivative action, provided that the stockholder bringing the
action is a holder of common stock both at the time the
derivative action is commenced and at the time of the
transaction to which the action relates.
Indemnification
of Officers and Directors
Our bylaws includes a provision that entitles any director or
officer of the Corporation to be indemnified by the Corporation
upon the same terms, under the same conditions and to the same
extent as authorized by the BCA if he acted in good faith and in
a manner reasonably believed to be in and not opposed to the
best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
We are also authorized to carry directors and
officers insurance as a protection against any liability
asserted against our directors and officers acting in their
capacity as directors and officers regardless of whether the
Company would have the power to indemnify such director or
officer against such liability by law or under the provisions of
our by laws. We believe that these indemnification provisions
and insurance are useful to attract and retain qualified
directors and executive officers.
The indemnification provisions in our bylaws may discourage
stockholders from bringing a lawsuit against directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
Anti-takeover
Provisions of our Charter Documents
Several provisions of our amended and restated articles of
incorporation and by-laws may have anti-takeover effects. These
provisions are intended to avoid costly takeover battles, lessen
our vulnerability to a hostile change of control and enhance the
ability of our board of directors to maximize stockholder value
in connection with any unsolicited offer to acquire us. However,
these anti-takeover provisions, which are summarized below,
could also discourage, delay or prevent (1) the merger or
acquisition of our company by means of a tender offer, a proxy
contest or otherwise, that a stockholder may consider in its
best interest and (2) the removal of incumbent officers and
directors.
Blank Check
Preferred Stock
Under the terms of our amended and restated articles of
incorporation, our board of directors has authority, without any
further vote or action by our stockholders, to issue up to
30.0 million shares of blank check preferred stock. Our
board of directors may issue shares of preferred stock on terms
calculated to discourage, delay or prevent a change of control
of our company or the removal of our management.
Classified
Board of Directors
Our amended and restated articles of incorporation provide for a
board of directors serving staggered, three-year terms.
Approximately one-third of our board of directors will be
elected each year. The classified board provision could
discourage a third party from making a tender offer for our
shares or attempting to obtain control of our company. It could
also delay
44
stockholders who do not agree with the policies of the board of
directors from removing a majority of the board of directors for
two years.
Election and
Removal of Directors
Our amended and restated articles of incorporation prohibit
cumulative voting in the election of directors. Our by-laws
require shareholders to give advance written notice of
nominations for the election of directors. Our by- laws also
provide that our directors may be removed only for cause and
only upon affirmative vote of the holders of at least
662/3%
of the outstanding voting shares of the Company. These
provisions may discourage, delay or prevent the removal of
incumbent officers and directors.
Limited
Actions by Stockholders
Our by-laws provide that if a quorum is present, and except as
otherwise expressly provided by law, the affirmative vote of a
majority of the shares of stock represented at the meeting shall
be the act of the shareholders. Shareholders may act by way of
written consent in accordance with the provisions of
Section 67 of the BCA.
Advance Notice
Requirements for Shareholder Proposals and Director
Nominations
Our bylaws provide that shareholders seeking to nominate
candidates for election as directors or to bring business before
an annual meeting of shareholders must provide timely notice of
their proposal in writing to the corporate secretary. Generally,
to be timely, a shareholders notice must be received at
our principal executive offices not less than 150 days nor
more than 180 days prior to the one year anniversary of the
preceding years annual meeting. Our bylaws also specify
requirements as to the form and content of a shareholders
notice. These provisions may impede shareholders ability
to bring matters before an annual meeting of shareholders or
make nominations for directors at an annual meeting of
shareholders.
Stockholders
Rights Agreement
We entered into a Stockholders Rights Agreement with American
Stock Transfer & Trust Company, as Rights Agent,
as of January 18, 2008. Under this Agreement, we declared a
dividend payable of one preferred share purchase right, or
Right, to purchase one one-thousandth of a share of the
Companys Series A Participating Preferred Stock for
each outstanding share of DryShips Inc. common stock, par value
U.S.$0.01 per share. Each Right will separate from the common
stock and become exercisable after (1) a person or group
acquires ownership of 15% or more of the companys common
stock or (2) the 10th business day (or such later date
as determined by the companys board of directors) after a
person or group announces a tender or exchange offer which would
result in that person or group holding 15% or more of the
companys common stock. On the distribution date, each
holder of a right will be entitled to purchase for $250, or the
Exercise Price, a fraction (1/1000th) of one share of the
companys preferred stock which has similar economic terms
as one share of common stock. If an acquiring person, or an
Acquiring Person, acquires more than 15% of the companys
common stock then each holder of a right (except that Acquiring
Person) will be entitled to buy at the Exercise Price, a number
of shares of our common stock which has a market value of twice
the exercise price. Any time after the date an Acquiring Person
obtains more than 15% of our common stock and before that
Acquiring Person acquires more than 50% of our outstanding
common stock, we may exchange each right owned by all other
rights holders, in whole or in part, for one share of our common
stock. The rights expire on the earliest of
(1) February 4, 2018 or (2) the exchange or
redemption of the rights as described above. We can redeem the
rights at any time prior to a public announcement that a person
has acquired ownership of 15% or more of the companys
common stock. The terms of the rights
45
and the Stockholders Rights Agreement may be amended without the
consent of the rights holders at any time on or prior to the
Distribution Date. After the Distribution Date, the terms of the
rights and the Stockholders Rights Agreement may be amended to
make changes that do not adversely affect the rights of the
rights holders (other than the Acquiring Person). The rights do
not have any voting rights. The rights have the benefit of
certain customary anti-dilution protections.
Dividends
While we may not continue to do so, and subject to the
limitations discussed below, we currently intend to pay regular
cash dividends on our common stock on a quarterly basis. We have
paid a quarterly dividend of $0.20 per share to holders of our
common stock each quarter since our initial public offering in
February 2005. Under our credit facility we are restricted in
our payments of dividends. During 2006 dividend payments were
not permitted to exceed $18.0 million. For any dividends
declared or paid in excess of this amount in 2006, the Company
obtained a related written consent from its lenders. Thereafter
dividend payments are not to exceed 50% of net income as
evidenced by the relevant annual audited financial statements.
Declaration and payment of any dividend is subject to the
discretion of our board of directors. The timing and amount of
dividend payments will be dependent upon our earnings, financial
condition, cash requirements and availability, restrictions in
our loan agreements, the terms of the debt securities we offer,
the provisions of applicable law affecting the payment of
distributions to shareholders and other factors. Because we are
a holding company with no material assets other than the stock
of our subsidiaries, our ability to pay dividends will depend on
the earnings and cash flow of our subsidiaries and their ability
to pay dividends to us. The laws governing us and our
subsidiaries generally prohibit the payment of dividends other
than from surplus or while a company is insolvent or would be
rendered insolvent.
DESCRIPTION OF
PREFERRED SHARES
Under the terms of our amended and restated articles of
incorporation, our board of directors has authority, without any
further vote or action by our shareholders, to issue up to
500,000,000 shares of blank check preferred stock. Our
board of directors may issue shares of preferred stock on terms
calculated to discourage, delay or prevent a change of control
of our company or the removal of our management. The material
terms of any series of preferred shares that we offer through a
prospectus supplement will be described in that prospectus
supplement. Our board of directors is authorized to provide for
the issuance of preferred shares in one or more series with
designations as may be stated in the resolution or resolutions
providing for the issue of such preferred shares. At the time
that any series of our preferred shares are authorized, our
board of directors will fix the dividend rights, any conversion
rights, any voting rights, redemption provisions, liquidation
preferences and any other rights, preferences, privileges and
restrictions of that series, as well as the number of shares
constituting that series and their designation. Our board of
directors could, without shareholder approval, cause us to issue
preferred stock which has voting, conversion and other rights
that could adversely affect the holders of our ordinary shares
or make it more difficult to effect a change in control. Our
preferred shares could be used to dilute the share ownership of
persons seeking to obtain control of us and thereby hinder a
possible takeover attempt which, if our shareholders were
offered a premium over the market value of their shares, might
be viewed as being beneficial to our shareholders. In addition,
our preferred shares could be issued with voting, conversion and
other rights and preferences which would adversely affect the
voting power and other rights of holders of our ordinary shares.
The material terms of any series of preferred shares that we
offer through a prospectus supplement will be described in that
prospectus supplement.
46
DESCRIPTION OF
WARRANTS
We may issue warrants to purchase our debt or equity securities
or securities of third parties or other rights, including rights
to receive payment in cash or securities based on the value,
rate or price of one or more specified commodities, currencies,
securities or indices, or any combination of the foregoing.
Warrants may be issued independently or together with any other
securities and may be attached to, or separate from, such
securities. Each series of warrants will be issued under a
separate warrant agreement to be entered into between us and a
warrant agent. The terms of any warrants to be issued and a
description of the material provisions of the applicable warrant
agreement will be set forth in the applicable prospectus
supplement.
The applicable prospectus supplement will describe the following
terms of any warrants in respect of which this prospectus is
being delivered:
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the title of such warrants;
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the aggregate number of such warrants;
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the price or prices at which such warrants will be issued;
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the currency or currencies, in which the price of such warrants
will be payable;
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the securities or other rights, including rights to receive
payment in cash or securities based on the value, rate or price
of one or more specified commodities, currencies, securities or
indices, or any combination of the foregoing, purchasable upon
exercise of such warrants;
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the price at which and the currency or currencies, in which the
securities or other rights purchasable upon exercise of such
warrants may be purchased;
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the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
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if applicable, the minimum or maximum amount of such warrants
which may be exercised at any one time;
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if applicable, the designation and terms of the securities with
which such warrants are issued and the number of such warrants
issued with each such security;
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if applicable, the date on and after which such warrants and the
related securities will be separately transferable;
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information with respect to book-entry procedures, if any;
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if applicable, a discussion of any material United States
Federal income tax considerations; and
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any other terms of such warrants, including terms, procedures
and limitations relating to the exchange and exercise of such
warrants.
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DESCRIPTION OF
DEBT SECURITIES
We may issue debt securities from time to time in one or more
series, under one or more indentures, each dated as of a date on
or prior to the issuance of the debt securities to which it
relates. We may issue senior debt securities and subordinated
debt securities pursuant to separate indentures, a senior
indenture and a subordinated indenture, respectively, in each
case between us and the trustee named in the indenture. These
indentures will be filed either as exhibits to an amendment to
this Registration Statement or a prospectus supplement, or as an
exhibit to a Securities Exchange Act of 1934, or Exchange Act,
report that will be incorporated by reference to the
Registration Statement or a prospectus supplement. We will refer
to any or all of these reports as subsequent
filings. The senior indenture and the subordinated
indenture, as amended or supplemented from time to time, are
sometimes referred to individually as an indenture
and collectively as the indentures. Each indenture
will be subject to and governed by the Trust Indenture Act.
The aggregate principal amount of debt securities which may be
issued under each indenture will be unlimited and each indenture
will contain the specific terms of any series of debt securities
or provide that those terms must be set forth in or determined
pursuant to, an authorizing resolution, as defined in the
applicable prospectus supplement,
and/or a
supplemental indenture, if any, relating to such series.
Certain of our subsidiaries may guarantee the debt securities we
offer. Those guarantees may or may not be secured by liens,
mortgages, and security interests in the assets of those
subsidiaries. The terms and conditions of any such subsidiary
guarantees, and a description of any such liens, mortgages or
security interests, will be set forth in the prospectus
supplement that will accompany this prospectus.
Our statements below relating to the debt securities and the
indentures are summaries of their anticipated provisions, are
not complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the
applicable indenture and any applicable U.S. federal income
tax consideration as well as any applicable modifications of or
additions to the general terms described below in the applicable
prospectus supplement or supplemental indenture.
General
Neither indenture limits the amount of debt securities which may
be issued, and each indenture provides that debt securities may
be issued up to the aggregate principal amount from time to
time. The debt securities may be issued in one or more series.
The senior debt securities will be unsecured and will rank on a
parity with all of our other unsecured and unsubordinated
indebtedness. Each series of subordinated debt securities will
be unsecured and subordinated to all present and future senior
indebtedness of debt securities will be described in an
accompanying prospectus supplement.
You should read the subsequent filings relating to the
particular series of debt securities for the following terms of
the offered debt securities:
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the designation, aggregate principal amount and authorized
denominations;
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the issue price, expressed as a percentage of the aggregate
principal amount;
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the maturity date;
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the interest rate per annum, if any;
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if the offered debt securities provide for interest payments,
the date from which interest will accrue, the dates on which
interest will be payable, the date on which payment of interest
will commence and the regular record dates for interest payment
dates;
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any optional or mandatory sinking fund provisions or conversion
or exchangeability provisions;
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the date, if any, after which and the price or prices at which
the offered debt securities may be optionally redeemed or must
be mandatorily redeemed and any other terms and provisions of
optional or mandatory redemptions;
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if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which offered debt securities of
the series will be issuable;
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if other than the full principal amount, the portion of the
principal amount of offered debt securities of the series which
will be payable upon acceleration or provable in bankruptcy;
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any events of default not set forth in this prospectus;
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the currency or currencies, including composite currencies, in
which principal, premium and interest will be payable, if other
than the currency of the United States of America;
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if principal, premium or interest is payable, at our election or
at the election of any holder, in a currency other than that in
which the offered debt securities of the series are
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stated to be payable, the period or periods within which, and
the terms and conditions upon which, the election may be made;
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whether interest will be payable in cash or additional
securities at our or the holders option and the terms and
conditions upon which the election may be made;
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if denominated in a currency or currencies other than the
currency of the United States of America, the equivalent price
in the currency of the United States of America for purposes of
determining the voting rights of holders of those debt
securities under the applicable indenture;
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if the amount of payments of principal, premium or interest may
be determined with reference to an index, formula or other
method based on a coin or currency other than that in which the
offered debt securities of the series are stated to be payable,
the manner in which the amounts will be determined;
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any restrictive covenants or other material terms relating to
the offered debt securities, which may not be inconsistent with
the applicable indenture;
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whether the offered debt securities will be issued in the form
of global securities or certificates in registered or bearer
form;
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any terms with respect to subordination;
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any listing on any securities exchange or quotation system;
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additional provisions, if any, related to defeasance and
discharge of the offered debt securities; and
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the applicability of any guarantees.
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Unless otherwise indicated in subsequent filings with the
Commission relating to the indenture, principal, premium and
interest will be payable and the debt securities will be
transferable at the corporate trust office of the applicable
trustee. Unless other arrangements are made or set forth in
subsequent filings or a supplemental indenture, principal,
premium and interest will be paid by checks mailed to the
holders at their registered addresses.
Unless otherwise indicated in subsequent filings with the
Commission, the debt securities will be issued only in fully
registered form without coupons, in denominations of $1,000 or
any integral multiple thereof. No service charge will be made
for any transfer or exchange of the
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debt securities, but we may require payment of a sum sufficient
to cover any tax or other governmental charge payable in
connection with these debt securities.
Some or all of the debt securities may be issued as discounted
debt securities, bearing no interest or interest at a rate which
at the time of issuance is below market rates, to be sold at a
substantial discount below the stated principal amount. United
States federal income consequences and other special
considerations applicable to any discounted securities will be
described in subsequent filings with the Commission relating to
those securities.
We refer you to applicable subsequent filings with respect to
any deletions or additions or modifications from the description
contained in this prospectus.
Senior
Debt
We will issue senior debt securities under the senior debt
indenture. These senior debt securities will rank on an equal
basis with all our other unsecured debt except subordinated debt.
Subordinated
Debt
We will issue subordinated debt securities under the
subordinated debt indenture. Subordinated debt will rank
subordinate and junior in right of payment, to the extent set
forth in the subordinated debt indenture, to all our senior debt
(both secured and unsecured).
In general, the holders of all senior debt are first entitled to
receive payment of the full amount unpaid on senior debt before
the holders of any of the subordinated debt securities are
entitled to receive a payment on account of the principal or
interest on the indebtedness evidenced by the subordinated debt
securities in certain events.
If we default in the payment of any principal of, or premium, if
any, or interest on any senior debt when it becomes due and
payable after any applicable grace period, then, unless and
until the default is cured or waived or ceases to exist, we
cannot make a payment on account of or redeem or otherwise
acquire the subordinated debt securities.
If there is any insolvency, bankruptcy, liquidation or other
similar proceeding relating to us or our property, then all
senior debt must be paid in full before any payment may be made
to any holders of subordinated debt securities.
Furthermore, if we default in the payment of the principal of
and accrued interest on any subordinated debt securities that is
declared due and payable upon an event of default under the
subordinated debt indenture, holders of all our senior debt will
first be entitled to receive payment in full in cash before
holders of such subordinated debt can receive any payments.
Senior debt means:
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the principal, premium, if any, interest and any other amounts
owing in respect of our indebtedness for money borrowed and
indebtedness evidenced by securities, notes, debentures, bonds
or other similar instruments issued by us, including the senior
debt securities or letters of credit;
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all capitalized lease obligations;
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all hedging obligations;
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all obligations representing the deferred purchase price of
property; and
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all deferrals, renewals, extensions and refundings of
obligations of the type referred to above;
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but senior debt does not include:
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subordinated debt securities; and
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any indebtedness that by its terms is subordinated to, or ranks
on an equal basis with, our subordinated debt securities.
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Covenants
Any series of offered debt securities may have covenants in
addition to or differing from those included in the applicable
indenture which will be described in subsequent filings prepared
in connection with the offering of such securities, limiting or
restricting, among other things:
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the ability of us or our subsidiaries to incur either secured or
unsecured debt, or both;
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the ability to make certain payments, dividends, redemptions or
repurchases;
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our ability to create dividend and other payment restrictions
affecting our subsidiaries;
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our ability to make investments;
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mergers and consolidations by us or our subsidiaries;
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sales of assets by us;
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our ability to enter into transactions with affiliates;
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our ability to incur liens; and
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sale and leaseback transactions.
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Modification of
the Indentures
Each indenture and the rights of the respective holders may be
modified by us only with the consent of holders of not less than
a majority in aggregate principal amount of the outstanding debt
securities of all series under the respective indenture affected
by the modification, taken together as a class. But no
modification that:
changes the amount of securities whose holders must consent to
an amendment, supplement or waiver;
reduces the rate of or changes the interest payment time on any
security or alters its redemption provisions (other than any
alteration to any such section which would not materially
adversely affect the legal rights of any holder under the
indenture) or the price at which we are required to offer to
purchase the securities;
reduces the principal or changes the maturity of any security or
reduce the amount of, or postpone the date fixed for, the
payment of any sinking fund or analogous obligation;
waives a default or event of default in the payment of the
principal of or interest, if any, on any security (except a
rescission of acceleration of the securities of any series by
the holders of at least a majority in principal amount of the
outstanding securities of that series and a waiver of the
payment default that resulted from such acceleration);
makes the principal of or interest, if any, on any security
payable in any currency other than that stated in the Security;
makes any change with respect to holders rights to receive
principal and interest, the terms pursuant to which defaults can
be waived, certain modifications affecting shareholders or
certain currency-related issues; or
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waives a redemption payment with respect to any Security or
change any of the provisions with respect to the redemption of
any securities
will be effective against any holder without his consent. Other
terms as specified in subsequent filings may be modified without
the consent of the holders.
