A. Share Capital Not Applicable.
B. Memorandum and articles of association
Our amended and restated articles of incorporation and amended and restated bylaws have been filed as exhibit 3.1 and 3.2 to our Registration Statement on form F-1 filed with the Securities and Exchange Commission on June 4, 2007 with file number 333-143481 The information contained in these exhibits is incorporated by reference herein.
Information regarding the rights, preferences and restrictions attaching to each class of the shares is described in section “Description of Capital Stock” in our Registration Statement on Form F-1 filed with the Securities and Exchange Commission on July 19, 2007 with file number 333-144687, provided that since the date of that Registration Statement, our outstanding shares of common stock has increased to 26,961,612 as of April 4, 2008.
C. Material Contracts
We refer you to Item 7.B for a discussion of our registration rights agreement with our stockholders of record before our initial public offering and agreements with companies controlled by our chairman and chief
executive officer, Mr. Michael Bordouroglou. Other than these agreements, we have no material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any affiliate of the Company is a party.
D. Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common stock.
E. Taxation
United States Taxation
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report. This discussion assumes that we do not have an office or other fixed place of business in the United States. Unless the context otherwise requires, the reference to Company below shall be meant to refer to both the Company and its vessel owning and operating subsidiaries.
Taxation of the Company’s Shipping Income: In General
The Company anticipates that it will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as “shipping income.”
Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The Company is not permitted by law to engage in transportation that gives rise to 100% U.S. source income. 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 U.S. federal income tax.
The Company’s vessels will operate in various parts of the world, including to or from U.S. ports. Unless exempt from U.S. taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the manner discussed below, to the extent its shipping income is considered derived from sources within the United States.
In the year ended December 31, 2007, approximately 12%, of the Company’s shipping income was attributable to the transportation of cargoes either to or from a U.S. port. Accordingly, 6% of the Company’s shipping income would be treated as derived from U.S. sources for the year ended December 31, 2007. In the absence of exemption from tax under Section 883, the Company would have been subject to a 4% tax on its gross U.S. source shipping income equal to approximately $0.17 million for the year ended December 31, 2007.
Application of Code Section 883
Under the relevant provisions of Section 883 of the Code and the final regulations promulgated thereunder, or the final regulations, a foreign corporation will be exempt from U.S. taxation on its U.S. source shipping income if:
(1) It is organized in a qualified foreign country which, as defined, is one that grants an equivalent exemption from tax to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883, or the “country of organization requirement”; and
(2) It can satisfy any one of the following two (2) stock ownership requirements:
more than 50% of its stock, in terms of value, is beneficially owned by qualified stockholders which, as defined, includes individuals who are residents of a qualified foreign country, or the “50% Ownership Test”; or
its stock or that of its 100% parent is “primarily and regularly” traded on an established securities market located in the United States, or the “Publicly Traded Test”.
The U.S. Treasury Department has recognized each of the Marshall Islands, the country of incorporation of the Company and certain of its subsidiaries, and Liberia, the country of incorporation of certain of the Company’s subsidiaries, as a qualified foreign country. Accordingly, the Company and each of its subsidiaries satisfy the country of organization requirement.
For the 2007 tax year, the Company believes that it will be unlikely to satisfy the 50% Ownership Test. Therefore, the eligibility of the Company and each subsidiary to qualify for exemption under Section 883 is wholly dependent upon being able to satisfy the Publicly Traded Test.
As a result of the Company’s concentrated ownership prior to being listed on the Nasdaq Global Market, the Company does not believe that it satisfied the Publicly-Traded Test for the 2007 tax year. As a result, the Company will be subject to U.S. federal income tax on its U.S. source shipping income as described in more detail below.
The Company anticipates that it will satisfy the Publicly-Traded Test and qualify for the benefits of Section 883 for the 2008 tax year since its Class A common stock, is anticipated to be “primarily traded” and “regularly traded” on the Nasdaq Global Market. However, there is no assurance this will be the case and there can be no assurance that the Company will qualify for the benefits of Section 883 for the 2008 tax year or any subsequent tax year.
Taxation in Absence of Internal Revenue Code Section 883 Exemption
Assuming that the Company does not qualify for the benefits of Section 883 for the 2007 tax year, the Company and each of its subsidiaries will be subject to a 4% tax imposed on its shipping income derived from U.S. sources 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 the Company’s shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company’s shipping income would never exceed 2% under the 4% gross basis tax regime.
Based on its shipping income derived from U.S. sources for 2007, the Company will be subject to U.S. federal income tax of approximately $0.17 million under Section 887.
Gain on Sale of Vessels.
Regardless of whether the Company qualifies for exemption under Section 883, the Company will not be subject to United States 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 United States 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 the Company will be considered to occur outside of the United States.
Marshall Islands Tax Considerations
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.
F. Dividends and paying agents Not Applicable.
G. Statement by experts Not Applicable.
H. Documents on display
We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC’s website http://www.sec.gov. 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.
I. Subsidiary information Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk