UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of June 2020

 

SAFE BULKERS, INC.
(Translation of registrant’s name into English)

 

Apt. D11,
Les Acanthes
6, Avenue des Citronniers
MC98000 Monaco
Telephone : +30 2 111 888 400

(Address of principal executive office)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  x       Form 40-F  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) ____:

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) ____:

 

Indicate by check mark whether the registrant by furnishing the information contained in the Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  o       No  x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): ____.

 

EXHIBIT INDEX

 

99.1Proxy Statement for the 2020 Annual Meeting of Stockholders

 

99.2Proxy for the 2020 Annual Meeting of Stockholders

 

99.32019 Annual Report

 

99.4Proxy Notice for the 2020 Annual Meeting of Stockholders

 

99.5Proxy Voting Instructions
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: June 16, 2020

 

  SAFE BULKERS, INC.,
   
  By:  /s/ KONSTANTINOS ADAMOPOULOS
                                        
  Name:    Konstantinos Adamopoulos
  Title: Chief Financial Officer
 

Exhibit 99.1

 

SAFE BULKERS, INC.

Apt. D11, Les Acanthes

6, Avenue des Citronniers

MC98000, Monaco

 

June 16, 2020

 

Dear Stockholder:

 

You are cordially invited to attend the 2020 Annual Meeting of Stockholders of Safe Bulkers, Inc., which will be held on Monday, August 3, 2020 at 16:00 local time at 30-32 Karamanli Avenue, Voula 166 73, Athens, Greece.

 

The following Notice of 2020 Annual Meeting of Stockholders and Proxy Statement describe the items to be considered by the stockholders at such meeting and contain certain information about us and our executive officers and directors.

 

This year, we have elected to take advantage of the “Notice and Access” rules of the Securities and Exchange Commission with respect to furnishing our proxy materials and our 2019 Annual Report to stockholders over the Internet. We believe this process provides a convenient and quick way to access your proxy materials and the 2019 Annual Report. Expanded electronic dissemination expedites receipt of your proxy materials and the 2019 Annual Report while allowing us to reduce the environmental impact of, and certain costs associated with, our annual meeting. Many stockholders will receive a Notice of Internet Availability of Proxy Materials and the 2019 Annual Report (the “Notice”) containing convenient instructions on how to access annual meeting materials via the Internet. If you received the Notice, you will not receive a printed copy of the proxy materials or the 2019 Annual Report, unless you specifically request one. The Notice provides instructions on how to receive paper copies if preferred and how to vote via the Internet, by telephone or by mail.

 

Your vote is important to us. In order to ensure your representation at the meeting, you may submit your proxy and voting instructions via the Internet or by telephone, or, if you receive a paper proxy card and voting instructions by mail, you may vote your shares by completing, signing and dating the proxy card as promptly as possible and returning it in the envelope which accompanied the card. Please refer to the section entitled “Voting via the Internet, by Telephone or by Mail” of the accompanying proxy statement for a description of these voting methods. You can revoke the proxy at any time prior to voting, or vote your shares personally if you attend the meeting. We look forward to seeing you.

 

The 2020 Annual Meeting of Stockholders is currently scheduled to be held in person as indicated above. In light of the ongoing health concerns relating to the COVID-19 pandemic and to best protect the health and welfare of the Company’s stockholders and personnel, the Company urges stockholders to consider not attending the 2020 Annual Meeting of Stockholders in person. Stockholders are nevertheless urged to vote their proxies by completing, signing, dating and returning the enclosed proxy card, or to direct their brokers or other agents on how to vote the shares in their accounts, as applicable. We are actively monitoring the COVID-19 situation and, if we determine that it is not possible or advisable to hold the 2020 Annual Meeting of Stockholders in person, or to hold the meeting on the time or date or at the location indicated above, we will announce alternative arrangements for the meeting as promptly as practicable, which may include switching to a virtual meeting format, or changing the time, date or location of the 2020 Annual Meeting of Stockholders. Any such change will be announced via press release and the filing of additional proxy materials with the Securities and Exchange Commission.

 
  Sincerely,
 
  Polys Hajioannou
  Chairman and Chief Executive Officer

 

YOUR VOTE IS IMPORTANT. IN ORDER TO ENSURE YOUR REPRESENTATION AT THE 2020 ANNUAL MEETING OF STOCKHOLDERS AND THAT A QUORUM WILL BE PRESENT, WE URGE YOU TO SUBMIT YOUR VOTE AS SOON AS POSSIBLE. A PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED. VOTING VIA THE INTERNET, BY TELEPHONE OR BY MAIL WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON, SHOULD YOU DECIDE TO ATTEND THE 2020 ANNUAL MEETING OF STOCKHOLDERS.

2

SAFE BULKERS, INC.

Apt. D11, Les Acanthes

6, Avenue des Citronniers

MC98000, Monaco

 

 

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MONDAY AUGUST 3, 2020

 

 

NOTICE IS HEREBY GIVEN that the 2020 Annual Meeting of Stockholders of Safe Bulkers, Inc., a Marshall Islands corporation, will be held at 16:00 local time, on Monday, August 3, 2020 at 30-32 Karamanli Avenue, Voula 166 73, Athens, Greece for the following purposes:

 

1.To elect two Class III directors to hold office until the annual meeting of stockholders in 2023 and until their respective successors have been duly elected and qualified;

 

2.To ratify the appointment of our independent auditors;

 

3.To grant discretionary authority to our board of directors to (A) amend our First Amended and Restated Articles of Incorporation to effect one or more consolidations of the issued and outstanding shares of our common stock, par value $0.001 per share (“Common Stock”), pursuant to which the shares of Common Stock would be combined and reclassified at ratios within the range from 1-for-2 up to 1-for-5 (the “Reverse Stock Split”) and (B) determine whether to arrange for the disposition of fractional interests by stockholders entitled thereto, to pay in cash the fair value of fractions of a share of Common Stock as of the time when those entitled to receive such fractions are determined, or to entitle stockholders to receive from our transfer agent, in lieu of any fractional share, the number of shares of Common Stock rounded up to the next whole number, and to amend our First Amended and Restated Articles of Incorporation in connection therewith, provided that any Reverse Stock Split must be completed on or before the day immediately prior to the date of the 2021 Annual Meeting of Stockholders;

 

4.To approve the adoption of an equity compensation plan for our independent directors; and

 

5.To transact such other business as may properly come before the 2020 Annual Meeting of Stockholders and any adjournments or postponements thereof.

 

Only holders of record of Common Stock at the close of business on June 12, 2020 will be entitled to receive notice of, and to vote at, the 2020 Annual Meeting of Stockholders and at any adjournments or postponements thereof.

 

You are cordially invited to attend the 2020 Annual Meeting of Stockholders. Whether or not you plan to attend the 2020 Annual Meeting in person, please vote as soon as possible. As an alternative to voting in person at the 2020 Annual Meeting, you may vote via the Internet, by telephone or, if you receive a paper proxy card in the mail, by mailing a completed proxy card. For detailed information regarding voting instructions, please refer to the section entitled “Voting via the Internet, by Telephone or by Mail” beginning on page 1 of the proxy statement. You may revoke a previously delivered proxy at any time prior to the 2020 Annual Meeting. If you decide to attend the 2020 Annual Meeting and wish to change your proxy vote, you may do so automatically by voting in person at the 2020 Annual Meeting.

 

The 2020 Annual Meeting of Stockholders is currently scheduled to be held in person as indicated above. In light of the ongoing health concerns relating to the COVID-19 pandemic and to best protect the health and welfare of the Company’s stockholders and personnel, the Company urges

 

stockholders to consider not attending the 2020 Annual Meeting of Stockholders in person. Stockholders are nevertheless urged to vote their proxies by completing, signing, dating and returning the enclosed proxy card, or to direct their brokers or other agents on how to vote the shares in their accounts, as applicable. We are actively monitoring the COVID-19 situation and, if we determine that it is not possible or advisable to hold the 2020 Annual Meeting of Stockholders in person, or to hold the meeting on the time or date or at the location indicated above, we will announce alternative arrangements for the meeting as promptly as practicable, which may include switching to a virtual meeting format, or changing the time, date or location of the 2020 Annual Meeting of Stockholders. Any such change will be announced via press release and the filing of additional proxy materials with the Securities and Exchange Commission.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on August 3, 2020

 

The Company’s Proxy Statement, form of proxy card and 2019 Annual Report are available at: http://sb.agmdocuments.com/ASM2020.html 

   
  By Order of the Board of Directors
   
  Dr. Loukas Barmparis
  President and Secretary
  Monaco
  June 16, 2020
 

SAFE BULKERS, INC.
Apt. D11, Les Acanthes

6, Avenue des Citronniers

MC98000, Monaco

 

 

PROXY STATEMENT FOR 2020 Annual Meeting of Stockholders
TO BE HELD ON MONDAY, AUGUST 3, 2020

 

INFORMATION CONCERNING SOLICITATION AND VOTING

 

 

GENERAL

 

The proxy is solicited on behalf of the Board of Directors (the “Board”) of Safe Bulkers, Inc., a Marshall Islands corporation (the “Company”), for use at the 2020 Annual Meeting of Stockholders to be held at 16:00 local time, on Monday, August 3, 2020 at 30-32 Karamanli Avenue, Voula 166 73, Athens, Greece, or at any adjournment or postponement thereof (the “Meeting”), for the purposes set forth herein and in the accompanying Notice of 2020 Annual Meeting of Stockholders. On or about June 16, 2020, the Company will first mail to certain stockholders of record the Notice of Internet Availability of proxy materials containing instructions on how to access this Proxy Statement online, or in the alternative, request a paper copy of the proxy materials and a proxy card, and also will first mail to certain other stockholders this Proxy Statement and proxy card.

 

VOTING RIGHTS AND OUTSTANDING SHARES

 

As of June 12, 2020 (the “Record Date”), the Company had outstanding 102,125,808 shares of common stock, par value $0.001 per share (the “Common Stock”). As of the Record Date, the Hajioannou family (including Polys Hajioannou), owned 51,576,425 shares of Common Stock, constituting approximately 50.50% of the outstanding shares of Common Stock. Each stockholder of record at the close of business on the Record Date is entitled to one vote for each share of Common Stock then held. A majority of the Common Stock issued and outstanding and entitled to vote at the Meeting, the holders of which are present in person or represented by proxy, shall constitute a quorum for the transaction of business at the Meeting. The Common Stock represented by any proxy delivered by way of proxy card or in accordance with the procedures set forth in the section entitled “Voting via the Internet, by Telephone or by Mail” beginning on page 1 of the proxy statement will be voted in accordance with the instructions given on the proxy if the proxy is properly executed and is received by the Company prior to the close of voting at the Meeting. Any proxies returned without instructions will be voted FOR the proposals set forth on the Notice of 2020 Annual Meeting of Stockholders.

 

The Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “SB.”

 

VOTING VIA THE INTERNET, BY TELEPHONE OR BY MAIL

 

Registered Holders

 

If you are a “registered holder” (meaning your shares are registered in your name with our transfer agent, American Stock Transfer & Trust Company, LLC), then you may vote either in person at the 2020 Annual Meeting or by proxy. If you decide to vote by proxy, you may vote via the Internet, by

1

telephone or by mail and your shares will be voted at the 2020 Annual Meeting in the manner you direct. For those stockholders who receive a Notice of Internet Availability of Proxy Materials, such notice provides information on how to access your proxy card, which contains instructions on how to vote via the Internet or by telephone or receive a paper proxy card to vote by mail. Telephone and Internet voting facilities for stockholders of record will close at 11:59 p.m. Eastern time on August 2, 2020.

 

Beneficial Holders

 

If, like most stockholders, you are a beneficial owner of shares held in “street name” (meaning a broker, trustee, bank, or other nominee holds shares on your behalf), you may vote in person at the 2020 Annual Meeting only if you obtain a legal proxy from the nominee that holds your shares and present it to the inspector of elections with your ballot at the 2020 Annual Meeting. Alternatively, you may provide instructions to the nominee that holds your shares to vote by completing, signing and returning the voting instruction form that the nominee provides to you, or by using the voting arrangements described on the voting instruction form, the Notice of Internet Availability of Proxy Materials or other materials that the nominee provides to you.

 

REVOCABILITY OF PROXIES

 

A Stockholder giving a proxy may revoke it at any time before it is exercised. A proxy may be revoked by filing with the Secretary of the Company at the Company’s principal executive office in Monaco at Apt. D11, Les Acanthes, 6, Avenue des Citronniers, MC98000, Monaco, a written notice of revocation or by a duly executed proxy bearing a later date or by attending the Meeting and voting in person.

 

ADDITIONAL INFORMATION ON VOTING

 

As previously discussed, in light of the ongoing health concerns relating to the COVID-19 coronavirus pandemic and to best protect the health and welfare of the Company’s stockholders and personnel, the Company urges stockholders to consider not attending the Meeting in person. Stockholders are nevertheless urged to vote their proxies by completing, signing, dating and returning the enclosed proxy card, or to direct their brokers or other agents on how to vote the shares in their accounts, as applicable.

2

PROPOSAL ONE

ELECTION OF DIRECTORS

 

The Company currently has seven directors divided into three classes. As provided in the Company’s First Amended and Restated Articles of Incorporation, as amended, each director is elected to serve for a three-year term until the annual meeting for the year in which his or her term expires and until his or her successor has been duly elected and qualified. The Board has nominated Frank Sica and Konstantinos Adamopoulos, each a Class III Director, for re-election as Class III Directors for terms expiring at the 2023 annual meeting and until their successors have been duly elected and qualified. The Board has determined that Frank Sica is independent within the current meanings of independence employed by the corporate governance rules of the NYSE and the Securities and Exchange Commission (the “SEC”).

 

Unless a proxy is marked to indicate that such authorization is expressly withheld, the persons named in a submitted proxy card intend to vote the shares authorized thereby FOR the election of the following two nominees. It is expected that each of these nominees will be able to serve, but if before the election it develops that any of the nominees is unavailable, the persons named in a submitted proxy card will vote for the election of such substitute nominee or nominees as the current Board may recommend.

 

Directors shall be elected by a plurality of the votes cast at the Meeting.

 

NOMINEES FOR ELECTION

 

Name   Age (1)   Positions   Class   Term to
Expire
  Director
Since
Frank Sica(2)(3)   69   Director   Class III   2023   2008
Konstantinos Adamopoulos   57   Chief Financial Officer and Director   Class III   2023   2008
                     
 
(1)As of June 16, 2020.
(2)Member of corporate governance, nominating and compensation committee.
(3)Chairman of audit committee.

 

Nominees for Election

 

The Board has nominated the following individuals to serve as Class III directors for a three-year term expiring at the 2023 annual meeting and until their successors have been duly elected and qualified:

 

Frank Sica
Class III Director

 

Frank Sica has been a member of our board of directors and of our corporate governance, nominating and compensation committee, and a member and chairman of our audit committee, since 2008. Mr. Sica is also director of CSG Systems International, an account management and billing software company for communication industries, JetBlue Airways Corporation, a commercial airline, and Kohl’s Corporation, an owner and operator of department stores. Mr. Sica has served as a Partner at Tailwind Capital, a private equity firm, since 2006. From 2004 to 2005, Mr. Sica was a Senior Advisor to Soros Private Funds Management. From 1998 to 2003, Mr. Sica worked at Soros Fund Management where he oversaw the direct real estate and private equity investment activities of Soros. From 1988 to 1998, Mr. Sica was a

3

Managing Director at Morgan Stanley. Mr. Sica holds a bachelor’s degree from Wesleyan University and an M.B.A. from the Tuck School of Business at Dartmouth College.

 

Konstantinos Adamopoulos
Chief Financial Officer and Class III Director

 

Konstantinos Adamopoulos is our Chief Financial Officer and has been a member of our board of directors since 2008. Mr. Adamopoulos also serves as the finance manager of Safe Bulkers Management Ltd., which he joined in December 2016. Prior to joining us, Mr. Adamopoulos was employed at Calyon, a financial institution, as a senior relationship manager in shipping finance for 14 years. Prior to this, from 1990 to 1993, Mr. Adamopoulos was employed by the National Bank of Greece in London as an account officer for shipping finance and in Athens as deputy head of the export finance department. Prior to this, from 1987 to 1989, Mr. Adamopoulos served as a finance officer in the Greek Air Force. Mr. Adamopoulos holds a Bachelor of Science degree in business administration from the Athens School of Economics and Business Science and an M.B.A. in finance from the Cass Business School, City University of London.

 

DIRECTORS CONTINUING IN OFFICE

 

Name   Age (1)   Positions   Class   Term to
Expire
  Director
Since
Polys Hajioannou   53   Chief Executive Officer, Chairman of the Board and Director   Class I   2021   2008
Ioannis Foteinos   61   Chief Operating Officer and Director   Class I   2021   2009
Ole Wikborg (2)   64   Director   Class I   2021   2008
Loukas Barmparis   57   President, Secretary of the Board and Director   Class II   2022   2008
Christos Megalou (3)   60   Director   Class II   2022   2016
                     
 
(1)As of June 16, 2020.
(2)Member of the audit committee and chairman of the corporate governance, nominating and compensation committee.
(3)Member of the audit committee and member of the corporate governance, nominating and compensation committee.

 

The following directors will continue in office:

 

Class I Directors—Term to Expire in 2021

 

Polys Hajioannou
Chief Executive Officer, Chairman of the Board and Class I Director

 

Polys Hajioannou is our Chief Executive Officer and has been Chairman of our board of directors since 2008. Mr. Hajioannou also serves with Safe Bulkers Management Ltd. in Cyprus, which provides technical, commercial and administrative management services to the Company, and prior to the inception of Safe Bulkers Management and Safety Management, with its predecessor Alassia Steamship

4

Co., Ltd., which he joined in 1987. Mr. Hajioannou was elected as a member of the board of directors of the Union of Greek Shipowners in 2006 and served on the board until February 2009. Mr. Hajioannou is a founding member and Vice-President of the Union of Cyprus Shipowners. Mr. Hajioannou is a member of the Lloyd’s Register Hellenic Advisory Committee. In 2011, Mr. Hajioannou was appointed to the board of directors of the Hellenic Mutual War Risks Association (Bermuda) Limited and in 2013 he was elected at the board of directors of the UK Mutual Steam Ship Assurance Association (Bermuda) Limited where he served until 2016. In that year, he was elected member to the newly established UK Club Bermuda Members’ Committee. Mr. Hajioannou holds a Bachelor of Science degree in nautical studies from Sunderland University.

 

Ioannis Foteinos
Chief Operating Officer and Class I Director

 

Ioannis Foteinos is our Chief Operating Officer and has been a member of our board of directors since February 2009. Mr. Foteinos has 30 years of experience in the shipping industry. After obtaining a bachelor’s degree in nautical studies from Sunderland University, he joined the predecessor of Safety Management in 1987, where he served as Chartering Manager until 2017. Presently he serves as Chartering Manager with Safe Bulkers Management Ltd. in Cyprus, which he joined in May 2017.

 

Ole Wikborg
Class I Director

 

Ole Wikborg has been a member of our board of directors and of our audit committee and chairman and member of our corporate governance, nominating and compensation committee since 2008. Mr. Wikborg has been involved in the marine and shipping industry in various capacities for over 35 years. From 2002 to 2016, Mr. Wikborg has served as a member of the management team, a director and a senior underwriter of the Norwegian Hull Club, based in Oslo, Norway. In 2016, he moved to London to take up the position as the head of the London branch of Norwegian Hull Club, established that year. From 2002 to 2006, Mr. Wikborg also served as a member and chairman of the Ocean Hull Committee of the International Union of Marine Insurance (“IUMI”). Since 2006, he has served as Vice President and a member of the Executive Board of the IUMI, and he was elected as President of IUMI from 2010 to 2014. Since 1997, Mr. Wikborg has served as a board member of the Central Union of Marine Insurers, based in Oslo, and was that organization’s Chairman from 2009 to 2013. From 1997 until 2002, Mr. Wikborg served as the senior vice president and manager of the marine and energy division of the Zurich Protector Insurance Company ASA. Prior to his career in marine insurance, Mr. Wikborg served in the Royal Norwegian Navy, attaining the rank of Lieutenant Commander.

 

Class II Directors—Term to Expire in 2022

 

Loukas Barmparis
President, Secretary of the Board and Class II Director

 

Dr. Loukas Barmparis is our President and Secretary and has been a member of our board of directors since 2008. Dr. Barmparis also serves as the technical manager of Safe Bulkers Management Ltd., which he joined in December 2016. Between 2009 and 2016, he was the technical manager of Safety Management Overseas S.A. Until 2009, he was the project development manager of the affiliated Alassia Development S.A., responsible for renewable energy projects. Prior to joining our Manager and Alassia Development S.A., from 1999 to 2005 and from 1993 to 1995, Dr. Barmparis was employed at N. Daskalantonakis Group, Grecotel, one of the largest hotel chains in Greece, as technical manager and project development general manager. During the interim period between 1995 and 1999, Dr. Barmparis was employed at Exergia S.A. as an energy consultant. Dr. Barmparis holds a master of business

5

administration (“M.B.A.”) from the Athens Laboratory of Business Administration, a doctorate from the Imperial College of Science Technology and Medicine, a master of applied science from the University of Toronto and a diploma in mechanical engineering from the Aristotle University of Thessaloniki.

 

Christos Megalou
Class II Director

 

Christos Megalou has been a member of our board of directors since 2016 and serves as a member of our audit and our corporate governance, nominating and compensation committee. Mr. Megalou has been the Chief Executive Officer of Piraeus Bank SA since 2017. Mr. Megalou has been a Distinguished Fellow of the Global Federation Of Competitiveness Councils in Washington, D.C. since 2016. From 2015 to 2016, Mr. Megalou served as senior advisor to Fairfax Financial Holdings. From 2013 to 2015, Mr. Megalou served as the Chief Executive Officer and Chairman of the Executive Board of Eurobank Ergasias SA and was the Deputy Chairman of the Hellenic Bank Association in Greece. From 2010 to 2013, Mr. Megalou served as Chairman of the Hellenic Bankers Association in the U.K. From 1997 to 2013, he was Vice-Chairman of Southern Europe, Co-head of Investment Banking for Southern Europe and Managing Director in the Investment Banking Division of Credit Suisse in London. From 1991 to 1997, he was a Director at Barclays de Zoete Wedd. From 1991 to 1996, he was Deputy Chairman of the British Hellenic Chamber of Commerce. He started his career in 1984 as an auditor in Arthur Andersen in Athens. Mr. Megalou holds a Bachelor of Science degree in economics from the University of Athens and an M.B.A. in finance from Aston University in Birmingham, United Kingdom.

 

Independence

 

The Board has determined that each of Messrs. Sica, Wikborg and Megalou are independent within the current meanings of independence employed by the corporate governance rules of the NYSE and the SEC.

 

Committees of the Board

 

Audit committee

 

The Company’s audit committee consists of Ole Wikborg, Christos Megalou and Frank Sica, as chairman. The Board has determined that Frank Sica qualifies as an audit committee “financial expert,” as such term is defined in Regulation S-K promulgated by the SEC. The audit committee is responsible for:

 

·the appointment, compensation, retention and oversight of independent auditors and approving any non-audit services performed by such auditor;

 

·assisting the Board in monitoring the integrity of the Company’s financial statements, the independent auditors’ qualifications and independence, the performance of the independent accountants and the Company’s internal audit function and the Company’s compliance with legal and regulatory requirements;

 

·annually reviewing an independent auditors’ report describing the auditing firm’s internal quality-control procedures, and any material issues raised by the most recent internal quality control review, or peer review, of the auditing firm;

 

·discussing the annual audited financial and quarterly statements with management and the independent auditors;
6
·discussing earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies;

 

·discussing policies with respect to risk assessment and risk management;

 

·meeting separately, and periodically, with management, internal auditors and the independent auditor;

 

·reviewing with the independent auditor any audit problems or difficulties and management’s responses;

 

·setting clear hiring policies for employees or former employees of the independent auditors;

 

·annually reviewing the adequacy of the audit committee’s written charter, the internal audit charter, the scope of the annual internal audit plan and the results of internal audits;

 

·reporting regularly to the full Board; and

 

·handling such other matters that are specifically delegated to the audit committee by the Board from time to time.

 

Corporate governance, nominating and compensation committee

 

The Company’s corporate governance, nominating and compensation committee consists of Christos Megalou, Frank Sica and Ole Wikborg, as chairman. The corporate governance, nominating and compensation committee is responsible for:

 

·nominating candidates, consistent with criteria approved by the full Board, for the approval of the full Board to fill Board vacancies as and when they arise, as well as putting in place plans for succession, in particular, of the Chairman of the Board and executive officers;

 

·selecting, or recommending that the full Board select, the director nominees for the next annual meeting of stockholders;

 

·determining or administering the Company’s long term incentive plans, including any equity based plans and grants under such plans;

 

·developing and recommending to the full Board corporate governance guidelines applicable to the Company and keeping such guidelines under review;

 

·overseeing the evaluation of the Board and management;

 

·reviewing regularly the Board structure, size and composition, taking into account the importance of a diverse composite mix of ethnicities, ages, gender, race, geographic locations, education and professional skills, backgrounds and experience, among other characteristics;

 

·maintaining a commitment to supporting, valuing and leveraging diversity in the composition of the Board among other qualities that the Board believes serve the best interest of the Company and its stakeholders; and
7
·handling such other matters that are specifically delegated to the corporate governance, nominating and compensation committee by the Board from time to time.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE PROPOSED DIRECTORS. UNLESS REVOKED AS PROVIDED ABOVE, PROXIES RECEIVED BY MANAGEMENT WILL BE VOTED IN FAVOR OF THE PROPOSED DIRECTORS UNLESS A CONTRARY VOTE IS SPECIFIED.

8

PROPOSAL TWO

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

 

The Board is submitting for ratification at the Meeting the appointment of Deloitte, Certified Public Accountants S.A. as the Company’s independent auditors for the fiscal year ending December 31, 2020.

 

Deloitte, Certified Public Accountants S.A. has advised the Company that the firm does not have any direct or indirect financial interest in the Company, nor has such firm had any such interest in connection with the Company during the past three fiscal years other than in its capacity as the Company’s independent auditors.

 

All services rendered by the independent auditors are subject to review by the Company’s audit committee.

 

Approval of Proposal Two requires the majority of the votes cast at the Meeting.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE, CERTIFIED PUBLIC ACCOUNTANTS S.A. AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020. UNLESS REVOKED AS PROVIDED ABOVE, PROXIES RECEIVED BY MANAGEMENT WILL BE VOTED IN FAVOR OF SUCH APPROVAL UNLESS A CONTRARY VOTE IS SPECIFIED.

9

PROPOSAL THREE

APPROVAL OF AN AMENDMENT TO THE COMPANY’S FIRST AMENDED AND
RESTATED ARTICLES OF INCORPORATION TO AUTHORIZE A REVERSE STOCK SPLIT
OF OUR ISSUED AND OUTSTANDING COMMON STOCK

 

Our Board has adopted resolutions (1) declaring that an amendment to the Company’s First Amended and Restated Articles of Incorporation to effect one or more consolidations of the issued and outstanding shares of Common Stock, pursuant to which the shares of Common Stock would be combined and reclassified (the “Reverse Stock Split”), as described below, is advisable, subject to receipt of the requisite stockholder approval and the Board’s subsequent determination to effectuate the Reverse Stock Split and (2) directing that a proposal to approve the Reverse Stock Split be submitted to the holders of Common Stock for their approval.

 

Approval of the proposal would permit (but not require) our Board to effect one or more Reverse Stock Splits of our issued and outstanding Common Stock by a ratio of not less than 1-for-2 and not more than 1-for-5, with the exact ratio to be set at a number within this range as determined by our Board in its sole discretion, provided that the Board determines to effect the Reverse Stock Split and such amendment is filed with the appropriate authorities in the Republic of the Marshall Islands on or before the day immediately prior to the date of the 2021 Annual Meeting of Stockholders. The Company shall not effect Reverse Stock Splits that, in the aggregate, exceed a 1-for-5 ratio. We believe that enabling our Board to set the ratio within the stated range will provide the Company with the flexibility to implement the Reverse Stock Split in a manner designed to maximize the anticipated benefits for our stockholders. Our Board reserves the right to elect to abandon the Reverse Stock Split, including any or all proposed reverse stock split ratios, if it determines, in its sole discretion, that the Reverse Stock Split is no longer in the best interests of the Company and its stockholders.

 

If the Board determines to implement the Reverse Stock Split, depending on the ratio for the Reverse Stock Split determined by our Board, no less than two and no more than one hundred shares of existing Common Stock will be combined into one share of Common Stock. Our Board will have the discretionary authority to determine whether to arrange for the disposition of fractional interests by any holder entitled thereto, to pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or to entitle holders to receive from the Company’s transfer agent, in lieu of any fractional share, the number of shares rounded up to the next whole number. The amendment to our First Amended and Restated Articles of Incorporation to effect a Reverse Stock Split, if any, will include only the reverse split ratio(s) determined by our Board to be in the best interests of our stockholders.

 

Background and Reasons for the Reverse Stock Split; Potential Consequences of the Reverse Stock Split

 

The Board is seeking approval for the Reverse Stock Split in light of the recent fluctuations in the trading price of the Company’s Common Stock and the uncertainty caused by the COVID-19 pandemic on the Company’s business, financial performance and operating results. If the average closing price of the Common Stock over any consecutive 30 trading-day period is below $1.00, which is considered “below criteria” for continued listing on the NYSE under Section 802.01C of the NYSE Listed Company Manual, the Company will receive a notice from the NYSE indicating that the Company is not in compliance with the continued listing standards of the NYSE. Under the NYSE’s rules, the Company generally has six months to regain compliance prior to delisting, and can do so if the Common Stock has a closing price on the last trading day of any calendar month during the cure period of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of such month. In response to the COVID-19 pandemic, the NYSE made a rule filing with the SEC,

10

which became effective on April 21, 2020, for relief under Section 802.01C, which provides for a tolling of the cure period through June 30, 2020. Therefore, if the Company receives a notice of deficiency from the NYSE prior to June 30, 2020, the Company’s cure period will expire on December 31, 2020.

 

The Board anticipates that the Reverse Stock Split would increase our stock price, and consequently reduce the risk that our stock could be delisted from the New York Stock Exchange. The Board also believes that the increased market price of our Common Stock expected as a result of implementing the Reverse Stock Split could improve the marketability and liquidity of our Common Stock and encourage interest and trading in our Common Stock. For example, the increased market price of our Common Stock could allow a broader range of institutions to invest in our Common Stock (namely, funds that are prohibited from buying stocks whose price is below a certain threshold), potentially increasing trading volume and liquidity of our Common Stock. The Reverse Stock Split could also help increase analyst and broker interest in our Common Stock as their policies can discourage them from following or recommending companies with low stock prices. Furthermore, because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, a low average price per share of common stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were higher, thus making an investment in such shares less attractive. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our Common Stock. As a result, there can be no assurance that the Reverse Stock Split, if completed, will result in the intended benefits described above, that the market price of our Common Stock will increase following the Reverse Stock Split or that the market price of our Common Stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our Common Stock after the Reverse Stock Split will increase in proportion to the reduction in the number of shares of our Common Stock outstanding before the Reverse Stock Split, or at all, and it is possible that the total market capitalization of our Common Stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split. The Board does not intend for this transaction to be the first step in a series of plans or proposals of a “going private transaction” within the meaning of Rule 13e-3 of the Securities Exchange Act.

 

This proposed amendment to the First Amended and Restated Articles of Incorporation would add a new Section 4.04 substantially in the form as follows:

 

“SECTION 4.04. Reverse Stock Split. Effective as of 5:01 p.m., Marshall Islands time on _______ __, 20__ (12:01 a.m., New York time on _______ __, 20__), every _____ (__) shares of Common Stock then issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined, converted and changed into one (1) share of common stock of the Corporation (the “Reverse Stock Split”); provided, however, that the number of shares of Common Stock and the number of shares of Preferred Stock authorized pursuant to this Article IV shall not be altered. No fractional shares shall be issued upon the Reverse Stock Split. All shares of Common Stock (including fractions thereof) issuable upon the Reverse Stock Split to a given holder shall be aggregated for purposes of determining whether the Reverse Stock Split would result in the issuance of any fractional share. If, after the aforementioned aggregation, the Reverse Stock Split would result in the issuance of a fraction of a share of common stock, the Corporation shall, in lieu of issuing any such fractional share, ________________________.”

11

Procedure for Implementing the Reverse Stock Split

 

The Reverse Stock Split, if approved by our stockholders and implemented by the Board, would become effective upon the filing or such later time as specified in the filing (the “Effective Time”) of a certificate of amendment to our First Amended and Restated Articles of Incorporation with the Registrar of Corporation of the Republic of the Marshall Islands. The determination to implement the Reverse Stock Split, the ratio upon which such Reverse Stock Split will be implemented, and the exact timing of the filing of the certificate of amendment that will effect the Reverse Stock Split, will be determined by our Board, in its sole discretion, based on its evaluation as to whether and when such action will be in the best interest of the Company and our stockholders. In addition, our Board reserves the right, notwithstanding stockholder approval and without further action by the stockholders, to elect not to implement the Reverse Stock Split in its sole discretion. If a certificate of amendment effecting the Reverse Stock Split has not been filed with the Registrar of Corporations of the Republic of the Marshall Islands on or before the day immediately prior to the date of the 2021 Annual Meeting of Stockholders, our Board will not be entitled to implement the Reverse Stock Split without further stockholder approval.

 

Effect of the Reverse Stock Split on Holders of Outstanding Common Stock

 

Depending on the ratio for the Reverse Stock Split determined by our Board, a minimum of two and a maximum of one hundred shares in aggregate of existing Common Stock held by stockholders will be combined into one new share of Common Stock. Based on 102,125,808 shares of Common Stock issued and outstanding as of the Record Date, immediately following the reverse split the Company would have (i) approximately 51,062,904 shares of Common Stock issued and outstanding (without giving effect to rounding for fractional shares) if the ratio for the reverse split is 1-for-2, and (ii) approximately 20,425,162 shares of Common Stock issued and outstanding (without giving effect to rounding for fractional shares) if the ratio for the reverse split is 1-for-5, which is the aggregate ratio allowed under this proposal. Any other ratios selected within such range would result in a number of shares of Common Stock issued and outstanding following the transaction between 20,425,162 and 51,062,904 shares of Common Stock.

 

The actual number of shares of Common Stock issued and outstanding after giving effect to the Reverse Stock Split, if implemented, will depend on the number of shares outstanding at the time of the Reverse Stock Split(s), the applicable Reverse Stock Split ratio(s) and the number of Reverse Stock Splits ultimately implemented by our Board.

 

The Reverse Stock Split will affect all holders of Common Stock uniformly and will not affect any stockholder’s percentage ownership interest in the Company, except that as described below in “— Fractional Shares,” holders of Common Stock otherwise entitled to a fractional share as a result of the Reverse Stock Split may receive cash in lieu of such fractional share or may be entitled to have such fractional share rounded up to the next whole number at the option of the Board. In addition, the Reverse Stock Split will not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares).

 

The Reverse Stock Split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.

 

12

Authorized Common Stock and Par Value

 

The Reverse Stock Split will not result in a change in the number of shares of authorized Common Stock or par value of the Common Stock. Because the Company’s authorized number of shares of Common Stock, which is currently set at 200,000,000 shares of Common Stock under the Company’s First Amended and Restated Articles of Incorporation, will not decrease in accordance with the Reverse Stock Split, effecting the Reverse Stock Split would provide the Company with additional shares of Common Stock that would then be available for issuance from time to time for corporate purposes such as acquisitions of vessels or companies, sales of stock or securities convertible into shares of Common Stock and raising additional capital.

 

Beneficial Holders of Common Stock (i.e. stockholders who hold in street name)

 

Upon the implementation of the Reverse Stock Split, we intend to treat shares held by stockholders through a bank, broker, custodian or other nominee in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our Common Stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing the Reverse Stock Split.

 

Stockholders who hold shares of our Common Stock with a bank, broker, custodian or other nominee and who have any questions in this regard are encouraged to contact their banks, brokers, custodians or other nominees.

 

Registered “Book-Entry” Holders of Common Stock (i.e. stockholders that are registered on the transfer agent’s books and records but do not hold stock certificates)

 

Certain of our registered holders of Common Stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These stockholders do not have stock certificates evidencing their ownership of the Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.

 

Stockholders who hold shares electronically in book-entry form with the transfer agent will not need to take action (the exchange will be automatic) to receive whole shares of post-Reverse Stock Split Common Stock, subject to adjustment for treatment of fractional shares.

 

Holders of Certificated Shares of Common Stock

 

Stockholders holding shares of our Common Stock in certificated form will be sent a transmittal letter by our transfer agent after the Effective Time. The letter of transmittal will contain instructions on how a stockholder should surrender his, her or its certificate(s) representing shares of our Common Stock (the “Old Certificates”) to the transfer agent in exchange for certificates representing the appropriate number of whole shares of post-Reverse Stock Split Common Stock (the “New Certificates”). No New Certificates will be issued to a stockholder until such stockholder has surrendered all Old Certificates, together with a properly completed and executed letter of transmittal, to the transfer agent. No stockholder will be required to pay a transfer or other fee to exchange his, her or its Old Certificates. Stockholders will then receive a New Certificate(s) representing the number of whole shares of Common Stock that they are entitled as a result of the Reverse Stock Split, subject to the treatment of fractional shares described below. Until surrendered, we will deem outstanding Old Certificates held by stockholders to be cancelled and only to represent the number of whole shares of post-Reverse Stock Split Common Stock to which these stockholders are entitled, subject to the treatment of fractional shares. Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates. If an Old Certificate has a restrictive legend on the

13

back of the Old Certificate(s), the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate(s).

 

The Company expects that our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. No service charges will be payable by holders of shares of Common Stock in connection with the exchange of certificates. All of such expenses will be borne by the Company.

 

STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATE(S) UNTIL REQUESTED TO DO SO.

 

Fractional Shares

 

The Company does not currently intend to issue fractional shares in connection with the Reverse Stock Split. Therefore, the Company does not expect to issue certificates representing fractional shares. The Board will have the discretionary authority to pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, to arrange for the disposition of fractional interests by stockholders entitled thereto, or to entitle stockholders to receive from the Company’s transfer agent, in lieu of any fractional share, the number of shares rounded up to the next whole number.

 

If the Board determines to pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, stockholders who would otherwise hold fractional shares because the number of shares of Common Stock they hold before the Reverse Stock Split is not evenly divisible by the ratio ultimately selected by the Board will be entitled to receive cash (without interest or deduction) in lieu of such fractional shares from the Company, upon receipt by the transfer agent of a properly completed and duly executed transmittal letter and/or upon due surrender of any certificate previously representing a fractional share, in each case, as applicable, in an amount equal to such holder’s fractional share based upon the volume weighted average price of the common stock as reported on the NYSE, or other principal market of the common stock, as applicable, as of the date the Reverse Stock Split is effected. If the Board determines to arrange for the disposition of fractional interests by stockholders entitled thereto, stockholders who would otherwise hold fractional shares because the number of shares of Common Stock they hold before the Reverse Stock Split is not evenly divisible by the ratio ultimately selected by the Board will be entitled to receive cash (without interest or deduction) in lieu of such fractional shares from the transfer agent, upon receipt by the transfer agent of a properly completed and duly executed transmittal letter and/or upon due surrender of any certificate previously representing a fractional share, in each case, as applicable, in an amount equal to the proceeds attributable to the sale of such fractional shares following the aggregation and sale by the transfer agent of all fractional shares otherwise issuable. If the Board determines to dispose of fractional interests pursuant to the immediately preceding sentence, the Company expects that the transfer agent would conduct the sale in an orderly fashion at a reasonable pace and that it may take several days to sell all of the aggregated fractional shares of common stock. In this event, such holders would be entitled to an amount equal to their pro rata share of the proceeds of such sale. The Company will be responsible for any brokerage fees or commissions related to the transfer agent’s open market sales of shares that would otherwise be fractional shares.

 

The ownership of a fractional share interest following the Reverse Stock Split will not give the holder any voting, dividend or other rights, except to receive the cash payment, or, if the Board so determines, to receive the number of shares rounded up to the next whole number, as described above.

14

Stockholders should be aware that, under the escheat laws of various jurisdictions, sums due for fractional interests that are not timely claimed after the effective time of the Reverse Stock Split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by the Company or the transfer agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, if applicable, stockholders otherwise entitled to receive such funds, but who do not receive them due to, for example, their failure to timely comply with the transfer agent’s instructions, will have to seek to obtain such funds directly from the state to which they were paid.

 

Effect of the Reverse Stock Split on Employee Plans, Options, Restricted Stock Awards and Units, Warrants, and Convertible or Exchangeable Securities

 

Based upon the reverse stock split ratio determined by the Board, proportionate adjustments are generally required to be made to the per share exercise price and the number of shares issuable upon the exercise or conversion of all outstanding options, warrants, convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of Common Stock. This would result in approximately the same aggregate price being required to be paid under such options, warrants, convertible or exchangeable securities upon exercise, and approximately the same value of shares of Common Stock being delivered upon such exercise, exchange or conversion, immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted, subject to our treatment of fractional shares. The number of shares reserved for issuance pursuant to these securities will be proportionately based upon the Reverse Stock Split ratio determined by the Board, subject to our treatment of fractional shares.

 

Accounting Matters

 

The proposed amendment to the Company’s First Amended and Restated Articles of Incorporation will not affect the par value of our Common Stock per share, which will remain $0.001 par value per share. As a result, as of the Effective Time, the stated capital attributable to Common Stock and the additional paid-in capital account on our balance sheet will not change due to the Reverse Stock Split. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.

 

Certain Federal Income Tax Consequences of the Reverse Stock Split

 

The following summary describes certain material U.S. federal income tax consequences of the Reverse Stock Split to holders of our Common Stock

 

Unless otherwise specifically indicated herein, this summary addresses the tax consequences only to a beneficial owner of our Common Stock that is a citizen or individual resident of the United States, a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia or otherwise subject to U.S. federal income taxation on a net income basis in respect of our Common Stock (a “U.S. holder”). A trust may also be a U.S. holder if (1) a U.S. court is able to exercise primary supervision over administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. An estate whose income is subject to U.S. federal income taxation regardless of its source may also be a U.S. holder. This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to (i) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions,

15

regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons that hold our Common Stock as part of a position in a “straddle” or as part of a “hedging,” “conversion” or other integrated investment transaction for federal income tax purposes, or (iii) persons that do not hold our Common Stock as “capital assets” (generally, property held for investment).

 

If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our Common Stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our Common Stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split.

 

This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this proxy statement. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the Reverse Stock Split.

 

PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.

 

U.S. Holders

 

The Reverse Stock Split is intended to constitute a “reorganization” within the meaning of Section 368 of the Code and is not intended to be part of a plan to increase periodically a stockholder’s proportionate interest in our earnings and profits. The remainder of this discussion assumes that the Reverse Stock Split qualifies as a reorganization. In that case,

 

·A U.S. holder should not recognize any gain or loss on the Reverse Stock Split (except for cash, if any, received in lieu of a fractional share of Common Stock);

 

·The U.S. holder’s aggregate tax basis of the Common Stock received pursuant to the Reverse Stock Split, including any fractional shares of Common Stock not actually received, should be equal to the aggregate tax basis of such holder’s Common Stock surrendered in the exchange;

 

·The U.S. holder’s holding period for the Common Stock received pursuant to the Reverse Stock Split should include such holder’s holding period for the Common Stock surrendered in the exchange;

 

·Cash payments received by the U.S. holder for a fractional share of Common Stock generally should be treated as if such fractional share had been issued pursuant to the Reverse Stock Split and then redeemed by us, and such U.S. holder generally should recognize capital gain or loss with respect to such payment, measured by the difference between the amount of cash received and such U.S. holder’s tax basis in such fractional share. However, in certain circumstances, it is possible that cash received in lieu of a fractional share could be characterized as a dividend. In that case, U.S. holders may be required to provide their taxpayer identification number to the exchange agent to avoid backup withholding; and
16
·No gain or loss will be recognized by us as a result of the Reverse Stock Split.

 

No Appraisal Rights

 

Under Marshall Islands law and our charter documents, holders of our Common Stock will not be entitled to dissenter’s rights or appraisal rights with respect to the Reverse Stock Split.

 

Required Vote

 

Approval of Proposal Three requires the majority of all outstanding shares entitled to vote at the Meeting.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF AN AMENDMENT TO THE COMPANY’S FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION TO AUTHORIZE A REVERSE STOCK SPLIT OF OUR ISSUED AND OUTSTANDING COMMON STOCK. UNLESS REVOKED AS PROVIDED ABOVE, PROXIES RECEIVED BY MANAGEMENT WILL BE VOTED IN FAVOR OF SUCH APPROVAL UNLESS A CONTRARY VOTE IS SPECIFIED.

17

PROPOSAL FOUR

APPROVAL OF EQUITY COMPENSATION PLAN

 

The Board of Directors is submitting for approval at the Meeting a plan (the “Independent Directors Equity Compensation Plan”) to pay: (i) an annual fee to independent, non-management directors equal to US$30,000, payable in shares of the Common Stock and (ii) an additional annual fee to the chairman of the Audit Committee equal to US$30,000, payable in shares of Common Stock, in each case as described more fully below. The Independent Directors Equity Compensation Plan is intended to be the successor to the equity compensation plan for independent, non-management directors that was approved by the Company’s stockholders at the Company’s annual meeting held on June 10, 2010, and that expired by its terms on June 10, 2020 (the “Former Plan”).

 

Under the Independent Directors Equity Compensation Plan, which will be in effect beginning at the Meeting and for the following 10 years, measured from the date of the Meeting, non-management independent directors of the Company shall be paid an annual fee equal to US$30,000, payable in shares of Common Stock, payable on a quarterly basis in arrears as soon as practicable following the end of the quarter for which service was completed, calculated based on the closing price of Common Stock on the last trading day immediately prior to the end of the applicable calendar quarter, rounded to the next integer number. The annual fee shall be prorated for partial service in any applicable calendar quarter.

 

In addition, while the Independent Directors Equity Compensation Plan is in effect, the chairman of the Audit Committee shall be paid an additional annual fee equal to US$30,000, payable in shares of the Common Stock on a quarterly basis in arrears as soon as practicable following the end of the quarter for which service was completed, calculated based on the closing price of the Common Stock on the last trading day immediately prior to the end of the applicable calendar quarter, rounded to the next integer number. The annual additional fee shall be prorated for an applicable chairman’s partial service in any applicable calendar quarter.

 

If the Independent Directors Equity Compensation Plan is approved at the Meeting, the first issuance of Common Stock under the Independent Directors Equity Compensation Plan will be made promptly following the Meeting, and will be made with respect to service completed by independent, non-management directors in the second calendar quarter of 2020 (the “Q2 Issuance”). The Q2 Issuance to each applicable independent, non-management director, which would have been made in the ordinary course under the Former Plan if it had not expired prior to June 30, 2020, will be for a number of shares equal to (x) US$7,500 (i.e., one-quarter of the total US$30,000 annual fee), divided by the closing price of Common Stock on June 29, 2020, rounded to the next integer number (and prorated if a director only partially served during the second calendar quarter of 2020). The chairman of the Audit Committee during the second calendar quarter of 2020 shall receive an additional number of shares pursuant to the Q2 Issuance equal to (x) US$7,500 (i.e., one-quarter of the total US$30,000 additional annual fee), divided by the closing price of Common Stock on June 29, 2020, rounded to the next integer number (and prorated for an applicable chairman’s partial service during the second calendar quarter of 2020). If the Reverse Stock Split is effectuated after June 29, 2020 and before the Q2 Issuance, the number of shares issued to the independent, non-management directors in respect of the Q2 Issuance shall be equitably adjusted in the Board’s discretion to take into account the Reverse Stock Split. Following the Q2 Issuance, issuances of Common Stock under the Independent Directors Equity Compensation Plan shall occur as soon as practicable following the end of each calendar quarter until the plan expires on the 10th anniversary of the Meeting.

 

The Board of Directors believes that the Independent Directors Equity Compensation Plan is advisable and in the best interests of the Company and its stockholders because it will maintain the Company’s ability to recruit and retain quality independent directors and will continue to help align the interests of independent directors with stockholders by encouraging ownership of the Common Stock by independent directors.

18

Approval of Proposal Four requires the vote of the majority of the votes cast at the Meeting.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE INDEPENDENT DIRECTORS EQUITY COMPENSATION PLAN. UNLESS REVOKED AS PROVIDED ABOVE, PROXIES RECEIVED BY MANAGEMENT WILL BE VOTED IN FAVOR OF SUCH INDEPENDENT DIRECTORS EQUITY COMPENSATION PLAN UNLESS A CONTRARY VOTE IS SPECIFIED.

19

ADDITIONAL INFORMATION

 

Abstentions and broker non-votes will not affect the election of directors. Abstentions will have the effect of a vote “Against” on the other proposals and broker non-votes will not affect the outcome of the vote on other proposals.

 

SOLICITATION

 

The cost of preparing and soliciting proxies will be borne by the Company. Solicitation will be made primarily by mail, but stockholders may be solicited by telephone, e-mail, or personal contact.

 

OTHER MATTERS

 

No other matters are expected to be presented for action at the Meeting. Should any additional matter come before the Meeting, it is intended that proxies in the accompanying form will be voted in accordance with the judgment of the person or persons named in the proxy.

 

  By Order of the Board of Directors
 
  Dr. Loukas Barmparis
  President and Secretary

 

June 16, 2020
Monaco

20

Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0  

 

 

 

 

SAFE BULKERS, INC.

 

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

 

Proxy card for use at the 2020 Annual Meeting of Stockholders or any adjournment or postponement thereof (the “Meeting”) of Safe Bulkers, Inc., a Marshall Islands company (the “Company”), to be held on Monday, August 3, 2020 at 16:00 local time, at 30-32 Karamanli Avenue, Voula 166 73, Athens, Greece.

 

The person signing on the reverse of this card, being a holder of shares of common stock of the Company, hereby appoints as his/her/its proxy at the Meeting, Polys Hajioannou and Konstantinos Adamopoulos, or either one of them acting alone, with full power of substitution, and directs such proxy to vote (or abstain from voting) at the Meeting all of his, her or its shares of common stock as indicated on the reverse of this card or, to the extent that no such indication is given, to vote as set forth herein, and authorizes such proxy to vote in his discretion on such other business as may properly come before the Meeting.

 

Please indicate on the reverse of this card how the shares of common stock represented by this proxy are to be voted. If this card is returned duly signed but without any indication as to how the shares of common stock are to be voted in respect of any of the resolutions described on the reverse, the stockholder will be deemed to have directed the proxy to vote (1) FOR the election of all the Class III director nominees to the Board of Directors to hold office for a three-year term until the annual meeting for the year in which their terms expire and until their successors are duly elected and qualified, (2) FOR ratification of appointment of Deloitte, Certified Public Accountants S.A. as the Company’s independent auditors for the year ending December 31, 2020, (3) FOR approval of the proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s First Amended and Restated Articles of Incorporation to effect one or more reverse stock splits of the Company’s issued and outstanding shares of common stock and (4) FOR approval of the adoption of an equity compensation plan for the Company’s independent directors.

 

(Continued and to be signed on the reverse side.)

 

1.1 14475
 

2020 ANNUAL MEETING OF STOCKHOLDERS OF

 

SAFE BULKERS, INC.

 

August 3, 2020

 

GO GREEN

e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access.

 

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:

The Notice of 2020 Annual Meeting of Stockholders, 2020 Proxy Statement,
Form of Electronic Proxy Card and 2019 Annual Report
are available at http://sb.agmdocuments.com/ASM2020.html

 

Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.

 

Please detach along perforated line and mail in the envelope provided.

 

  20230300300000000000    1 080320  

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES AND “FOR” PROPOSALS 2, 3 AND 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

         
 

1.  Election of the Class III directors listed below to hold office for a three-year term until the annual meeting for the year in which their terms expire and until their successors are duly elected and qualified.

      NOMINEES:  
  o  FOR ALL NOMINEES

  Frank Sica

  Konstantinos Adamopoulos

     
  o  WITHHOLD AUTHORITY
 FOR ALL NOMINEES
     
  o  FOR ALL EXCEPT
 (See instructions below)
     
   
   
   
  INSTRUCTIONS:  To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: 
   
         
   
   
   
   
   
         
  To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. o

 

  FOR AGAINST ABSTAIN
2. Ratification of appointment of Deloitte, Certified Public Accountants S.A. as the Company’s independent auditors for the year ending December 31, 2020. o o o
       
3. Approval of the proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s First Amended and Restated Articles of Incorporation to effect one or more reverse stock splits of the Company’s issued and outstanding shares of common stock. o o o
       
4. Approval of the adoption of an equity compensation plan for the Company’s independent directors. o o o
       

Note: To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof.

       

PLEASE INDICATE WITH AN “X” IN THE APPROPRIATE SPACE HOW YOU WISH YOUR SHARES TO BE VOTED. IF NO INDICATION IS GIVEN, PROXIES WILL BE VOTED FOR THE ELECTION OF ALL THE NOMINEES TO THE BOARD OF DIRECTORS AND FOR PROPOSALS TWO, THREE AND FOUR, IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.

 

 


 

Signature of Stockholder

 

 

Date:   Signature of Stockholder   Date:  
Note:  Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
 

Exhibit 99.3

 

ANNUAL REPORT

 

 

Scubber fitted on Pedhoulas Rose, 82,000 dwt, 2017 built

 

 
      1
       
Company profile  

Safe Bulkers, Inc. is an international provider of marine drybulk transportation services, transporting bulk cargoes, primarily coal, grain and iron ore, along worldwide shipping routes for some of the world’s largest consumers and producers of such commodities.

 

We are listed on the New York Stock Exchange and trade under the symbol “SB”.

 

Being a successor to a business that first invested in shipping in 1958, we hold true to that legacy with uninterrupted presence since then, throughout several shipping cycles.

 

As of March 25, 2020, we had a fleet of 41 drybulk vessels, with an aggregate carrying capacity of 3.8 million dwt and an average age of 9.5 years, making us one of the world’s youngest fleets of Panamax to Post-Panamax class vessels. Our orderbook consists of one Post-Panamax class newbuild resale vessel scheduled to be delivered in 2020.

 

In the context of our Environmental Social Responsibility policies the Company is undertaking environmental investments mainly in scrubbers and ballast water treatment systems.

Our environmental investments as of December 31, 2019, were $51.9 million. We have 24 vessels equipped with ballast water treatment systems and 15 vessels with scrubbers installed, which provide commercial and operational benefits.

 

 

Historically, we have invested mainly in newbuild vessels, with advanced technological specifications, aiming to renew and expand our fleet. The majority of vessels in our fleet have sister ships with similar specifications in our existing or newbuild fleet. We believe using sister ships provides cost savings because it facilitates efficient inventory management and allows for the substitution of sister ships to fulfill our period time charter obligations.

 

In the context of our Environmental Social Responsibility policies the Company is undertaking environmental investments mainly in scrubbers and ballast water treatment systems. Our environmental investments as of December 31, 2019, were $51.9 million. We have 24 vessels equipped with ballast water treatment systems and 15 vessels with scrubbers installed, which provide commercial and operational benefits.

 

We cooperate with key market players, shipyards, charterers, financial institutions and others to advance our business and create value for our shareholders.

 

In 2019, we have refinanced a large portion of our debt significantly increasing our liquidity, positioned ahead of market uncertainties and challenges, including the Novel Coronavirus outbreak, the collapse of the oil price and the subsequent effects on global GDP and trade the full impact of which is not yet known.

 

We employ our vessels on both period time charters and spot time charters, according to our assessment of market conditions, having as clients some of the world’s largest miners and grain houses. The vessels we deploy on period time charters provide us with relatively stable cash flow and high utilization rates, while the vessels we deploy in the spot market allow us to maintain our flexibility in low charter market conditions.

 

     
     
     
     
     
     
     
     
     
 
SAFEBULKERS   ANNUAL REPORT 2019
       
Polys Hajioannou is our Chief Executive Officer and has been Chairman of our board of directors since 2008.    
     
     
     
     
     
     
     
     
     
     
     
     
     
 
      2 - 3
       
Chairman’s letter  

Fellow Shareholders,

 

Since the beginning of 2020, we have experienced an unprecedented market downturn as a result of the global lockdown due to Covid-19, enhanced by the collapse of oil price, which led to a historical sharp fall of the global Q1 GDP by 6% and projections of 7% GDP fall for 1H, roughly double the scale of contraction seen during the global financial crisis of 2008. The world major economies and governments responded with a flood of money providing huge fiscal stimulus programs in an effort to ease the anxiety of capital markets for short-term liquidity and hopefully offset the decline in economic activity.

 

Despite the uncertainties, there are forecasts of a substantial recovery in 2H 2020. As the rolling reopening of the world economies and the lifting of economic barriers is realised, we do not expect global debt to be an obstacle to growth. We expect that a gradual increase in demand for marine transportation will emerge as the massive cash injections from central banks and credit availability will reignite global economy, boost infrastructure and revive demand.

 

We closed 2019 profitably, remaining vigorously focused on implementing our environmental investment program having equipped half of our fleet with ballast water treatment systems obtaining operational flexibility worldwide and 15 of our vessels with scrubbers noting commercial benefits, while supported by our legacy culture of lean operations, maintained a competitive break-even. We expect to retrofit 9 additional ballast water treatment systems and the 5 remaining scrubbers this year, thus concluding an environmental investment program of about $60 million.

 

Being proactive amongst peers, we’ve timely refinanced a large portion of our debt, signifying our financial discipline and excellent relations with our lenders, significantly increasing our liquidity to over $170 million, positioned ahead of the current market uncertainties.

 

In this challenging environment we steer Safe Bulkers in the uncharted seas of 2020. We have taken measures to preserve the health of our seafarers and work remotely for our shore operations, effectively operating all vessels in our fleet and smoothly continuing our environmental investments program. We stand strong and confident for Safe Bulkers to face all current market challenges, withstand market downturn and at the same time we remain vigilant for recovery opportunities that the present conditions might offer.

 

We would like to thank all of our stockholders for their continued support and interest in our company and proudly present the 2019 Annual Report which provides detailed information about our business and financial performance.

 

 

Polys V. Hajioannou
Chief Executive Officer
and Chairman of the Board

 

 

 

 

 

 

 

 

 

 

 
SAFEBULKERS   ANNUAL REPORT 2019
       

Operational highlights

 

 

Scrubber retrofitting in 2019.

 

 

1.

Scrubber retrofitted on M/V Pedhoulas Farmer,
2012, Kamsarmax, DWT 81,600

 

 

2.

Scrubber retrofitted on M/V Pedhoulas Rose,
2017, Kamsarmax, DWT 82,000

 

         
         
         
         
         
         
         
   

3.

Scrubber retrofitted on M/V Martine,
2009, Post-Panamax, DWT 87,000

 

 

4.

Scrubber retrofitted on M/V Andreas K,
2009, Post-Panamax, DWT 92,000

 

         
 
      4 - 5
       
Financial highlights(*)

 

(*) Definitions

 

Time charter equivalent rate, or TCE rate, represents charter revenues less commissions and voyage expenses divided by the number of available days.

 

EBITDA represents Net income plus net interest expense, tax, depreciation and amortization. Adjusted EBITDA represents EBITDA before gain/(loss) on derivatives, early redelivery cost, loss on inventory valuation and, gain/(loss) on foreign currency.

 

Earnings/(loss) per share (“EPS”) and Adjusted Earnings/(loss) per share (“Adjusted EPS”) represent Net income/(loss) and Adjusted Net income/(loss) less preferred dividend and preferred deemed dividend divided by the weighted average number of shares respectively.

 

EBITDA, Adjusted EBITDA, Adjusted Net Income/(loss), Adjusted Net income/(loss) available to common shareholders, Earnings/(loss) per share and Adjusted Earnings/(loss) per share are not recognized measurements under US GAAP.

 

 
     
 
SAFEBULKERS   ANNUAL REPORT 2019
       

Fleet
profile

 

Vessel Name Dwt Year Built* Country of Construction
CURRENT FLEET
Panamax      
Maria 76,000 2003 Japan
Koulitsa 76,900 2003 Japan
Paraskevi 74,300 2003 Japan
Vassos 76,000 2004 Japan
Katerina 76,000 2004 Japan
Maritsa 76,000 2005 Japan
Efrossini 75,000 2012 Japan
Zoe 75,000 2013 Japan
Kypros Land 77,100 2014 Japan
Kypros Sea 77,100 2014 Japan
Kypros Bravery 78,000 2015 Japan
Kypros Sky 77,100 2015 Japan
Kypros Loyalty 78,000 2015 Japan
Kypros Spirit 78,000 2016 Japan
Kamsarmax      
Pedhoulas Merchant 82,300 2006 Japan
Pedhoulas Trader 82,300 2006 Japan
Pedhoulas Leader 82,300 2007 Japan
Pedhoulas Commander 83,700 2008 Japan
Pedhoulas Builder 81,600 2012 China
Pedhoulas Fighter 81,600 2012 China
Pedhoulas Farmer 81,600 2012 China
Pedhoulas Cherry 82,000 2015 China
Pedhoulas Rose 82,000 2017 China
Pedhoulas Cedrus 81,800 2018 Japan
 
      6 - 7
       

 

Vessel Name Dwt Year Built* Country of Construction
Post-Panamax      
Marina 87,000 2006 Japan
Xenia 87,000 2006 Japan
Sophia 87,000 2007 Japan
Eleni 87,000 2008 Japan
Martine 87,000 2009 Japan
Andreas K 92,000 2009 South Korea
Panayiota K 92,000 2010 South Korea
Agios Spyridonas 92,000 2010 South Korea
Venus Heritage 95,800 2010 Japan
Venus History 95,800 2011 Japan
Venus Horizon 95,800 2012 Japan
Troodos Sun 85,000 2016 Japan
Troodos Air 85,000 2016 Japan
Capesize      
Mount Troodos 181,400 2009 Japan
Kanaris 178,100 2010 China
Pelopidas 176,000 2011 China
Lake Despina 181,400 2014 Japan
Subtotal 3,777,000    
 
NEW BUILDS
Post-Panamax      
TBN** 85,000 1H 2020 Japan
Subtotal 85,000    
 
TOTAL 3,862,000    
     
  * For existing vessels, the year represents the year built. For newbuilds, the dates shown reflect the expected delivery dates.
  **  To be Named.
 
SAFEBULKERS   ANNUAL REPORT 2019
       
  UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

 

FORM 20-F

 

(Mark One)  
 o Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
 x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019
 o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 o Shell Company Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number 001-34077

 
      8 - 9
       
  SAFE BULKERS, INC.
  (Exact name of Registrant as specified in its charter)
   
  NOT APPLICABLE
  (Translation of Registrant’s name into English)
   
  REPUBLIC OF THE MARSHALL ISLANDS
  (Jurisdiction of incorporation or organization)
   
  Safe Bulkers, Inc.
  Apt. D11
Les Acanthes
  6, Avenue des Citronniers
  MC98000 Monaco
  (Address of principal executive office)
   
  Dr. Loukas Barmparis
President
  Telephone: +30 2 111 888 400
Telephone: +357 25 887 200
Facsimile: +30 2 111 878 500
  (Name, Address, Telephone Number and Facsimile Number of Company contact person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading
Symbol(s)
  Name of Each Exchange on Which
Registered
Common Stock, $0.001 par value per share   SB   New York Stock Exchange
Preferred stock purchase rights   N/A    
8.00% Series C Cumulative Redeemable Perpetual Preferred Shares, par value $0.01 per share, liquidation preference $25.00 per share   SB.PR.C   New York Stock Exchange
8.00% Series D Cumulative Redeemable Perpetual Preferred Shares, par value $0.01 per share, liquidation preference $25.00 per share   SB.PR.D   New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. As of December 31, 2019, there were 104,251,019 shares of the registrant’s common stock, 2,300,000 shares of 8.00% Series C Cumulative Redeemable Perpetual Preferred Shares, $0.01 par value per share, liquidation preference $25.00 per share, and 3,200,000 shares of 8.00% Series D Cumulative Redeemable Perpetual Preferred Shares, $0.01 par value per share, liquidation preference $25.00 per share, outstanding.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer x Non-accelerated filer o Emerging growth company o

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

 

U.S. GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 
SAFEBULKERS   ANNUAL REPORT 2019
       
    Table of contents  

 

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 12
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 12
ITEM 3. KEY INFORMATION 12
ITEM 4. INFORMATION ON THE COMPANY 34
ITEM 4A. UNRESOLVED STAFF COMMENTS 49
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 49
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 61
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTION 64
ITEM 8. FINANCIAL INFORMATION 70
ITEM 9. THE OFFER AND LISTING 71
ITEM 10. ADDITIONAL INFORMATION 71
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 82
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 82
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 82
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 82
ITEM 15. CONTROLS AND PROCEDURES 83
ITEM 16. [RESERVED] 84
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 84
ITEM 16B. CODE OF ETHICS 84
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 84
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 85
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 85
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 86
ITEM 16G. CORPORATE GOVERNANCE 86
ITEM 16H. MINE SAFETY DISCLOSURE 87
ITEM 17. FINANCIAL STATEMENTS 87
ITEM 18. FINANCIAL STATEMENTS 87
ITEM 19. EXHIBITS 87
 
      10 - 11
       

About this report

In this annual report, “Safe Bulkers,” “the Company,” “we,” “us” and “our” are sometimes used for convenience where references are made to Safe Bulkers, Inc. and its subsidiaries (as well as the predecessors of the foregoing). These expressions are also used where no useful purpose is served by identifying the particular company or companies. Our affiliated management companies, Safety Management Overseas S.A., a company incorporated under the laws of the Republic of Panama (“Safety Management”), and Safe Bulkers Management Limited, a company organized and existing under the laws of the Republic of Cyprus (“Safe Bulkers Management”), are each sometimes referred to as a “Manager,” and together as our “Managers.”

 

Forward-looking statements

All statements in this annual report that are not statements of historical fact are “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. The disclosure and analysis set forth in this annual report includes assumptions, expectations, projections, intentions and beliefs about future events in a number of places, particularly in relation to our operations, cash flows, financial position, plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These statements are intended as forward-looking statements. In some cases, predictive, future-tense or forward-looking words such as “believe,” “intend,” “anticipate,” “hope,” “estimate,” “project,” “forecast,” “plan,” “target,” “seek,” “potential,” “may,” “will,” “likely to,” “would,” “could,” “should” and “expect” and other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. In addition, we and our representatives may from time to time make other oral or written statements which are forward-looking statements, including in our periodic reports that we file with the Securities and Exchange Commission (“SEC”), other information sent to our security holders, and other written materials.

 

Forward-looking statements include, but are not limited to, such matters as:

  ~ future operating or financial results and future revenues and expenses;
  ~ future, pending or recent acquisitions, business strategy, and other plans and objectives for growth and future operations, areas of possible expansion and expected capital spending or operating expenses;
  ~ availability of key employees, crew, length and number of off-hire days, drydocking requirements and fuel and insurance costs;
  ~ general market conditions and shipping industry trends, including charter rates, vessel values and factors affecting supply and demand;
  ~ competition within our industry;
  ~ reputational risks;
  ~ our financial condition and liquidity, including our ability to make required payments under our credit facilities, comply with our loan covenants and obtain additional financing in the future to fund capital expenditures, acquisitions and other corporate activities and to comply with the restrictive and other covenants in our financing arrangements;
  ~ the strength of world economies and currencies;
  ~ general domestic and international political conditions;
  ~ the effect of the 2019 Novel Coronavirus (the “2019-nCoV”) on our business and operations and any related remediation measures on our performance and business prospects (including our ability to successfully install sulfur oxide exhaust gas cleaning systems in about half of our fleet);
  ~ potential disruption of shipping routes due to accidents or political events;
  ~ the overall health and condition of the U.S. and global financial markets, including the value of the U.S. dollar relative to other currencies;
  ~ our expectations about availability of vessels to purchase, the time that it may take to construct and deliver new vessels or the useful lives of our vessels;
  ~ our continued ability to enter into period time charters with our customers and secure profitable employment for our vessels in the spot market;
  ~ vessel breakdowns and instances of off-hire;
  ~ our future capital expenditures (including our ability to successfully install ballast water treatment systems in all of our vessels and complete our program for the installation of sulfur oxide exhaust gas cleaning systems in about half of our fleet) and investments in the construction, acquisition and refurbishment of our vessels (including the amount and nature thereof and the timing of completion thereof, the delivery and commencement of operations dates, expected downtime delays, cost overruns and lost revenue);
  ~ our ability to realize the expected benefits from sulfur oxide exhaust gas cleaning systems;
  ~ availability of financing and refinancing, our level of indebtedness and our need for cash to meet our debt service obligations;
  ~ our expectations relating to dividend payments and ability to make such payments;
  ~ our ability to leverage our Managers’ relationships and reputation within the drybulk shipping industry to our advantage;
  ~ our anticipated general and administrative expenses;
  ~ environmental and regulatory conditions, including changes in laws and regulations or actions taken by regulatory authorities;
  ~ risks inherent in vessel operation, including terrorism (including cyber terrorism), piracy corruption, militant activities, political instability, terrorism and ethnic unrest in locations where we may operate and discharge of pollutants;
  ~ potential liability from pending or future litigation; and
  ~ other factors discussed in “Item 3. Key Information—iv. Risk Factors” of this annual report.

 

We caution that the forward-looking statements included in this annual report represent our estimates and assumptions only as of the date of this annual report and are not intended to give any assurance as to future results. Assumptions, expectations, projections, intentions and beliefs about future events may, and often do, vary from actual results and these differences can be material. The reasons for this include the risks, uncertainties and factors described under “Item 3. Key Information—iv. Risk Factors.” As a result, the forward-looking events discussed in this annual report might not occur and our actual results may differ materially from those anticipated in the forward-looking statements. Accordingly, you should not unduly rely on any forward-looking state-

 
SAFEBULKERS   ANNUAL REPORT 2019
       

ments. We undertake no obligation to update or revise any forward-looking statements contained in this annual report, except as required by law, whether as a result of new information, future events, a change in our views or expectations or otherwise. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

 

    PART I
     
    ITEM 1. Identity of directors, senior management and advisers
Not applicable.    
     
    ITEM 2. Offer statistics and expected timetable
Not applicable.    
     
    ITEM 3. Key information

 

(i) Selected Financial Data 

 

The following table presents selected consolidated financial and other data of Safe Bulkers, Inc. for each of the five years in the five year period ended December 31, 2019. The table should be read together with “Item 5. Operating and Financial Review and Prospects.” The selected consolidated financial data of Safe Bulkers, Inc. is a summary of, is derived from, and is qualified by reference to, our audited consolidated financial statements and notes thereto, which have been prepared in accordance with United States (the “U.S.”) generally accepted accounting principles (“U.S. GAAP”).

Our audited consolidated statements of operations, shareholders’ equity and cash flows for the years ended December 31, 2017, 2018 and 2019 and the consolidated balance sheets at December 31, 2018 and 2019, together with the notes thereto, are included in “Item 18. Financial Statements” and should be read in their entirety.

 

    Year Ended December
    2015   2016   2017   2018   2019  
    (in thousands of U.S. dollars except share data)
STATEMENT OF OPERATIONS                      
Revenues   $  132,375   113,959   154,040   201,548   206,682  
Commissions   (5,058)   (4,187)   (6,008)   (8,357)   (8,921)  
Net revenues   127,317   109,772   148,032   193,191   197,761  
Voyage expenses   (17,856)   (7,679)   (3,932)   (6,378)   (13,715)  
Vessel operating expenses   (55,469)   (49,519)   (52,794)   (63,512)   (68,569)  
Depreciation   (47,133)   (49,485)   (51,424)   (48,067)   (50,310)  
General and administrative expenses                      
Management fee to related parties   (10,764)   (11,611)   (13,511)   (16,536)   (18,050)  
Company administration expenses   (3,853)   (3,770)   (2,607)   (2,706)   (2,589)  
Early redelivery cost, net       (1,263)   (105)   (63)  
Loss on inventory valuation   (1,432)          
Other operating income/(cost)     794   (390)     (414)  
Loss on sale of assets     (2,750)   (120)      
Impairment loss   (22,826)   (17,163)   (91,293)      
Operating (loss)/income   (32,016)   (31,411)   (69,302)   55,887   44,051  
Interest expense   (11,650)   (19,576)   (23,224)   (25,713)   (26,815)  
Other finance (costs)/income   (242)   (1,735)   7,651   (973)   (714)  
Interest income   86   515   799   929   1,558  
(Loss)/gain on derivatives   (1,676)   (620)   72   18   (121)  
Foreign currency gain/(loss)   347   (76)   1,782   (670)   (76)  
Amortization and write-off of deferred finance charges   (2,793)   (3,063)   (2,457)   (1,794)   (1,845)  
Net (loss)/income   $  (47,944)   (55,966)   (84,679)   27,684   16,038  
 
      12 - 13
       
    Year Ended December
    2015     2016     2017     2018     2019  
    (in thousands of U.S. dollars except share data)
(Loss)/earnings per share of Common Stock, basic and  diluted $ (0.74)   $ (0.83)   $ (0.98)   $ 0.16   $ 0.04  
Cash dividends declared per share of Common Stock $ 0.04   $   $   $   $  
Cash dividends declared per share of Preferred B Shares $ 2.00   $ 2.00   $ 2.00   $ 0.62   $  
Cash dividends declared per share of Preferred C Shares $ 2.00   $ 2.00   $ 2.00   $ 2.00   $ 2.00  
Cash dividends declared per share of Preferred D Shares $ 2.00   $ 2.00   $ 2.00   $ 2.00   $ 2.00  
Weighted average number of shares of Common Stock outstanding, basic and diluted   83,479,636     84,526,411     100,932,876     101,604,339     101,686,312  

 

    Year Ended December
    2015   2016   2017   2018   2019  
    (in thousands of U.S. dollars)
OTHER FINANCIAL DATA                      
Net cash provided by operating activities   $    25,523   $    13,478   $    50,101   $    85,449   $    58,284  
Net cash used in investing activities(1)   (125,041)   (39,873)   (39,590)   (63,670)   (36,785)  
Net cash provided by/(used in) financing activities   180,090   (83,875)   (47,060)   (15,580)   8,540  
Net increase/(decrease) in cash and cash equivalents and restricted cash(1)   80,572   (110,270)   (36,549)   6,199   30,039  

 

(1)  Effective December 31, 2017, we adopted the new standard Accounting Standards Update ASU 2016-18 – Restricted Cash. The implementation of this update affected the presentation in the statement of cash flows relating to changes in restricted cash which are presented as part of Cash whereas we previously presented these within investing activities. This standard was retrospectively applied to all periods presented.

 

    Year Ended December
    2015   2016   2017   2018   2019  
    (in thousands of U.S. dollars)
BALANCE SHEET DATA                      
Total current assets   243,162   111,008   79,086   101,262   135,989  
Total fixed assets   1,056,517   1,051,726   946,529   963,887   964,000  
Other non-current assets   9,952   11,019   9,482   11,050   14,654  
Total assets   1,309,631   1,173,753   1,035,097   1,076,199   1,114,643  
Total current liabilities   105,726   23,779   36,933   54,606   86,784  
Long-term debt, net of current portion and of deferred finance charges   569,399   569,781   541,816   538,508   536,995  
Total liabilities   675,485   595,217   578,749   593,367   624,701  
Mezzanine equity         16,998   17,200  
Common stock, $0.001 par value   83   99   102   103   104  
Total shareholders’ equity   634,146   578,536   456,348   465,834   472,742  
Total liabilities and shareholders’ equity   1,309,631   1,173,753   1,035,097   1,076,199   1,114,643  

 

(ii) Capitalization and Indebtedness

Not applicable.

(iii) Reasons for the Offer and Use of Proceeds

Not applicable.

(iv) Risk Factors

SOME OF THE FOLLOWING RISKS RELATE PRINCIPALLY TO THE INDUSTRY IN WHICH WE OPERATE AND OUR BUSINESS IN GENERAL. OTHER RISKS RELATE PRINCIPALLY TO THE SECURITIES MARKET AND OWNERSHIP OF OUR COMMON STOCK, $0.001

 
SAFEBULKERS   ANNUAL REPORT 2019
       

PAR VALUE PER SHARE (“COMMON STOCK”), SERIES C CUMULATIVE REDEEMABLE PERPETUAL PREFERRED SHARES, PAR VALUE $0.01 PER SHARE, LIQUIDATION PREFERENCE $25.00 PER SHARE (“SERIES C PREFERRED SHARES”) AND SERIES D CUMULATIVE REDEEMABLE PERPETUAL PREFERRED SHARES, PAR VALUE $0.01 PER SHARE, LIQUIDATION PREFERENCE $25.00 PER SHARE (“SERIES D PREFERRED SHARES,” AND TOGETHER WITH THE SERIES C PREFERRED SHARES, THE “PREFERRED SHARES”), INCLUDING THE TAX CONSEQUENCES OF OWNERSHIP OF OUR COMMON STOCK AND PREFERRED SHARES. THE OCCURRENCE OF ANY OF THE RISKS OR EVENTS DESCRIBED IN THIS SECTION COULD SIGNIFICANTLY AND NEGATIVELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS OR THE TRADING PRICE OF OUR COMMON STOCK OR PREFERRED SHARES.

 

RISKS INHERENT IN OUR INDUSTRY AND OUR BUSINESS

 

The international drybulk shipping industry is cyclical and volatile, having reached historical highs in 2008 and historical lows in 2016. Charter rates improved in 2019, but have been volatile in the start of 2020. Cyclicality and volatility may lead to reductions in the charter rates we are able to obtain, in vessel values and in our earnings, results of operations and available cash flow.

The drybulk shipping industry is cyclical with attendant volatility in charter rates, vessel values and profitability. The industry is cyclical in nature due to seasonal fluctuations and to the market adjustments in supply of and demand for drybulk vessels, and trade disruptions, such as that currently being caused by the 2019-nCoV. We expect this cyclicality and volatility in market rates to continue in the foreseeable future. Accordingly, there can be no assurance that the drybulk charter market will recover in the near future, and the market could experience a further downturn. For example, in 2008, the Baltic Dry Index (the “BDI”), had reached an all-time high of 11,793, while in 2016, BDI had reached an all-time low of 290. During 2019 and 2020, the BDI, remained volatile, reaching an annual low of 595 on February 11, 2019 and an annual high of 2,518 on September 4, 2019 for 2019 and a low of 411 on February 10, 2020 and a high of 976 on January 2, 2020 for 2020. In 2020, the BDI has slumped as a result of the 2019-nCoV.

We charter some of our vessels in the spot charter market for periods up to three months and in the period charter market for longer periods. The spot market is highly competitive and volatile, while period time charter contracts of longer duration provide income at pre-determined rates over more extended periods of time. We are exposed to changes in spot charter market each time one of our vessels is completing a previously contracted charter, and we may not be able to secure period time charters at profitable levels. Furthermore, we may be unable to keep our vessels fully employed. Charter rates available in the market may be insufficient to enable our vessels to be operated profitably. A significant decrease in charter rates would adversely affect our profitability, cash flows, asset values and ability to pay dividends.

As of March 13, 2020, 6 of our 41 drybulk vessels were deployed or scheduled to be deployed on period time charters of more than three months remaining term. In addition, we have contracted to acquire one resale newbuild vessel scheduled to be delivered in the second quarter of 2020, which does not currently have any contracted charter. As more vessels become available for employment, we may have difficulty entering into multi-year, fixed-rate time charters for our vessels, and as a result, our cash flows may be subject to instability in the long-term. We may be required to enter into variable rate charters or charters linked to the Baltic Panamax Index, as opposed to contracts based on fixed rates, which could result in a decrease in our cash flows and net income in periods when the market for drybulk shipping is depressed. If low charter rates in the drybulk market prevail during periods when we must replace our existing charters, it will have an adverse effect on our revenues, profitability, cash flows and our ability to comply with the financial covenants in our loan and credit facilities.

The factors affecting the supply and demand for drybulk vessels are outside of our control and are difficult to predict with confidence. As a result, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.

 

Factors that influence demand for drybulk vessel capacity include:

  ~ demand for and production of drybulk products;
  ~ global and regional economic and political conditions, including natural or other disasters (including the 2019-nCoV), armed conflicts, terrorist activities and strikes;
  ~ environmental and other regulatory developments;
  ~ the distance drybulk cargoes are to be moved by sea;
  ~ changes in seaborne and other transportation patterns including shifts in transportation demand for drybulk transportation services;
  ~ weather and natural disasters;
  ~ international sanctions, embargoes, import and export restrictions, nationalizations and wars; and
  ~ tariffs on imports and exports that could affect the international trade.

 

Factors that influence the supply of drybulk vessel capacity include:

  ~ the size of the newbuilding orderbook;
  ~ the number of newbuild deliveries, which, among other factors, relates to the ability of shipyards to deliver newbuilds by contracted delivery dates and the ability of purchasers to finance such newbuilds;
  ~ the scrapping rate of older vessels, depending, amongst other things, on scrapping rates and international scrapping regulations;
  ~ port and canal congestion;
  ~ sanctions;
  ~ the number of vessels that are in or out of service, including due to vessel casualties; and
  ~ changes in environmental and other regulations that may limit the useful lives of vessels.
 
      14 - 15
       

We anticipate that the future demand for our drybulk vessels and, in turn, drybulk charter rates, will be dependent, among other things, upon economic growth in the world’s economies, seasonal and regional changes in demand, changes in the capacity of the global drybulk vessel fleet and the sources and supply of drybulk cargo to be transported by sea. A decline in demand for commodities transported in drybulk vessels or an increase in supply of drybulk vessels could cause a significant decline in charter rates, which could materially adversely affect our business, financial condition and results of operations.

 

A negative change in global economic or regulatory conditions, especially in the Asian region, which includes countries like China, Japan and India, could reduce drybulk trade and demand, which could reduce charter rates and have a material adverse effect on our business, financial condition and results of operations.

We expect that a significant number of the port calls made by our vessels will involve the loading or discharging of raw materials in ports in the Asian region, particularly China, Japan and India. As a result, a negative change in economic or regulatory conditions in any Asian country, particularly China, Japan or, to some extent, India, can have a material adverse effect on our business, financial position and results of operations, as well as our future prospects, by reducing demand and, as a result, charter rates and affecting our ability to charter our vessels. If economic growth declines in China, Japan, India and other countries in the Asian region, or if the regulatory environment in these countries changes adversely for our industry, we may face decreases in such drybulk trade and demand. Moreover, a slowdown in the United States economy or the economies of countries within the European Union (the “E.U.”) will likely adversely affect economic growth in China, Japan, India and other countries in the Asian region. Such an economic downturn in any of these countries could have a material adverse effect on our business, financial condition and results of operations.

 

An oversupply of drybulk vessel capacity may lead to reductions in charter rates and results of operations.

The market supply of drybulk vessels has been increasing in terms of deadweight tons (“dwt”), and the number of drybulk vessels on order as of December 31, 2019 was approximately 9.2% for Panamax to Post-Panamax class vessels (65,000 dwt to 100,000 dwt) and 11.9% for Capesize class vessels (over 100,000 dwt), as compared to the then-existing global drybulk fleet in terms of dwt, with the majority of new deliveries expected during 2020. As a result, the drybulk fleet continues to grow. In addition, during periods when there are high expectations for charter market recovery, a large number of orders may be placed in shipyards, resulting in a further increase of newbuild orders and accordingly in the size of the global drybulk fleet. An oversupply of drybulk vessel capacity will likely result in a reduction of charter hire rates. We will be exposed to changes in charter rates with respect to our existing fleet and our remaining newbuild, depending on the ultimate growth of the global drybulk fleet. If we cannot enter into period time charters on acceptable terms, we may have to secure charters in the spot market, where charter rates are more volatile and revenues are, therefore, less predictable, or we may not be able to charter our vessels at all. In our current fleet, as of March 13, 2020, 36 vessels will be available for employment in the first half of 2020. A material increase in the net supply of drybulk vessel capacity without corresponding growth in drybulk vessel demand could have a material adverse effect on our fleet utilization and our charter rates generally, and could, accordingly, materially adversely affect our business, financial condition and results of operations.

 

The market value of drybulk vessels is highly volatile, being related to charter market conditions, aging and environmental regulations. The market values of our vessels may significantly decrease which could cause us to breach covenants in our credit and loan facilities, and could have a material adverse effect on our business, financial condition and results of operations.

Our credit and loan facilities, which are secured by mortgages on our vessels, require us to comply with collateral coverage ratios and satisfy certain financial and other covenants, including those that are affected by the market value of our vessels. The market values of drybulk vessels have generally experienced significant volatility within a short period of time. The market prices for secondhand and newbuild drybulk vessels have experienced a small increase in 2018 and 2019 following a significant increase in 2017 compared to the very low levels experienced in 2016 when vessel values were reduced in a short period of time due to depressed market conditions. The market value of our vessels fluctuates depending on a number of factors, including:

 

  ~ general economic and market conditions affecting the shipping industry;
  ~ prevailing level of charter rates;
  ~ distressed asset sales, including newbuild contract sales during weak charter market conditions;
  ~ lack of financing and limitations imposed by financial covenants in our credit and loan facilities;
  ~ competition from other shipping companies;
  ~ configurations, sizes and ages of vessels;
  ~ cost of newbuilds;
  ~ governmental, environmental or other regulations; and
  ~ technological advances.

 

We were in compliance with our covenants in our credit and loan facilities in effect as of December 31, 2018 and December 31, 2019. If the market value of our vessels, or our newbuild upon its delivery to us, declines, we may breach some of the covenants contained in our credit and loan facilities. If we do breach such covenants and we are unable to remedy or our lenders refuse to waive the relevant breach, our lenders could accelerate our indebtedness and foreclose on the vessels in our fleet securing those loan and credit facilities. As a result of cross-default provisions contained in our loan and credit facility agreements, this could in turn lead to additional defaults under our loan agreements and the consequent acceleration of the indebtedness under those agreements and the commencement of similar foreclosure proceedings by other lenders. If our indebtedness were accelerated in full or in part, it would be difficult for us to refinance our debt or obtain additional financing on favorable terms or at all and we could lose our vessels if our lenders foreclose their liens, which would adversely affect our ability to continue our business.

 
SAFEBULKERS   ANNUAL REPORT 2019
       

A significant decrease of the market values of our vessels could cause us to incur an impairment loss and could have a material adverse effect on our business, financial condition and results of operations.

We review for impairment our vessels held and used whenever events or changes in circumstances indicate that the carrying amount of the vessels may not be recoverable. Such indicators include declines in the fair market value of vessels, decreases in market charter rates, vessel sale and purchase considerations, fleet utilization, environmental and other regulatory changes in the drybulk shipping industry or changes in business plans or overall market conditions that may adversely affect cash flows. We may be required to record an impairment charge with respect to our vessels and any such impairment charge resulting from a decline in the market value of our vessels or a decrease in charter rates may have a material adverse effect on our business, financial condition and results of operations.

See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Impairment of long-lived assets” for more information.

 

Technological developments could reduce our earnings and the value of our vessels.

Determining factors for the useful life of the vessels in our fleet are efficiency, operational flexibility and technological developments. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The duration of a vessel’s useful life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new vessels are built that are more efficient or more flexible or have longer useful lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels and the resale value of our vessels could significantly decrease. As a result, our earnings and financial condition could be adversely affected.

 

The international drybulk shipping industry is highly competitive, and we may not be able to compete successfully for charters with new entrants or established companies with greater resources.

We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of drybulk cargo by sea is intense and depends on price, customer relationships, operating expertise, professional reputation and size, age, location and condition of the vessel. Due in part to the highly fragmented market, additional competitors with greater resources could enter the drybulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates than we are able to offer, which could have a material adverse effect on our fleet utilization and, accordingly, our results of operations.

 

Changes in labor laws and regulations, collective bargaining negotiations and labor disputes could increase our crew costs and have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.

Crew costs are a significant expense for us under our charters. There is a limited supply of well-qualified crew. We bear crewing costs under our charters. Increases in crew costs may adversely affect our results of operations. In addition, labor disputes or unrest, including work stoppages, strikes and/or work disruptions or increases imposed by collective bargaining agreements covering the majority of our officers on board our vessels could result in higher personnel costs and significantly affect our financial performance.

 

We are subject to regulations and liability under environmental laws that require significant expenditures, including ballast water treatment systems (“BWTS”) and sulfur oxide exhaust gas cleaning systems (“Scrubbers”), which can affect our results of operations and financial condition.

Our business and the operation of our vessels are regulated under international conventions, national, state and local laws and regulations in force in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration, in order to protect against potential environmental impacts. Government regulation of vessels, particularly environmental regulations, have become more stringent and require us to incur significant capital expenditures on our vessels to keep them in compliance. As a result, we may decide to scrap or sell certain vessels altogether. In addition, more stringent regulations may gradually be adopted in the future.

For example, various jurisdictions have regulated management of ballast waters to prevent the introduction of non-indigenous species that are considered invasive. Such regulations require us to make changes to the ballast water management plans we currently have in place and to install new equipment on board our vessels. In response to such regulations, we entered into an agreement to install BWTS in all of our vessels. The installation on all our vessels and related capital expenditure is expected to expand to 2022. Investments in the installation of BWTS are both time consuming and costly. If we fail to install or timely operate the BWTS in our vessels, then we may be unable to operate those vessels, which could have a material adverse effect on our results of operations, cash flows and financial position.

Various jurisdictions have also regulated or are considering the further regulation of greenhouse gases from vessels and emissions of sulfur and nitrogen oxides. Greenhouse gas regulations presently require the monitoring of greenhouse gas emissions. Nitrogen oxides emission regulations require the installation of advanced Tier III engines in newbuilds and modifications are not expected to be required in existing vessels. Regulation for sulfur oxides emissions may involve the installation or retrofitting of Scrubbers.

More specifically, the regulations regarding sulfur oxides emissions, which came into effect January 1, 2020, provide for a 0.5% (lowered from 3.5%) sulfur cap on marine fuel consumed by a vessel unless the vessel is equipped with a Scrubber. The most commonly used marine fuel with lower than 0.5% sulfur content is marine gas oil (“MGO”), which presently is substantially more expensive compared to the currently widely used 3.5% sulfur content heavy fuel oil (“HFO”). Additional marine fuels which comply with the 0.5% sulfur cap have been developed; however, their cost, worldwide availability, compatibility with the existing fuels on board when a vessel is refueled, stability over a long period of time suitability for storage in a vessel’s fuel tanks and other technical considerations are still under assessment. The increased demand for MGO or other compliant marine fuels, may lead to a wide price differential between such compliant fuels and HFO, problems with compatibility, fuel stability and other technical consid-

 
      16 - 17
       

erations which may affect the operations of vessels using such compliant fuels and their competitiveness compared to vessels that will continue to use HFO following the installation of Scrubbers. On the other hand, vessels that will be equipped with Scrubbers may also face shortage of HFO worldwide and price distortions, as only a small percentage of the global fleet is already equipped with Scrubbers and the trading of HFO may not be economical to fuel suppliers. In addition, restrictions of effluents from Scrubbers have been imposed in various jurisdictions, affecting the viability of investments required to equip vessels with Scrubbers. In response to sulfur oxides emissions regulations, we entered into an agreement to install Scrubbers in about half of our vessels.

In 2019, we installed Scrubbers in 15 vessels and we expect to install five additional Scrubbers in 2020. The installation of the remaining five Scrubbers and related capital expenditure is expected to be concluded in 2020. The installation of the remaining Scrubbers is expected to be both time consuming and costly and may be delayed by the 2019-nCoV outbreak, which has caused delays in the resumption of shipyard operations following the Chinese New Year and a shortage of personnel to perform Scrubber installations, which has resulted in a corresponding delay in the installation of Scrubbers by such shipyards. If we fail to timely install the Scrubbers in the vessels that we have scheduled to, and/or if the price differential between compliant fuels and HFO is narrower than expected due to among other things, a drop in oil prices and/or a reduced demand for oil, then we may not realize any return, or we may realize a lower return on our investment in Scrubbers than that which we expected, which could have a material adverse effect on our results of operations, cash flows and financial position. Conversely, if the price differential between compliant fuels and HFO is wider than expected, about half of our vessels that will not be equipped with Scrubbers may face difficulties in competing with vessels equipped with Scrubbers, which could have a material adverse effect on our results of operations, cash flows and financial position.

Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our business, financial condition and results of operations. Because such conventions, laws and regulations are often revised, or the required additional measures for compliance are still under development, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. We are also required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations.

These requirements can also affect the resale prices or useful lives of our vessels or require reductions in cargo capacity, ship modifications or operational changes or restrictions. Failure to comply with these requirements could lead to decreased availability of, or more costly insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations and claims for natural resource, personal injury and property damages in the event that there is a release of petroleum or other hazardous materials from our vessels or otherwise in connection with our operations. Violations of, or liabilities under, environmental regulations can result in substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels. In addition, we are subject to the risk that we, our affiliated entities, or our or their respective officers, directors, shore employees, crew on board and agents may take actions determined to be in violation of such environmental regulations and laws and our environmental policies. Any such actual or alleged environmental laws regulations and policies violation, under negligence, willful misconduct or fault, could result in substantial fines, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. Events of this nature would have a material adverse effect on our business, financial condition and results of operations.

 

We are subject to complex laws and regulations, including international safety regulations and requirements imposed by our classification societies and the failure to comply with these regulations and requirements may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.

We are subject to complex laws and regulations both in the jurisdictions in which we operate, such as international conventions, regulations and treaties, and in national laws. Compliance with regulations and laws require significant costs which could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. Our industry’s regulatory environment is becoming exponentially complex and includes regulations of the European Union regulations, the United Nations’ International Maritime Organization (“IMO”), such as the International Convention for the Prevention of Pollution from Ships of 1973 (“ISM Code”), including the designation of Emission Control Areas, the International Ship and Port Facility Security Code, the United States Oil Pollution Act of 1990, the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, the U.S. Clean Air Act, the U.S. Clean Water Act, the U.S. Marine Transportation Security Act of 2002 and others. In the foreseeable future we expect the trend of increasing regulatory compliance complexity to continue. For example, United States agencies and the IMO’s Maritime Safety Committee have adopted cyber security regulations which requires ship owners and managers to incorporate cyber risk management and security into their safety management in 2021.

The operation of our vessels is affected by the requirements set forth in the IMO ISM Code. Under the ISM Code, we are required to develop and maintain an extensive Safety Management System (“SMS”) that includes the adoption of a safety and environmental protection policy. Failure to comply with the ISM Code may subject us to increased liability, invalidate existing insurance or decrease available insurance coverage for the affected vessels and result in a denial of access to, or detention in, certain ports. For example, the U.S. Coast Guard and E.U. authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and E.U. ports. Currently, each of the vessels in our current fleet is ISM Code-certified, but we may not be able to maintain such certification at all times. If we fail to maintain ISM Code certification for our vessels, we may also breach covenants in certain of our credit and loan facilities that require that our vessels be ISM Code-certified. If we breach such covenants due to failure to maintain ISM Code certification and are unable to remedy the relevant breach, our lenders could accelerate our indebtedness and foreclose on the vessels in our fleet securing those credit or loan facilities.

 
SAFEBULKERS   ANNUAL REPORT 2019
       

The operation of our vessels is also affected by other government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, we may not be able to predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses, certificates and financial assurances with respect to our operations. In addition, vessel classification societies also impose significant safety and other requirements on our vessels. As a result, we may incur significant capital expenditures on our vessels to keep them in compliance. See Item 4. Information on the Company-Business Overview-Environmental and Other Regulations for more information.

 

Increased inspection procedures, tighter import and export controls and survey requirements could increase costs and disrupt our business.

International shipping is subject to various security and customs inspections and related procedures in countries of origin and destination. Inspection procedures can result in the seizure of the contents of our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines and other penalties against us.

It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.

The hull and machinery of every commercial vessel must be certified as safe and seaworthy in accordance with applicable rules and regulations, and accordingly vessels must undergo regular surveys. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable and we would be in violation of certain covenants in our credit and loan facilities. This would also negatively impact our revenues.

 

Our vessels are exposed to operational risks that may not be adequately covered by our insurance.

The operation of any vessel includes risks such as weather conditions, mechanical failure, collision, fire, contact with floating objects, cargo or property loss or damage and business interruption due to political circumstances in countries, piracy, terrorist and cyber terrorist attacks, armed hostilities and labor strikes. Such occurrences could result in death or injury to persons, loss, damage or destruction of property or environmental damage, delays in the delivery of cargo, loss of revenues from or termination of charter contracts, governmental fines, penalties or restrictions on conducting business, higher insurance rates and damage to our reputation and customer relationships generally.

We may not be adequately insured against all risks, and our insurers may not pay particular claims. With respect to war risks insurance, which we usually obtain for certain of our vessels making port calls in designated war zone areas, such insurance may not be obtained prior to one of our vessels entering into an actual war zone, which could result in that vessel not being insured. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Under the terms of our credit facilities, we will be subject to restrictions on the use of any proceeds we may receive from claims under our insurance policies. Furthermore, in the future, we may not be able to maintain or obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs in the event of a claim or decrease any recovery in the event of a loss. If the damages from a catastrophic oil spill or other marine disaster exceeded our insurance coverage, the payment of those damages could have a material adverse effect on our business and could possibly result in our insolvency.

In general, we do not carry loss of hire insurance. Occasionally, we may decide to carry loss of hire insurance when our vessels are trading in areas where a history of piracy has been reported. Loss of hire insurance covers the loss of revenue during extended vessel off-hire periods, such as those that occur during an unscheduled drydocking or unscheduled repairs due to damage to the vessel. Accordingly, any loss of a vessel or any extended period of vessel off-hire, due to an accident or otherwise, could have a material adverse effect on our business, financial condition and results of operations.

 

World events, including terrorist attacks and international hostilities, could negatively affect our results of operations and financial condition.

We conduct most of our operations outside of the U.S. and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current political instability in the Middle East, North Africa and other geographic countries and areas, terrorist or other attacks, war or international hostilities. Terrorist attacks and the continuing response of the U.S. and others to these attacks, as well as the threat of future terrorist attacks around the world, continues to cause uncertainty in the world’s financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in the Middle East and North Africa, and the presence of U.S. or other armed forces in Iraq, Syria, Afghanistan and various other regions, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region.

 
      18 - 19
       

These types of attacks have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs.

 

The outbreak of the 2019-nCoV and the resulting disruptions to the international shipping industry, could negatively affect our business, financial performance and our results of operations.

As of March 2020, the outbreak of the 2019-nCoV has been declared a pandemic by the World Health Organization (“WHO”). The outbreak of the 2019-nCoV in China and other countries in early 2020, led to a number of countries, ports and organizations to take measures against its spread, such as quarantines and restrictions on travel. Such measures were taken initially in Chinese ports, where we conduct a large part of our operations, and have gradually expanded to other countries globally covering most ports where we conduct business. These measures have and will likely continue to cause severe trade disruptions due to, among other things, the unavailability of personnel, supply chain disruption, interruptions of production, delays in planned strategic projects and closure of businesses and facilities. We operate in a sector of the economy that has been and will likely continue to be adversely impacted by the effects of trade disruptions due to the spread of the 2019-nCoV. Such trade disruptions have adversely affected and will continue to adversely affect the level of imports to and exports from China and other countries, which in turn has adversely affected and will continue to adversely affect the demand for our services, our business and results of operations, dry bulk shipping rates and the international shipping industry as a whole. For example, travel restrictions on Chinese workers have prevented the normal resumption of work after Chinese New Year and have affected the operation of manufacturing plants within China. The slowdown of Chinese manufacturing as a result of2019-nCov is likely to have an impact on the global supply chain along with a consequential impact on construction projects and other downstream industries which is likely to have an adverse effect on our business. Disruption may also spread to other markets, including key dry bulk and other commodity markets (e.g., copper, iron ore, zinc, nickel, lithium, oil and liquefied natural gas (“LNG”). Our business and the drybulk shipping industry as a whole is likely to be impacted not only from a reduced demand for drybulk shipping services, but also from a reduced workforce and delays of crew changes as a result of quarantines applicable in several countries and ports and delays of vessels as a result of port checks due to cases, or suspected cases, of the 2019-nCoV amongst crew, as well as delays in the construction of newbuild vessels, scheduled drydockings, intermediate or special surveys of vessels and scheduled and unscheduled ship repairs and upgrades, including the installation of Scrubbers and BWTS.

Furthermore, the construction of newbuild vessels and scheduled and unscheduled ship repairs and upgrades, including Scrubber and BWTS installation, have been widely delayed as a result of the impact of the 2019-nCoV outbreak on the repair yard workforce. Many repair yards have declared force majeure which may extend the duration of or further delay the repair or upgrade work, scheduled drydockings, and/or intermediate or special surveys of vessels, which in turn may affect the availability and quality of vessels and the ability to obtain the renewal of vessels’ certificates on a timely basis. The Company has scheduled several yard repairs during 2020, some of which have already been rescheduled for a later date. The Company also has one resale newbuild vessel scheduled for delivery in the second quarter of 2020, which may face delays. Any such delays or any failures to conduct such repairs or upgrades, drydockings or surveys in a timely manner may affect our results of operations. Furthermore, the installation of the remaining Scrubbers contemplated for our fleet may be delayed by the disruptions caused by the 2019-nCoV outbreak. If we fail to install the Scrubbers on the anticipated time line, we may not realize any return, or we may realize a reduced return, on our investment in such Scrubbers, which could have a material adverse effect on our results of operations, cash flows and financial position.

The 2019-nCoV outbreak may negatively impact our business, financial performance and operating results, but the extent and duration of such impacts remain largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the 2019-nCoV, the extent and effectiveness of containment actions taken, including travel and cargo restrictions, and the impact of these and other factors on the shipping industry.

 

Acts of piracy on ocean-going vessels may increase in frequency, which could adversely affect our business.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden off the coast of Somalia. Although the frequency of sea piracy worldwide has generally decreased since 2013, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the Sulu Sea and the Gulf of Guinea, with drybulk vessels and tankers particularly vulnerable to such attacks. Acts of piracy could result in harm or danger to the crews that man our vessels.

If these piracy attacks occur in regions in which our vessels are deployed that insurers characterized as “war risk” zones or Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including the employment of onboard security guards, could increase in such circumstances. Furthermore, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charterhire until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and is therefore entitled to cancel the charter party, a claim that we would dispute. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability, of insurance for our vessels, could have a material adverse impact on our business, financial condition and earnings.

 

The operation of drybulk vessels has certain unique operational and technical risks which include mechanical failure, collision, property loss, cargo loss or damage as well as personal injury, illness and loss of life and could lead to an environmental disaster; failure to adequately maintain our vessels or address such risks could have a material adverse effect on our business, financial condition and results of operations.

The operation of a drybulk vessel has certain unique operational and technical risks which include mechanical failure, collision, property loss, cargo loss or damage as well as personal injury, illness and loss of life and could lead to an environmental disaster. Drybulk vessels may develop unexpected mechanical and operational problems due to several reasons including improper main-

 
SAFEBULKERS   ANNUAL REPORT 2019
       

tenance and weather conditions. We operate certain of our vessels using compliant fuels with 0.5% sulfur content, some of which are currently under development, have not yet been adequately tested on board our vessels and under certain conditions may cause loss of the vessel’s main engine power with severe results that can lead to collision and loss of a vessel.

With a drybulk vessel, the cargo itself and its interaction with the vessel may create operational risks. By their nature, drybulk cargoes are often heavy, dense and easily shifted, and they may react badly to water exposure. In addition, drybulk vessels are often subjected to battering treatment during unloading operations with grabs, jackhammers (to pry encrusted cargoes out of the hold) and small bulldozers. This treatment may cause damage to the vessel. Vessels damaged due to treatment during unloading procedures or with steel plate diminution may be more susceptible to breach while at sea. Breaches of a drybulk vessel’s hull may lead to the flooding of the vessel’s holds. If a drybulk vessel suffers flooding in its forward holds, the bulk cargo may become so dense and waterlogged that its pressure may buckle the vessel’s bulkheads, leading to the loss of a vessel. If we do not adequately maintain our vessels or address such operational and technical risks, we may be unable to prevent these events. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

 

Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel, or other assets of the relevant vessel-owning company, for unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels, or other assets of the relevant vessel-owning company or companies, could cause us to default on a charter, breach covenants in certain of our credit facilities, interrupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our vessels.

 

Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.

A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes its owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Even if we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may cause us to breach covenants in certain of our credit facilities, and could have a material adverse effect on our business, financial condition and results of operations.

 

We rely on information technology, and if we are unable to protect against service interruptions, data corruption, cyber based attacks or network security breaches, our operations could be disrupted and our business could be negatively affected.

We rely on information technology networks and systems to process, transmit and store electronic and financial information; to capture knowledge of our business; to coordinate our business across our operation bases; and to communicate internally with our vessels, customers, suppliers, partners and other third-parties. In addition, our vessels use potentially vulnerable systems such as electronically transmitted maps and navigational systems cargo management systems, bridge systems, propulsion and machinery management and power control systems, access control systems, administrative and crew welfare systems and communication systems. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cyber attacks, telecommunication failures, user errors or catastrophic events. Risks and vulnerabilities can also arise out of inadequacies in design, integration and/or maintenance of information technology systems , as well as lapses in cyber discipline. Furthermore, as of May 25, 2018, data breaches on personal data, as defined in the European General Data Protection Regulation, could lead to administrative fines up to €20 million or up to 4% of the total worldwide annual turnover of the company, whichever is greater. Our information technology systems are becoming increasingly integrated, so damage, disruption or shutdown to the system could result in a more widespread impact. If our information technology systems suffer severe damage, disruption or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our operations could be disrupted and our business could be negatively affected.

 

A cyber attack could materially and adversely affect our business.

Our information systems and networks could become targeted and attacked by individuals or organized groups. A cyber attack could materially and adversely affect our business operations, financial condition, results of operations and cash flows and our reputation. In addition, cyber attacks could lead to potential unauthorized access and disclosure of proprietary or confidential information or, personal data and data loss and corruption. Cyber attacks on our vessels may also lead to potential unauthorized access to, or service interruptions, denial or manipulation of the navigational systems of our vessels, which could result in hazardous accidents. There is no assurance that we will not experience these service interruptions or cyber attacks in the future. Further, as the methods of cyber attacks continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures, or to investigate and remedy any vulnerabilities to cyber attacks. Moreover, we do not carry cyber attack insurance to cover the aforementioned risks to our information technology.

Recent action by the IMO’s Maritime Safety Committee and U.S. agencies indicate that cyber security regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cyber security threats. For example, cyber risk management systems must be incorporated by ship owners and managers by 2021. This might cause companies to

 
      20 - 21
       

cultivate additional procedures for monitoring cyber security, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is difficult to predict at this time.

 

The exit of the United Kingdom from the European Union could adversely affect us.

On January 31, 2020, the United Kingdom (the “U.K.”) formally withdrew from the E.U. (“Brexit”). The U.K. subsequently entered into a transition period through December 31, 2020, during which it will continue to obey the rules of the E.U. as negotiations continue regarding the future relationship between the U.K. and the E.U.

We have operations in the E.U., and as a result, we face risks associated with the potential uncertainty and disruptions that may follow Brexit, including volatility in the value of the pound sterling and the euro, volatility in exchange rates and interest rates, business disruptions, increased tariffs and potential material changes to the regulatory regime applicable to our business or global trading parties. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets as the U.K. determines which E.U. treaties, laws and regulations to replace or replicate, including those governing maritime, labor, environmental, competition, international trade and other matters applicable to our business. Any of these effects of Brexit, and others we cannot anticipate or that may evolve over time, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Political uncertainty and an increase in trade protectionism could have a material adverse impact on our charterers’ business and, in turn, could cause a material adverse impact on our results of operations, financial condition and cash flows.

Our operations expose us to the risk that increased trade protectionism from China, other countries in the Asian region, the United States or other nations will adversely affect our business. If the global recovery is undermined by downside risks and the economic downturn returns, or if the regulatory environment otherwise dictates, governments may turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing the demand for shipping. Specifically, increasing trade protectionism affecting the markets that our charterers serve may cause (i) a decrease in cargoes available to our charterers in favor of domestic charterers and domestically owned ships and (ii) an increase in the risks associated with importing goods to such markets. For instance, the government of China has implemented economic policies aimed at increasing domestic consumption of Chinese-made goods and restricting currency exchanges within China. Further, on January 23, 2017, President Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership, a global trade agreement intended to include the United States, Canada, Mexico, Peru and a number of Asian countries. Further, in January 2019, the United States announced expanded sanctions against Venezuela, which may have an effect on its oil output and in turn affect global oil supply. Throughout 2018 and 2019, President Trump called for substantial changes to foreign trade policy with China and raised, and proposed to further raise in the future, tariffs on several Chinese goods in order to reverse what he perceives as unfair trade practices that have negatively impacted U.S. businesses. The announcement of such tariffs has triggered retaliatory actions from foreign governments, including China, and may trigger retaliatory actions by other foreign governments, potentially resulting in a “trade war.” The trade war has had the effect of reducing the supply of goods available for import or export and has therefore results in a decrease in demand for shipping. On January 15, 2020, the United States and China signed the Phase One Deal, agreeing to the rollback of tariffs, expansion of trade purchases, and renewed commitments on intellectual property, technology transfer, and currency practices deescalating the trade war. Under the Phase One Deal the U.S. has committed to reduce tariffs from 15 % to 7.5% on US$120 billion worth of goods and China has agreed to halve tariffs on 1,717 U.S. goods, lowering the tariff on some items from 10% to 5%, and others from 5 % to 2.5 %, which both took effect on February 14, 2020.

There is no certainty that the de-escalation of the trade war between the U.S. and China will continue and there is no certainty that additional tariffs will not be imposed by the U.S. or China. Should the de-escalation of the trade war discontinue or an increase in trade barriers or restrictions on trade occur or be perceived to become likely, such events may have an adverse effect on global market conditions, may have an adverse impact on global trade and our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Changes in fuel prices may adversely affect our profits.

Changes in fuel prices may adversely affect our profits under certain circumstances. If the price differential between 0.5% sulfur content compliant fuels and HFO is narrow, then we may not realize any return, or we may realize a reduced return on our investment in Scrubbers than that which we expected, which could have a material adverse effect on our results of operations, cash flows and financial position. Conversely, if the price differential between 0.5% sulfur content compliant fuels and HFO is wide, the other half of our fleet that will not be equipped with Scrubbers may face difficulties to compete with vessels equipped with Scrubbers which could have a material adverse effect on our results of operations, cash flows and financial position.

 

Seasonal fluctuations in industry demand could have a material adverse effect on our business, financial condition and results of operations and the amount of available cash with which we can pay dividends.

We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. Seasonality is related to several factors and may result in quarter-to-quarter volatility in our results of operations, which could affect the amount of dividends, if any, that we may pay to our stockholders. For example, the market for marine drybulk transportation services is typically stronger in the fall months in anticipation of increased consumption of coal in the northern hemisphere during the winter months and the grain export season from North America. Similarly, the market for marine drybulk transportation services is typically stronger in the spring months in anticipation of the South American grain export season due to increased distance traveled by vessels to their end destination known as ton mile effect, as well as increased coal imports in parts of Asia due to additional electricity demand for cooling during the summer months. Demand for marine drybulk transportation services is

 
SAFEBULKERS   ANNUAL REPORT 2019
       

typically weaker at the beginning of the calendar year and during the summer months. In addition, unpredictable weather patterns during these periods tend to disrupt vessel scheduling and supplies of certain commodities. This seasonality could have a material adverse effect on our business, financial condition and results of operations.

 

Charterers may renegotiate or default on period time charters, which could reduce our revenues and have a material adverse effect on our business, financial condition and results of operations.

The ability and willingness of each of our counterparties to perform its obligations under a period 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 counterparties. If we enter into period time charters with charterers when charter rates are high and charter rates subsequently fall significantly, charterers may seek to renegotiate financial terms or may default on their obligations. Additionally, charterers may attempt to bring claims against us based on vessel performance or cargo loading or unloading operations, seeking to renegotiate financial terms or avoid payments. Also, our charterers may experience financial difficulties due to prevailing economic conditions or for other reasons, and as a result may default on their obligations. In past years, the industry experienced numerous incidents of charterers renegotiating their charters or defaulting on their obligations thereunder. If a charterer defaults on a charter, we will, to the extent commercially reasonable, seek the remedies available to us, which may include arbitration or litigation to enforce the contract, although such efforts may not be successful. Should a charterer default on a period time charter, we may have to enter into a charter at a lower charter rate, which would reduce our revenues. If we cannot enter into a new period time charter, we may have to secure a charter in the spot market, where charter rates are volatile and revenues are less predictable. It is also possible that we would be unable to secure a charter at all, which would also reduce our revenues, and could have a material adverse effect on our business, financial condition, results of operations, loan and credit facility covenants and cash flows.

 

We depend on a limited number of customers for a large part of our revenues and the loss of one or more of these customers could have a material adverse effect on our business, financial condition and results of operations.

We expect to derive a significant part of our revenues from a limited number of customers. During the year ended December 31, 2019, two of our charterers each accounted for more than 10.0% of our revenues and in previous periods some of our charterers each accounted for more than 10.0% of our revenues. We could lose a customer for many different reasons, including:

 

  ~ a failure of the customer to make charter payments because of its financial inability, disagreements with us or otherwise;
  ~ the customer’s termination of its charters because of our non-performance, including serious deficiencies with the vessels we provide to that customer or prolonged periods of off-hire;
  ~ a prolonged force majeure event that affects the customer may prevent us from performing services for that customer, i.e., damage to or destruction of relevant production facilities and war or political unrest; and
  ~ the other reasons discussed in this section.

 

If we lose a key customer, we may be unable to obtain period time charters on comparable terms with charterers of comparable standing or may have increased exposure to the volatile spot market, which is highly competitive and subject to significant price fluctuations. We would not receive any revenues from a vessel while it remained unchartered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel. The loss of any of our key customers, a decline in payments under our charters or the failure of a key customer to perform under its charters with us could have a material adverse effect on our business, financial condition and results of operations.

 

We have adopted an anti-bribery policy consistent with the provisions of the U.S. Foreign Corrupt Practices Act (the “FCPA”) and anti-bribery legislation in other jurisdictions. Actual or alleged violations of these policies could result in damage of our reputation, sanctions, criminal penalties, imprisonment, civil action and fines, which could have an adverse effect on our business.