Events of
Default
Each indenture defines an event of default for the debt
securities of any series as being any one of the following
events:
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default in any payment of interest when due which continues for
30 days;
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default in any payment of principal or premium when due;
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default in the deposit of any sinking fund payment when due;
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default in the performance of any covenant in the debt
securities or the applicable indenture which continues for
60 days after we receive notice of the default;
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default under a bond, debenture, note or other evidence of
indebtedness for borrowed money by us or our subsidiaries (to
the extent we are directly responsible or liable
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therefor) having a principal amount in excess of a minimum
amount set forth in the applicable subsequent filing, whether
such indebtedness now exists or is hereafter created, which
default shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it
would otherwise have become due and payable, without such
acceleration having been rescinded or annulled or cured within
30 days after we receive notice of the default; and
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events of bankruptcy, insolvency or reorganization.
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An event of default of one series of debt securities does not
necessarily constitute an event of default with respect to any
other series of debt securities.
There may be such other or different events of default as
described in an applicable subsequent filing with respect to any
class or series of offered debt securities.
In case an event of default occurs and continues for the debt
securities of any series, the applicable trustee or the holders
of not less than 25% in aggregate principal amount of the debt
securities then outstanding of that series may declare the
principal and accrued but unpaid interest of the debt securities
of that series to be due and payable. Any event of default for
the debt securities of any series which has been cured may be
waived by the holders of a majority in aggregate principal
amount of the debt securities of that series then outstanding.
Each indenture requires us to file annually after debt
securities are issued under that indenture with the applicable
trustee a written statement signed by two of our officers as to
the absence of material defaults under the terms of that
indenture. Each indenture provides that the applicable trustee
may withhold notice to the holders of any default if it
considers it in the interest of the holders to do so, except
notice of a default in payment of principal, premium or interest.
Subject to the duties of the trustee in case an event of default
occurs and continues, each indenture provides that the trustee
is under no obligation to exercise any of its rights or powers
under that indenture at the request, order or direction of
holders unless the holders have offered to the trustee
reasonable indemnity. Subject to these provisions for
indemnification and the rights of the trustee, each indenture
provides that the holders of a majority in principal amount of
the debt securities of any series then outstanding have the
right to direct the time, method and place of conducting any
proceeding for any remedy available to the
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trustee or exercising any trust or power conferred on the
trustee as long as the exercise of that right does not conflict
with any law or the indenture.
Defeasance and
Discharge
The terms of each indenture provide us with the option to be
discharged from any and all obligations in respect of the debt
securities issued thereunder upon the deposit with the trustee,
in trust, of money or U.S. government obligations, or both,
which through the payment of interest and principal in
accordance with their terms will provide money in an amount
sufficient to pay any installment of principal, premium and
interest on, and any mandatory sinking fund payments in respect
of, the debt securities on the stated maturity of the payments
in accordance with the terms of the debt securities and the
indenture governing the debt securities. This right may only be
exercised if, among other things, we have received from, or
there has been published by, the United States Internal Revenue
Service a ruling to the effect that such a discharge will not be
deemed, or result in, a taxable event with respect to holders.
This discharge would not apply to our obligations to register
the transfer or exchange of debt securities, to replace stolen,
lost or mutilated debt securities, to maintain paying agencies
and hold moneys for payment in trust.
Defeasance of
Certain Covenants
The terms of the debt securities provide us with the right to
omit complying with specified covenants and that specified
events of default described in a subsequent filing will not
apply. In order to exercise this right, we will be required to
deposit with the trustee money or U.S. government
obligations, or both, which through the payment of interest and
principal will provide money in an amount sufficient to pay
principal, premium, if any, and interest on, and any mandatory
sinking fund payments in respect of, the debt securities on the
stated maturity of such payments in accordance with the terms of
the debt securities and the indenture governing such debt
securities. We will also be required to deliver to the trustee
an opinion of counsel to the effect that we have received from,
or there has been published by, the IRS a ruling to the effect
that the deposit and related covenant defeasance will not cause
the holders of such series to recognize income, gain or loss for
federal income tax purposes.
A subsequent filing may further describe the provisions, if any,
of any particular series of offered debt securities permitting a
discharge defeasance.
Subsidiary
Guarantees
Certain of our subsidiaries may guarantee the debt securities we
offer. In that case, the terms and conditions of the subsidiary
guarantees will be set forth in the applicable prospectus
supplement. Unless we indicate differently in the applicable
prospectus supplement, if any of our subsidiaries guarantee any
of our debt securities that are subordinated to any of our
senior indebtedness, then the subsidiary guarantees will be
subordinated to the senior indebtedness of such subsidiary to
the same extent as our debt securities are subordinated to our
senior indebtedness.
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global securities that will be
deposited with, or on behalf of, a depository identified in an
applicable subsequent filing and registered in the name of the
depository or a nominee for the depository. In such a case, one
or more global securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate
principal amount of outstanding debt securities of the series to
be represented by the global security or securities. Unless and
until it is exchanged in whole or in part for debt securities in
definitive certificated form, a
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global security may not be transferred except as a whole by the
depository for the global security to a nominee of the
depository or by a nominee of the depository to the depository
or another nominee of the depository or by the depository or any
nominee to a successor depository for that series or a nominee
of the successor depository and except in the circumstances
described in an applicable subsequent filing.
We expect that the following provisions will apply to depository
arrangements for any portion of a series of debt securities to
be represented by a global security. Any additional or different
terms of the depository arrangement will be described in an
applicable subsequent filing.
Upon the issuance of any global security, and the deposit of
that global security with or on behalf of the depository for the
global security, the depository will credit, on its book-entry
registration and transfer system, the principal amounts of the
debt securities represented by that global security to the
accounts of institutions that have accounts with the depository
or its nominee. The accounts to be credited will be designated
by the underwriters or agents engaging in the distribution of
the debt securities or by us, if the debt securities are offered
and sold directly by us. Ownership of beneficial interests in a
global security will be limited to participating institutions or
persons that may hold interest through such participating
institutions. Ownership of beneficial interests by participating
institutions in the global security will be shown on, and the
transfer of the beneficial interests will be effected only
through, records maintained by the depository for the global
security or by its nominee. Ownership of beneficial interests in
the global security by persons that hold through participating
institutions will be shown on, and the transfer of the
beneficial interests within the participating institutions will
be effected only through, records maintained by those
participating institutions. The laws of some jurisdictions may
require that purchasers of securities take physical delivery of
the securities in certificated form. The foregoing limitations
and such laws may impair the ability to transfer beneficial
interests in the global securities.
So long as the depository for a global security, or its nominee,
is the registered owner of that global security, the depository
or its nominee, as the case may be, will be considered the sole
owner or holder of the debt securities represented by the global
security for all purposes under the applicable indenture. Unless
otherwise specified in an applicable subsequent filing and
except as specified below, owners of beneficial interests in the
global security will not be entitled to have debt securities of
the series represented by the global security registered in
their names, will not receive or be entitled to receive physical
delivery of debt securities of the series in certificated form
and will not be considered the holders thereof for any purposes
under the indenture. Accordingly, each person owning a
beneficial interest in the global security must rely on the
procedures of the depository and, if such person is not a
participating institution, on the procedures of the
participating institution through which the person owns its
interest, to exercise any rights of a holder under the indenture.
The depository may grant proxies and otherwise authorize
participating institutions to give or take any request, demand,
authorization, direction, notice, consent, waiver or other
action which a holder is entitled to give or take under the
applicable indenture. We understand that, under existing
industry practices, if we request any action of holders or any
owner of a beneficial interest in the global security desires to
give any notice or take any action a holder is entitled to give
or take under the applicable indenture, the depository would
authorize the participating institutions to give the notice or
take the action, and participating institutions would authorize
beneficial owners owning through such participating institutions
to give the notice or take the action or would otherwise act
upon the instructions of beneficial owners owning through them.
Unless otherwise specified in an applicable subsequent filings,
payments of principal, premium and interest on debt securities
represented by global security registered in the name
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of a depository or its nominee will be made by us to the
depository or its nominee, as the case may be, as the registered
owner of the global security.
We expect that the depository for any debt securities
represented by a global security, upon receipt of any payment of
principal, premium or interest, will credit participating
institutions accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of the global security as shown on the records
of the depository. We also expect that payments by participating
institutions to owners of beneficial interests in the global
security held through those participating institutions will be
governed by standing instructions and customary practices, as is
now the case with the securities held for the accounts of
customers registered in street names, and will be the
responsibility of those participating institutions. None of us,
the trustees or any agent of ours or the trustees will have any
responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests
in a global security, or for maintaining, supervising or
reviewing any records relating to those beneficial interests.
Unless otherwise specified in the applicable subsequent filings,
a global security of any series will be exchangeable for
certificated debt securities of the same series only if:
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the depository for such global securities notifies us that it is
unwilling or unable to continue as depository or such depository
ceases to be a clearing agency registered
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under the Exchange Act and, in either case, a successor
depository is not appointed by us within 90 days after we
receive the notice or become aware of the ineligibility;
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we in our sole discretion determine that the global securities
shall be exchangeable for certificated debt securities; or
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there shall have occurred and be continuing an event of default
under the applicable indenture with respect to the debt
securities of that series.
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Upon any exchange, owners of beneficial interests in the global
security or securities will be entitled to physical delivery of
individual debt securities in certificated form of like tenor
and terms equal in principal amount to their beneficial
interests, and to have the debt securities in certificated form
registered in the names of the beneficial owners, which names
are expected to be provided by the depositorys relevant
participating institutions to the applicable trustee.
In the event that the Depository Trust Company, or DTC,
acts as depository for the global securities of any series, the
global securities will be issued as fully registered securities
registered in the name of Cede & Co., DTCs
partnership nominee.
DTC is a limited purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds
securities that its participating institutions deposit with DTC.
DTC also facilitates the settlement among participating
institutions of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized
book-entry changes in participating institutions accounts,
thereby eliminating the need for physical movement of securities
certificates. Direct participating institutions include
securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. DTC is owned by a number
of its direct participating institutions and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others, such as securities
brokers and dealers and banks and trust companies that clear
through or maintain a custodial relationship with a
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direct participating institution, either directly or indirectly.