We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted policies consistent and in full compliance with the FCPA and anti-bribery legislation in other jurisdictions. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

 

We may have difficulty properly managing our planned growth through acquisitions of additional vessels.

As of March 13, 2020, we intend to grow our business through the acquisition of one contracted newbuild vessel which is scheduled to be delivered in the first half of 2020. We may contract additional newbuild vessels or make selective acquisitions of additional secondhand vessels. Our future growth will primarily depend on our ability to locate and acquire suitable vessels, enlarge our customer base, operate and supervise any newbuilds we may order and obtain required debt or equity financing on acceptable terms.

A delay in the delivery to us of any such vessel, or the failure of the shipyard to deliver a vessel at all, could cause us to breach our obligations under a related charter and could adversely affect our earnings. In addition, the delivery of any of these vessels with substantial defects could have similar consequences.

A shipyard could fail to deliver a newbuild on time or at all because of:

 
      22 - 23
       
  ~ work stoppages or other hostilities, political or economic disturbances that disrupt the operations of the shipyard;
  ~ quality or engineering problems;
  ~ bankruptcy or other financial crisis of the shipyard;
  ~ a backlog of orders at the shipyard;
  ~ disputes between the Company and the shipyard regarding contractual obligations;
  ~ weather interference or catastrophic events, such as major earthquakes or fires;
  ~ our requests for changes to the original vessel specifications; or
  ~ shortages of or delays in the receipt of necessary construction materials, such as steel, or equipment, such as main engines, electricity generators and propellers.

 

A third-party seller could fail to deliver a secondhand vessel on time or at all because of:

 

  ~ bankruptcy or other financial crisis of the third-party seller;
  ~ quality or engineering problems;
  ~ disputes between the Company and the third-party seller regarding contractual obligations; or
  ~ weather interference or catastrophic events, such as major earthquakes or fires.

 

In addition, we may seek to terminate or novate a vessel acquisition contract due to market conditions, financing limitations or other reasons. The outcome of contract termination or novation negotiations may require us to forego deposits on construction or acquisition, as applicable, and pay additional cancellation fees. In addition, where we have already arranged a future charter with respect to the terminated contract, we may incur liabilities to such charter counterparty depending on the terms of such charter.

During periods in which charter rates are high, vessel values generally are high as well, and it may be difficult to consummate vessel acquisitions or enter into newbuild contracts at favorable prices. During periods when charter rates are low, we may be unable to fund the acquisition of vessels, whether through lending or cash on hand. For these reasons, we may be unable to execute our growth plans or avoid significant expenses and losses in connection with our future growth efforts.

 

We may have difficulty properly managing our planned environmental investments, including Scrubbers and BWTS.

Environmental investments in Scrubbers and BWTS currently represent the largest investment of the Company. The retrofit of Scrubbers and BWTS is a demanding job, involving the selection of equipment, detailed engineering studies and high quality of installation. During 2019, we installed BWTS in 7 vessels and Scrubbers in 15 vessels. During the remainder of 2020, we expect to install BWTS in 9 vessels and Scrubbers in 5 vessels in most cases concurrently with their drydocking. A delay in the delivery to us of BWTS or Scrubber equipment, or a delay in the installation of such equipment on board each vessel could increase the down time of the relevant vessel. In addition, if the installation of Scrubbers on the vessels is delayed, then we may realize reduced returns on the relevant investments. Furthermore, if we fail to successfully install, commission and operate a Scrubber, we may not realize any return on such investment. All such difficulties could have material adverse effect on our results of operations, cash flows and financial position.

 

As we expand our business, we will need to improve or expand our operations and financial systems, staff and crew; if we cannot improve these systems or recruit suitable employees, our performance may be adversely affected.

Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet, and our Managers’ attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we will have to rely on our Managers to recruit additional seafarers and shoreside administrative and management personnel. Our Managers may not be able to continue to hire suitable employees or a sufficient number of employees as we expand our fleet. If our Managers’ unaffiliated crewing agents encounter business or financial difficulties, we may not be able to adequately staff our vessels. We may also have to increase our customer base to provide continued employment for most of our new vessels. If we are unable to operate our financial systems, our Managers are unable to operate our operations systems effectively or recruit suitable employees in sufficient numbers or we are unable to increase our customer base as we expand our fleet, our performance may be adversely affected.

 

Unless we set aside reserves for vessel replacement, at the end of a vessel’s useful life, our revenue will decline, which would adversely affect our cash flows and income.

As of March 13, 2020, the vessels in our current fleet had an average age of 9.5 years. Unless we maintain cash reserves for vessel replacement, we may be unable to replace the vessels in our fleet upon the expiration of their useful lives. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard. We estimate the useful life of our second hand vessels to be 25 years from the date of built. Our cash flows and income are dependent on the revenues we earn by chartering our vessels to customers. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, financial condition and results of operations will be materially adversely affected. Any reserves set aside for vessel replacement would not be available for other cash needs or dividends.

 

Our ability to obtain financing on favorable terms and the deterioration of the global banking markets may adversely impact our business. If economic conditions globally continue to be volatile, it could impede our operations.

Although capital markets have improved since 2008, when banks and other financial institutions active in the shipping industry became increasingly unwilling to provide credit, they slumped again in the first months of 2020. The shipping industry remains negatively affected by the scarcity of credit and the cost of financing has increased. Financing institutions have increased interest

 
SAFEBULKERS   ANNUAL REPORT 2019
       

rates or even ceased funding for certain shipping companies. Furthermore, vessels older than 15 years old may not be financed by banks and other financial institutions at all. Any further deterioration of the global banking markets may decrease the availability of financing or refinancing on acceptable terms when needed, and we may be unable to meet our debt obligations as they become due.

The continuing instability and conflicts in Syria, the turmoil in Venezuela and other geographic areas, the stabilization of growth in China, the economic weakness in the E.U. and the 2019-nCoV may affect credit markets globally, reduce liquidity, disrupt economic conditions and may have a material adverse effect on our results of operations and financial condition.

 

If we are unable to obtain additional secured indebtedness, we may be unable to refinance our existing indebtedness and may not be able to finance a fleet replacement and expansion program in the future, any of which would have a material adverse effect on our business, financial condition and results of operations.

Global financial markets and economic conditions continue to be volatile. This volatility has negatively affected the general willingness of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been and may continue to be negatively affected by this decline in lending. The current state of global financial markets might adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing shareholders or preclude us from issuing equity at all.

Future financing and investing activities may involve refinancing of certain existing debt near or upon maturity and the financing of future fleet replacement and expansion. Our ability to refinance existing indebtedness, or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering, including the actual or perceived credit quality of our charterers and the market value of our fleet, as well as by adverse market conditions resulting from, among other things, general economic conditions, weakness in the financial markets and contingencies and uncertainties that are beyond our control. To the extent that we are unable to enter into new credit facilities and obtain such additional secured indebtedness on terms acceptable to us, we will need to find alternative financing. In addition, we may also be liable for other damages for breach of contract. A failure to satisfy our financial commitments could result in the acceleration of our indebtedness and foreclosure on our vessels. Such events, if they occurred, would adversely affect our business, financial condition and results of operation.

 

The aging of our fleet and our acquisitions of secondhand vessels may result in increased operating costs in the future, which could adversely affect our ability to operate our vessels profitably.

In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. As of March 13, 2020, the average age of the vessels in our current fleet was 9.5 years. As our vessels age, they may become less fuel efficient and more costly to maintain and will not be as advanced as more recently constructed vessels due to improvements in design and engine technology. Rates for cargo insurance, paid by charterers, also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which our vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

Seventeen vessels in our fleet were over ten years old as of December 31, 2019. We may encounter higher operating and maintenance costs due to the age and condition of those vessels. In addition, if in the future we acquire additional secondhand vessels, such vessels may develop unexpected mechanical and operational problems despite adherence to regular survey schedules and proper maintenance. We cannot obtain the same knowledge about the condition of a secondhand vessel compared to a newbuild through the performed inspection prior to the purchase of such secondhand vessel nor about the cost of any required (or anticipated) repairs that we would have had if this vessel had been built for and operated exclusively by us. We will have the benefit of warranties on newly constructed vessels; we may not receive the benefit of warranties on secondhand vessels.

 

Our business could be adversely affected by negative developments or uncertainty in the transportation industry due to lack of revenue source diversification.

We derive all our revenues exclusively from our business operations in the drybulk transportation industry. An adverse market development in the drybulk sector of the transportation industry could therefore have a stronger impact on our business, results of operations, cash flows and financial condition, than if we had multiple sources of revenues, lines of businesses or types of assets.

 

Uncertainty regarding the London Interbank Offered Rate (“LIBOR”) due to changes in the reporting practices, the method in which LIBOR is determined or the use of alternative reference rates may adversely impact our indebtedness under our credit and loan facilities, which would have a material adverse effect on our business, financial condition and results of operations.

In July 2017, the U.K. Financial Conduct Authority announced that it would phase out LIBOR as a benchmark by the end of 2021. The Alternative Reference Rates Committee (“ARRC”), a steering committee comprised of large U.S. financial institutions, has proposed replacing USD-LIBOR with a new index calculated by short-term repurchase agreements, the Secured Overnight Financing Rate (“SOFR”). At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the U.K. or elsewhere. Such developments and any other legal or regulatory changes in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published. Furthermore, there is no guarantee that a transition from LIBOR to an alternative reference interest rate will not result in financial market disruptions or significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, financial condition and results of operations.

 
      24 - 25
       

Most of our credit and loan facilities are linked to LIBOR. When LIBOR ceases to exist, we will need to link our new credit and loan facilities to a different standard, and may need to amend our credit and loan facilities based on a new standard that is established, if any. If a published LIBOR rate is unavailable after 2021, the interest rates on our credit and loan facilities which are indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if LIBOR was available in its current form. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.

 

We are and will be exposed to floating interest rates and may selectively enter into interest rate derivative contracts, which can result in higher than market interest rates and charges against our income.

The loans under our credit facilities are generally advanced at a floating rate based on LIBOR, which was volatile prior to 2008 and can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. Over the last few years, LIBOR has been at relatively low levels, but has increased during recent periods. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective and we may incur substantial losses.

In March 2020, we entered into derivative contracts to hedge our overall exposure to interest rate risk, and we may enter into additional derivative contracts in the future. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant losses. The derivatives strategies that we employ in the future may not be successful or effective, and we could, as a result, incur substantial additional interest costs.

 

Because we generate substantially all of our revenues in U.S. dollars but incur a material portion of our expenses in other currencies, including our management fees and investments in Scrubbers and BWTS, and may, in the future, also incur a material portion of our indebtedness and our capital expenditure requirements in other currencies, exchange rate fluctuations could have a material adverse effect on our business, financial condition and results of operations.

We generate substantially all of our revenues in U.S. dollars, but in 2019 we incurred approximately 27.9% of our vessel operating expenses in currencies other than the U.S. dollar, of which 52.9% was denominated in Euros. In addition, we incurred the majority of our management fees in Euros, and this will continue in the future. A significant part of our commitments for the acquisition of the Scrubber and BWTS equipment is also denominated in Euros. In June 2018, we issued preferred shares to an unaffiliated investor in one of our subsidiaries. These preferred shares are denominated in Japanese yen and may be redeemed at the option of the investor in 2021, upon the third anniversary of the issuance date. As of December 31, 2019, all of our indebtedness was denominated in U.S. dollars, as well as the amounts due under the memorandum of agreement for the acquisition of the resale newbuild vessel in our orderbook. We have historically entered into shipbuilding contracts and purchase of vessels whereby part of the contract price was payable in Japanese yen and Singapore dollars. Also, new credit facilities and financing agreements, purchase of vessels or newbuild contracts may be denominated in or permit conversion into currencies other than the U.S. dollar. The use of different currencies could lead to fluctuations in our net income due to changes in the value of the U.S. dollar relative to other currencies, in particular the Euro and the Japanese yen. We have not hedged our currency exposure, and, as a result, our results of operations and financial condition, denominated in U.S. dollars, and our ability to pay dividends, could suffer.

 

Restrictive covenants in our existing credit facilities and financing agreements impose, and any future credit facilities and financing agreements will impose, financial and other restrictions on us, and any breach of these covenants could result in the acceleration of our indebtedness and foreclosure on our vessels.

We have substantial indebtedness. As of December 31, 2019, we had $605.8 million outstanding under our credit facilities and financing agreements.

Our existing credit facilities and financing agreements impose, and any future credit facility and financing agreement will impose, operating and financial restrictions on us. These restrictions generally limit our ability to, among other things:

 

  ~ pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such dividend;
  ~ enter into certain long-term charters without the lenders’ consent;
  ~ incur additional indebtedness, including through the issuance of guarantees;
  ~ change the flag, class or management of the vessel mortgaged under such facility or terminate or materially amend the management agreement relating to such vessel;
  ~ create liens on their assets;
  ~ make loans;
  ~ make investments;
  ~ make capital expenditures;
  ~ undergo a change in ownership or control or permit a change in ownership and control of our Managers;
  ~ sell the vessel mortgaged under such facility; and
  ~ permit our chief executive officer to change.

 

Therefore, we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours, and we cannot guarantee that we will be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to our stockholders, finance our future operations or pursue business opportunities.

 
SAFEBULKERS   ANNUAL REPORT 2019
       

Certain of our existing credit facilities require our subsidiaries to maintain financial ratios and satisfy financial covenants. Depending on the credit facility, certain of our subsidiaries are subject to financial ratios and covenants requiring that these subsidiaries:

 

  ~ ensure that the market value of the vessel mortgaged under the applicable credit facility, determined in accordance with the terms of that facility, does not fall below 115% or 120%, as the case may be (the “Minimum Value Covenant”);
  ~ maintain at all times a minimum cash balance per vessel with the respective lender from $150,000 to $1,000,000 as the case may be; and
  ~ ensure that we comply with certain financial covenants under the guarantees described below.

 

In addition, under our loan agreements or under guarantees we have entered into with respect to certain of our subsidiaries’ credit facilities, we are subject to financial covenants. Depending on the facility, these financial covenants include the following as of March 13, 2020:

 

  ~ our total consolidated liabilities divided by its total consolidated assets (based on the market value of all vessels owned or leased on a finance lease taking into account their employment, and the book value of all other assets), must not exceed 85% (the “Consolidated Leverage Covenant”);
  ~ our total consolidated assets (based on the market value of all vessels owned or leased on a finance lease taking into account their employment, and the book value of all other assets) less its total consolidated liabilities must not be less than $150,000 (the “Net Worth Covenant”);
  ~ our ratio of its EBITDA over consolidated interest expense must not be less than 2.0:1, on a trailing 12 months’ basis (the “EBITDA Covenant”);
  ~ our consolidated debt in relation to the vessels currently owned by the respective Subsidiaries must not exceed $630,000 (the “Maximum Debt Covenant”);
  ~ a minimum of 30% or 35%, as the case may be, of our voting and ownership rights shall remain directly or indirectly beneficially owned by the Hajioannou family for the duration of the relevant credit facilities and in the case of one facility Polys Hajioannou beneficially holds a minimum of 20% of the voting and ownership rights (the “Control Covenant”): and
  ~ payment of dividends is subject to no event of default having occurred and be continuing or would occur as a result of the payment of such dividends.

 

Failure to meet our payment and other obligations or to maintain compliance with the applicable financial covenants could lead to defaults under our secured credit facilities. Our lenders could then accelerate our indebtedness and foreclose on the vessels in our fleet securing those credit facilities. The loss of these vessels would have a material adverse effect on our business, financial condition and results of operations.

 

The declaration and payment of dividends will always be subject to the discretion of our board of directors and will depend on a number of factors. Our board of directors may not declare dividends in the future.

We have not paid any dividends on our shares of Common Stock since August 2015. The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among other things: (i) our earnings, financial condition and cash requirements and available sources of liquidity, (ii) decisions in relation to our growth and leverage strategies, (iii) provisions of Marshall Islands and Liberian law governing the payment of dividends, (iv) restrictive covenants in our existing and future debt instruments and (v) global financial conditions. Therefore, we might continue not paying dividends on our shares of Common Stock in the future.

There may be a high degree of variability from period to period in the amount of cash, if any, that is available for the payment of dividends based upon, among other things:

 

  ~ the rates we obtain from our charters as well as the rates obtained upon the expiration of our existing charters;
  ~ the level of our operating costs;
  ~ the level of our general and administrative costs;
  ~ the number of unscheduled off-hire days and the timing of, and number of days required for, scheduled drydocking of our ships;
  ~ vessel acquisitions and related financings;
  ~ level of indebtedness;
  ~ restrictions in our loan and credit facilities and in any future debt facilities;
  ~ prevailing global and regional economic and political conditions;
  ~ the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business;
  ~ the amount of cash reserves established by our board of directors; and
  ~ restrictions under Marshall Islands and Liberian law.

 

We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, if any. Our growth strategy contemplates that we will finance the acquisition of our newbuild or selective acquisitions of second hand vessels in addition to our contracted newbuild through a combination of cash on hand, our operating cash flow and debt financing or equity financing. If financing is not available to us on acceptable terms, our board of directors may decide to finance or refinance such acquisitions with a greater percentage of cash from operations to the extent available, which would reduce or even eliminate the amount of cash available for the payment of dividends. We may also enter into other agreements that will restrict our ability to pay dividends.

 
      26 - 27
       

Under the terms of certain of our existing credit facilities, we are not permitted to pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such dividend. We expect that any future credit facilities will also have restrictions on the payment of dividends. In addition, cash dividends on our Common Stock are subject to the priority of dividends on the 2,300,000 shares of Series C Preferred Shares issued May 2014 and 3,200,000 shares of Series D Preferred Shares issued June 2014, in each case outstanding as of December 31, 2019.

The laws of the Republic of Liberia and of the Republic of the Marshall Islands, where our vessel-owning subsidiaries are incorporated, generally prohibit the payment of dividends other than from surplus or net profits, or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. Our subsidiaries may not have sufficient funds, surplus or net profits to make distributions to us. In addition, under guarantees we have entered into with respect to certain of our subsidiaries’ existing credit and loan facilities, we are subject to financial and other covenants, which may limit our ability to pay dividends. We also may not have sufficient surplus or net profits in the future to pay dividends.

The amount of cash we generate from our operations may differ materially from our net income or loss for the period, which will be affected by non-cash items. We may incur other expenses or liabilities that could reduce or eliminate the cash available for distribution as dividends. As a result of these and the other factors mentioned above, we may pay dividends during periods when we record losses and may not pay dividends during periods when we record net income.

 

We are a holding company and we depend on the ability of our subsidiaries to distribute funds to us in order to make dividend payments.

We are a holding company and our subsidiaries, which are all wholly-owned by us, conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our wholly-owned subsidiaries and cash and cash equivalents held by us. As a result, our ability to make dividend payments depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, and the laws of the Republic of Liberia and of the Republic of the Marshall Islands, where our vessel-owning subsidiaries are incorporated, which regulate the payment of dividends by companies. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its discretion not to declare or pay dividends.

 

We depend on our Managers to operate our business and our business could be harmed if our Managers fail to perform their services satisfactorily.