The rules applicable to DTC and its participating institutions
are on file with the Commission.
To facilitate subsequent transfers, the debt securities may be
registered in the name of DTCs nominee, Cede &
Co. The deposit of the debt securities with DTC and their
registration in the name of Cede & Co. will effect no
change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the debt securities. DTCs
records reflect only the identity of the direct participating
institutions to whose accounts debt securities are credited,
which may or may not be the beneficial owners. The participating
institutions remain responsible for keeping account of their
holdings on behalf of their customers.
Delivery of notices and other communications by DTC to direct
participating institutions, by direct participating institutions
to indirect participating institutions, and by direct
participating institutions and indirect participating
institutions to beneficial owners of debt securities are
governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect.
Neither DTC nor Cede & Co. consents or votes with
respect to the debt securities. Under its usual procedures, DTC
mails a proxy to the issuer as soon as possible after the record
date. The proxy assigns Cede & Co.s consenting
or voting rights to those direct participating institution to
whose accounts the debt securities are credited on the record
date.
If applicable, redemption notices shall be sent to
Cede & Co. If less than all of the debt securities of
a series represented by global securities are being redeemed,
DTCs practice is to determine by lot the amount of the
interest of each direct participating institutions in that issue
to be redeemed.
To the extent that any debt securities provide for repayment or
repurchase at the option of the holders thereof, a beneficial
owner shall give notice of any option to elect to have its
interest in the global security repaid by us, through its
participating institution, to the applicable trustee, and shall
effect delivery of the interest in a global security by causing
the direct participating institution to transfer the direct
participating institutions interest in the global security
or securities representing the interest, on DTCs records,
to the applicable trustee. The requirement for physical delivery
of debt securities in connection with a demand for repayment or
repurchase will be deemed satisfied when the ownership rights in
the global security or securities representing the debt
securities are transferred by direct participating institutions
on DTCs records.
DTC may discontinue providing its services as securities
depository for the debt securities at any time. Under such
circumstances, in the event that a successor securities
depository is not appointed, debt security certificates are
required to be printed and delivered as described above.
We may decide to discontinue use of the system of book-entry
transfers through the securities depository. In that event, debt
security certificates will be printed and delivered as described
above.
The information in this section concerning DTC and DTCs
book-entry system has been obtained from sources that we believe
to be reliable, but we take no responsibility for its accuracy.
56
DESCRIPTION OF
PURCHASE CONTRACTS
We may issue purchase contracts for the purchase or sale of:
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debt or equity securities issued by us or securities of third
parties, a basket of such securities, an index or indices of
such securities or any combination of the above as specified in
the applicable prospectus supplement;
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currencies; or
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commodities.
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Each purchase contract will entitle the holder thereof to
purchase or sell, and obligate us to sell or purchase, on
specified dates, such securities, currencies or commodities at a
specified purchase price, which may be based on a formula, all
as set forth in the applicable prospectus supplement. We may,
however, satisfy our obligations, if any, with respect to any
purchase contract by delivering the cash value of such purchase
contract or the cash value of the property otherwise deliverable
or, in the case of purchase contracts on underlying currencies,
by delivering the underlying currencies, as set forth in the
applicable prospectus supplement. The applicable prospectus
supplement will also specify the methods by which the holders
may purchase or sell such securities, currencies or commodities
and any acceleration, cancellation or termination provisions or
other provisions relating to the settlement of a purchase
contract.
The purchase contracts may require us to make periodic payments
to the holders thereof or vice versa, which payments may be
deferred to the extent set forth in the applicable prospectus
supplement, and those payments may be unsecured or pre-funded on
some basis. The purchase contracts may require the holders
thereof to secure their obligations in a specified manner to be
described in the applicable prospectus supplement.
Alternatively, purchase contracts may require holders to satisfy
their obligations thereunder when the purchase contracts are
issued. Our obligation to settle such pre-paid purchase
contracts on the relevant settlement date may constitute
indebtedness. Accordingly, pre-paid purchase contracts will be
issued under either the senior indenture or the subordinated
indenture.
DESCRIPTION OF
UNITS
As specified in the applicable prospectus supplement, we may
issue units consisting of one or more purchase contracts,
warrants, debt securities, preferred shares, common stock or any
combination of such securities. The applicable prospectus
supplement will describe:
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the terms of the units and of the purchase contracts, warrants,
debt securities, preferred shares and common stock comprising
the units, including whether and under what circumstances the
securities comprising the units may be traded separately;
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a description of the terms of any unit agreement governing the
units; and
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a description of the provisions for the payment, settlement,
transfer or exchange or the units.
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EXPENSES
The following are the estimated expenses of the issuance and
distribution of the securities being registered under the
Registration Statement of which this prospectus forms a part,
all of which will be paid by us.
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SEC registration fee
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$
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*
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Blue sky fees and expenses
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$
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*
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Printing and engraving expenses
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$
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*
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Legal fees and expenses
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$
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*
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Rating agency fees
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$
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*
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Accounting fees and expenses
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$
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*
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Indenture trustee fees and experts
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$
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*
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Transfer agent and registrar
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$
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*
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Miscellaneous
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$
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*
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Total
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$
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*
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*
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To be provided by a prospectus
supplement or as an exhibit to Report on
Form 6-K
that is incorporated by reference into this prospectus.
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LEGAL
MATTERS
The validity of the securities offered by this prospectus with
respect to Marshall Islands law and certain other legal matters
relating to United States and Marshall Islands law will be
passed upon for us by Seward & Kissel LLP, New York,
New York.
EXPERTS
The consolidated financial statements as of December 31,
2007 and for the year ended December 31, 2007, incorporated
in this Prospectus by reference from the DryShips Inc. and
subsidiaries Annual Report on
Form 20-F
for the year ended December 31, 2007, and the effectiveness
of the DryShips Inc. and subsidiaries internal control over
financial reporting as of December 31, 2007 have been
audited by Deloitte, Hadjipavlou, Sofianos & Cambanis
S.A., an independent registered public accounting firm, as
stated in their reports, which are incorporated herein by
reference. Such financial statements have been so incorporated
in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of DryShips at
December 31, 2006 and for each of the two years in the
period ended December 31, 2006, incorporated in this
prospectus by reference from our Annual Report on
Form 20-F
for the year ended December 31, 2007, filed with the SEC on
March 31, 2008 have been audited by Ernst & Young
(Hellas) Certified Auditors Accountants S.A., independent
registered public accounting firm, as stated in their report,
which is incorporated in this prospectus by reference, and have
been so incorporated in reliance on the report of such firm
given upon their authority as experts in accounting and auditing.
WHERE YOU CAN
FIND ADDITIONAL INFORMATION
As required by the Securities Act of 1933, we filed a
registration statement relating to the securities offered by
this prospectus with the Commission. This prospectus is a part
of that registration statement, which includes additional
information.
58
Government
Filings
We file annual and special reports within the Commission. You
may read and copy any document that we file at the public
reference facilities maintained by the Commission at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling 1
(800) SEC-0330, and you may obtain copies at prescribed
rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. 20549. The Commission
maintains a website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding registrants that file electronically
with the Commission.
Information
Incorporated by Reference
The SEC allows us to incorporate by reference
information that we file with it. This means that we can
disclose important information to you by referring you to those
filed documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that
we file later with the SEC prior to the termination of this
offering will also be considered to be part of this prospectus
and will automatically update and supersede previously filed
information, including information contained in this document.
We incorporate by reference the documents listed below and any
future filings made with the Commission under
Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
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Annual Report on
Form 20-F
for the year ended December 31, 2007, filed with the
Commission on March 31, 2008 which contains audited
consolidated financial statements for the most recent fiscal
year for which those statements have been filed;
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The description of our securities contained in our Registration
Statement on
Form F-1,
(File
No. 333-122008)
as amended, filed with the SEC on January 13, 2005 and any
amendment or report filed for the purpose of updating that
description; and
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Our reports on
Form 6-K
filed with the Commission on May 1, 2008 and our report on
Form 6-K/A
filed with the Commission on October 17, 2008.
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We are also incorporating by reference all subsequent annual
reports on
Form 20-F
that we file with the Commission and certain Reports on
Form 6-K
that we furnish to the Commission after the date of this
prospectus (if they state that they are incorporated by
reference into this prospectus) until we file a post-effective
amendment indicating that the offering of the securities made by
this prospectus has been terminated. In all cases, you should
rely on the later information over different information
included in this prospectus or the prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus and any
accompanying prospectus supplement. We have not, and any
underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to
sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in this prospectus and any accompanying prospectus
supplement as well as the information we previously filed with
the Commission and incorporated by reference, is accurate as of
the dates on the front cover of those documents only. Our
business, financial condition and results of operations and
prospects may have changed since those dates.
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You may request a free copy of the above mentioned filing or any
subsequent filing we incorporated by reference to this
prospectus by writing or telephoning us at the following address:
DryShips Inc.
Attn: George Economou
80 Kifissias Avenue
Amaroussion GR 151 25
(011) (30) 210 80 90 570
Information
Provided by the Company
We will furnish holders of our common stock with annual reports
containing audited financial statements and a report by our
independent registered public accounting firm. The audited
financial statements will be prepared in accordance with
U.S. generally accepted accounting principles. As a
foreign private issuer, we are exempt from the rules
under the Securities Exchange Act prescribing the furnishing and
content of proxy statements to shareholders. While we furnish
proxy statements to shareholders in accordance with the rules of
the Nasdaq Global Market, those proxy statements do not conform
to Schedule 14A of the proxy rules promulgated under the
Securities Exchange Act. In addition, as a foreign private
issuer, our officers and directors are exempt from the
rules under the Securities Exchange Act relating to short swing
profit reporting and liability.
60
DryShips
Inc.
10,000,000 Shares
Common Stock
Deutsche Bank
Securities
Prospectus Supplement
April , 2010