Pursuant to our management agreement with Safety Management (the “SMO Management Agreement”) and our management agreement with Safe Bulkers Management (the “SBM Management Agreement” and, together with the SMO Management Agreement, the “Management Agreements”), our Managers provide us with technical, administrative and commercial services (including vessel maintenance, crewing, purchasing, shipyard supervision, insurance, assistance with regulatory compliance, financial services and office space) and our executive officers. Our operational success depends significantly upon our Managers’ satisfactory performance of these services. Our business would be harmed if our Managers failed to perform these services satisfactorily. In addition, if either of the Management Agreements were to be terminated, expire or if their terms were to be altered, our business could be adversely affected, as we may not be able to immediately replace such services, and even if replacement services were immediately available, the terms offered could be less favorable than those under our Management Agreements.

Our ability to compete for and enter into charters and to expand our relationships with our existing charterers will depend largely on our relationship with our Managers and their reputation and relationships in the shipping industry. If our Managers suffer material damage to their reputation or relationships, it may harm our ability to:

 

  ~ renew existing charters upon their expiration;
  ~ obtain new charters;
  ~ successfully interact with shipyards during periods of shipyard construction constraints;
  ~ obtain financing on commercially acceptable terms;
  ~ maintain satisfactory relationships with our charterers and suppliers; and
  ~ successfully execute our business strategies.

 

If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, financial condition and results of operations.

Although we may have rights against our Managers if they default on their obligations to us, investors in us will have no recourse against our Managers.

Our Managers are permitted to provide certain management services to affiliates and third parties under the specific restrictions of our Management Agreements. Although our Managers are required to provide preferential treatment to our vessels with respect to chartering arrangements under the Management Agreements, our Managers’ time and attention may be diverted from the management of our vessels in such circumstances. Further, we will need to seek approval from our lenders to change our Managers.

 

Management fees are payable to our Managers regardless of our profitability, which could have a material adverse effect on our business, financial condition and results of operations.

Pursuant to our Management Agreements, we pay our Managers a daily ship management fee of €875 per vessel and Safe Bulkers Management an annual ship management fee of €3 million for providing commercial, technical and administrative services (see the section entitled “Item 5. Operating and Financial Review and Prospects - A. Operating Results - General and Administrative Expenses” for more information). In addition, we pay our Managers certain commissions and fees with respect to vessel purchases, sales and newbuilds. The management fees do not cover expenses such as voyage expenses, vessel operating expenses,

 
SAFEBULKERS   ANNUAL REPORT 2019
       

maintenance expenses, crewing costs, insurance premiums, commissions and certain company administration expenses such as directors’ and officers’ liability insurance, legal and accounting fees and other similar company administration expenses, which are reimbursed or paid by us. The management fees are payable whether or not our vessels are employed, and regardless of our profitability, and we have no ability to require our Managers to reduce the management fees if our profitability decreases, which could have a material adverse effect on our business, financial condition and results of operations. The maximum expiration date of the Management Agreements with our Managers is May 2027. We expect to enter into new agreements with the Managers upon their expiration; however, the terms upon which the new management agreements will be entered into are unknown at this time and may be less favorable to the Company than those currently in place.

 

Both of our Managers are privately held companies, and there is little or no publicly available information about them; an investor could have little advance warning of problems affecting our Managers that could have a material adverse effect on us.

The ability of our Managers to continue providing services for our benefit will depend in part on their own financial strength. Circumstances beyond our control could impair our Managers’ financial strength. Because our Managers are privately held, it is unlikely that information about their financial strength would become public or available to us prior to any default by our Managers under the Management Agreements. As a result, we may, and our investors might, have little advance warning of problems that affect our Managers, even though those problems could have a material adverse effect on us.

 

Our chief executive officer also controls our Managers, which could create conflicts of interest between us and our Managers.

Our chief executive officer, Polys Hajioannou, controls both of our Managers. The Hajioannou family (including Polys Hajioannou), directly and through entities controlled by the Hajioannou family, owns approximately 50.43% of our outstanding Common Stock as of March 13, 2020 (see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders” for more information). These relationships could create conflicts of interest between us, on the one hand, and our Managers, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operation of the vessels in our fleet versus vessels owned or chartered-in by other companies affiliated with our Managers or our chief executive officer. To the extent we elect not to exercise our right of first refusal with respect to any drybulk vessel that may be acquired by companies affiliated with our chief executive officer, such companies could acquire and operate such drybulk vessels in competition with us. In addition, although under our Management Agreements our Managers will be required to first provide us any chartering opportunities in the drybulk sector, our Managers are not prohibited from giving preferential treatment in other areas of its management to vessels that are beneficially owned by related parties. In addition, under our restrictive covenant arrangements with Mr. Hajioannou and certain entities affiliated with him, he and such entities may own, operate or finance a maximum of eight drybulk vessels on the water at any one time or enter into an unlimited number of contracts with shipyards for newbuild drybulk vessels as part of his estate or family planning. Any such drybulk vessels are not required to be managed by either of our Managers, and Mr. Hajioannou and his related entities are not required to first provide chartering opportunities to us with respect to such vessels. These conflicts of interest may have an adverse effect on our business, financial condition and results of operations.

 

While we adhere to high standards of evaluating related party transactions, agreements between us and other affiliated entities may be challenged as less favorable than agreements that we could obtain from unaffiliated third parties.

We have entered into various transactions with Mr. Hajioannou, our Chairman and chief executive officer, and entities controlled by and/or affiliated with Mr. Hajioannou. For example, in 2017, we sold one drybulk vessel to an entity owned by Mr. Hajioannou. While we believe this transaction was properly evaluated and approved by an independent special committee of our board of directors, certain terms related to the transaction, including price, may be challenged to be on terms that are less favorable to us than terms that would have otherwise been agreed upon with unaffiliated third-parties. Future transactions with Mr. Hajioannou and entities controlled by and/or affiliated with Mr. Hajioannou may undergo scrutiny by our shareholders, the media or others and result in a challenge of the terms associated with any such transaction.

 

Our business depends upon certain employees who may not necessarily continue to work for us; if such employees were no longer to be affiliated with us, our business, financial condition and results of operation could suffer.

Our future success depends, to a significant extent, upon our chief executive officer, Polys Hajioannou, and certain other members of our senior management and of our Managers. Polys Hajioannou has substantial experience in the drybulk shipping industry and for 31 years has worked with us, our Managers and their predecessor. He and other members of our senior management and of our Managers manage our business and their performance is crucial to the execution of our business strategies and to the growth and development of our business. If these individuals were no longer to be affiliated with us or our Managers, or if we were to otherwise cease to receive advisory services from them, we may be unable to recruit other employees with equivalent talent and experience, and our business and financial condition could suffer. We do not maintain, and do not intend to maintain, “key man” life insurance on any of our executive officers.

 

The provisions in our restrictive covenant arrangements with our chief executive officer and certain entities affiliated with him restricting their ability to compete with us, like restrictive covenants generally, may not be enforceable.

Our chief executive officer, Polys Hajioannou, and certain entities affiliated with him have entered into restrictive covenant agreements with us under which they are precluded from competing with us during either (i) with respect to Polys Hajioannou, the term of his service with us as executive and director and for one year thereafter, or (ii) with respect to entities affiliated with Polys Hajioannou, during the term of the Management Agreements and for one year following the termination of both Management Agreements, in each case subject to certain exceptions. Courts generally do not favor the enforcement of such restrictions, particularly when they involve individuals and could be construed as infringing on such individuals’ ability to be employed or to earn a livelihood. Our ability to enforce these restrictions, should it ever become necessary, will depend upon the circumstances that

 
      28 - 29
       

exist at the time enforcement is sought. A court may not enforce the restrictions as written by way of an injunction and we may not necessarily be able to establish a case for damages as a result of a violation of the restrictive covenants.

 

Our vessels call on ports located in Iran and Syria, which are identified by the United States government as state sponsors of terrorism and are subject to United States economic sanctions, which could be viewed negatively by investors and adversely affect the trading price of our Common Stock and Preferred Shares.

From time to time, vessels in our fleet have called and/or may call on ports located in countries identified by the United States government as state sponsors of terrorism and subject to United States economic sanctions. From January 1, 2005 through December 31, 2011, vessels in our fleet made 20 calls on ports in Iran and three calls on ports in Syria out of a total of 2,327 calls on worldwide ports. From January 1, 2012 through December 31, 2015, vessels in our fleet did not make any calls on ports in Iran or Syria. From January 1, 2016 through December 31, 2016, vessels in our fleet made three calls on ports in Iran and no calls on ports in Syria out of a total of 750 calls on worldwide ports. From January 1, 2017 through December 31, 2017, vessels in our fleet made four calls on ports in Iran and no calls on ports in Syria out of a total of 712 calls on worldwide ports. From January 1, 2018 through December 31, 2018, vessels in our fleet made five calls on ports in Iran and no calls on ports in Syria out of a total of 731 calls on worldwide ports. From January 1, 2019 through December 31, 2019, vessels in our fleet made ten calls on ports in Iran and no calls on ports in Syria out of a total of 773 calls on worldwide ports. Iran and Syria are identified by the United States government as state sponsors of terrorism. Although these designations and controls do not prevent our vessels from making calls on ports in these countries, potential investors could view such port calls negatively, which could adversely affect our reputation and the market for our Common Stock. Investor perception of the value of our Common Stock may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

Our policy is for our vessels to avoid making calls on ports in Iran and Syria unless, in the case of Iran, the charterer represents to us that the cargo is not in contravention with any E.U., U.S. or United Nation sanctions and the export of such cargo has been authorized by the Office of Foreign Assets Control of the U.S. Department of the Treasury.

If our vessels call on ports located in countries that are subject to sanctions and embargoes imposed by the U.S. or other governments, it could adversely affect our reputation and the market for our shares. The U.S. government and other authorities have made certain countries subject to certain sanctions and embargoes or have identified countries or other authorities as state sponsors of terrorism. From time to time, on charterers’ instructions, our vessels may call on ports located in such countries. Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In addition, charterers and other parties that we have previously entered into contracts with regarding our vessels may be affiliated with persons or entities that are now or may become the subject of sanctions imposed by the U.S. government, the E.U. and/or other international bodies. If we determine that such sanctions require us to terminate existing contracts or if we are found to be in violation of such sanctions, we may suffer reputational harm and our results of operations may be adversely affected. Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretation. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our securities. For example, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries. The determination by these investors not to invest in, or to divest, our shares may adversely affect the price at which our shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn result in liability for the Company or negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third-parties that are unrelated to those countries or entities controlled by their governments.

See “Item 4. Information on the Company—B. Business Overview—Disclosure of activities pursuant to Section 13(r) of the U.S. Securities Exchange Act of 1934” for more information.

 

We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law; therefore, you may have more difficulty protecting your interests than stockholders of a U.S. corporation.

Our corporate affairs are governed by our articles of incorporation, our bylaws and by the Marshall Islands Business Corporations Act (“BCA”). The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, 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 laws 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. The rights of stockholders of companies incorporated in the Republic of the Marshall Islands may differ from the rights of stockholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the non-statutory laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Republic of the Marshall Islands and we cannot predict whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have more difficulty in protecting your interests in the face of actions by our management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction which has developed a more substantial body of case law in the corporate law area.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

It may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are incorporated under the laws of the Republic of the Marshall Islands, and our Managers’ business is operated primarily from their offices in Limassol, Cyprus and Athens, Greece. In addition, a majority of our directors and officers are or will be non-residents of the United States, and all of our assets and a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe that your rights have been infringed under the securities laws or otherwise. You may also have difficulty enforcing, both within and outside of the United States, judgments you may obtain in the United States courts against us or these persons in any action, including actions based upon the civil liability provisions of United States federal or state securities laws. There is also substantial doubt that the courts of the Republic of the Marshall Islands, the Republic of Cyprus or Greece would enter judgments in original actions brought in those courts predicated on United States federal or state securities laws.

 

We may be subject to lawsuits for damages and penalties.

The nature of our business exposes us to the risk of lawsuits for damages or penalties relating to, among other things, personal injury, property casualty and environmental contamination. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. However, such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.

 

Regulatory and legal risks as a result of our global operations could have a material adverse effect on our business, results of operations and financial conditions.

Our global operations increase both the number and the level of complexity of U.S. or foreign laws and regulations applicable to us. These laws and regulations include international labor laws; U.S. laws such as the FCPA and other laws and regulations established by the Office of Foreign Assets Control; local laws such as the U.K. Bribery Act 2010; data privacy requirements like the European General Data Protection Regulation, enforceable as of May 25, 2018; and the E.U.-U.S. Privacy Shield Framework, adopted by the European Commission on July 12, 2016. We may inadvertently breach some provisions of those laws and regulations which could result in cease of business activities, criminal sanctions against us, our officers or our employees, fines and materially damage our reputation. In addition, detecting, investigating and resolving such cases of actual or alleged violations may be expensive and time consuming for our senior management.

 

Our costs of operating as a public company are significant, and our management is required to devote substantial time to complying with public company regulations.

We have significant legal, accounting and compliance expenses in order to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Securities Act of 1933, as amended, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002. Compliance with certain corporate governance requirements and financial reporting obligations, such as the systems and processes evaluation and testing of our internal control over financial reporting, which allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley Act of 2002, is time consuming for our management and increases legal and compliance costs. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results which could harm the price of our Common Stock.

 

RISKS RELATING TO OUR COMMON STOCK AND PREFERRED SHARES

 

The Hajioannou family controls the outcome of matters on which our stockholders are entitled to vote and its interests may be different from yours.

As of March 13, 2020, the Hajioannou family (including our chief executive officer, Polys Hajioannou) owns approximately 50.43%, of our outstanding Common Stock (see “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders” for more information). The Hajioannou family is able to control the outcome of matters on which our stockholders are entitled to vote, including the election of our entire board of directors and other significant corporate actions. The interests of the Hajioannou family may be different from yours.

 

Our status as a foreign private issuer within the rules promulgated under the Exchange Act exempts us from certain requirements of the SEC and New York Stock Exchange (“NYSE”).

We are a “foreign private issuer” within the rules promulgated under the Exchange Act. Under the NYSE listing rules, a foreign private issuer may elect to comply with the practice of its home country and to not comply with certain NYSE corporate governance requirements, including the requirements that (a) a majority of the board of directors consist of independent directors, (b) a nominating and corporate governance committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (c) a compensation committee be established that is composed entirely of independent directors and has a written charter addressing the committee’s purpose and responsibilities, (d) an annual performance evaluation of the nominating and corporate governance and compensation committees be undertaken and (e) the obligation to obtain shareholder approval in connection with certain issuances of authorized stock or the approval of, and material revisions to, equity compensation plans. Moreover, we are not required to comply with certain requirements of the SEC that domestic issuers are required to comply with, including (a) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K, (b) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (c) the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of

 
      30 - 31

 

material information and (d) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months). Therefore, you will not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements or SEC requirements.

For example, in reliance on the foreign private issuer exemption to the NYSE listing rules, a majority of our board of directors may not consist of independent directors; our board’s approach may therefore be different from that of a board with a majority of independent directors, and as a result, the management oversight of our Company may be more limited than if we were subject to the NYSE listing rules.

See “Item 16G. Corporate Governance” for more information.

 

Future sales of our Common Stock could cause the market price of our Common Stock to decline and our existing stockholders may experience significant dilution.

We may issue additional shares of our Common Stock in the future and our stockholders may elect to sell large numbers of shares held by them from time to time, subject to applicable restrictions and limitations under Rule144 of the Securities Act.

In April 2011, we issued and sold 5,000,000 shares of Common Stock in a public offering. The gross proceeds of the April 2011 public offering were approximately $42.0 million. In March 2012, we issued and sold 5,750,000 shares of Common Stock in a public offering. The gross proceeds of the March 2012 public offering were approximately $37.4 million. In November 2013, we issued and sold 5,750,000 shares of Common Stock in a public offering. Concurrently with that public offering, we issued and sold 1,000,000 shares of Common Stock to an entity associated with our chief executive officer, Polys Hajioannou, in a private placement. The gross proceeds of the November 2013 public offering and private placement were approximately $50.2 million. In December 2016, we issued and sold 15,640,000 shares of Common Stock in a public offering, in which an entity associated with Polys Hajioannou purchased 2,727,272 shares of Common Stock. The gross proceeds of the December 2016 public offering were approximately $17.2 million. In April 2017, we completed an exchange offer (the “Exchange Offer”) for our Series B Cumulative Redeemable Perpetual Preferred Shares, par value $0.01 per share, liquidation preference $25.00 per share (“Series B Preferred Shares”), in which we issued an additional 2,212,508 shares of Common Stock to holders of Series B Preferred Shares who tendered such preferred shares in the Exchange Offer.

In November 2018, one of our subsidiaries entered into a memorandum of agreement with an unaffiliated seller to acquire a Japanese-built, dry-bulk Post-Panamax class resale newbuild vessel, expected to be delivered within the first half of 2020. We have the option to finance up to 50% of the purchase price of the vessel through the issuance of our Common Stock to the seller. In November 2018 and November 2019, we exercised our option and issued 1,441,048 and 3,963,964 shares of our Common Stock respectively to the seller, to finance the first instalment of $3.3 million and the second instalment of $6.6 million respectively of the purchase price of the vessel.

We have the option to finance up to $3.3 million of the remaining capital expenditure of the vessel through the periodic issuance of our Common Stock to the seller. Any such Common Stock issued by us is subject to a restriction on transfer for a period of six months from the date of such issuance.

Sales of a substantial number of shares of our Common Stock in the public market, or the perception that these sales could occur, may depress the market price for our Common Stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.

Our existing stockholders may also experience significant dilution in the future as a result of any future offering.

We also entered into a registration rights agreement in connection with our initial public offering with Vorini Holdings Inc., one of our principal stockholders, pursuant to which we have granted it and certain of its transferees the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act of 1933, as amended (the “Securities Act”), shares of our Common Stock held by them. Under the registration rights agreement, Vorini Holdings Inc. and certain of its transferees have the right to request us to register the sale of shares held by them on their behalf and may require us to make available shelf registration statements permitting sales of shares into the market from time to time over an extended period. In addition, those persons have the ability to exercise certain piggyback registration rights in connection with registered offerings initiated by us. Registration of such shares under the Securities Act would, except for shares purchased by affiliates, result in such shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration.

 

Our share repurchase programs may affect the market for our Common Stock and Preferred Shares, including affecting our share price or increasing share price volatility.

The Company may, from time to time, repurchase Common Stock or Preferred Shares in the open market, in privately negotiated transactions or otherwise, depending upon several factors, including market and business conditions, the trading price of our Common Stock and other investment opportunities. The repurchase programs may be limited, suspended or discontinued at any time without prior notice. In June 2019, we announced a share repurchase program under which we may, from time to time, purchase up to 5,000,000 shares of Common Stock in the aggregate on the open market. In March 2020, we expanded such share repurchase program to provide for the repurchase of an additional 1,500,000 shares of Common Stock on the open market. In March 2020, we announced a preferred share repurchase program under which we may, from time to time, purchase up to 100,000 shares of each of our Series C Preferred Shares and Series D Preferred Shares on the open market. Repurchases of our Common Stock or Preferred Shares pursuant to any repurchase programs could affect our stock price and increase trading volatility.

 

There is no guarantee of a continuing public market for you to resell our common or preferred stock.

Our Common Stock and Preferred Shares trade on the NYSE. We cannot assure you that an active and liquid public market for our Common Stock or Preferred Shares will continue, which would likely have a negative effect on the price of our Common Stock or Preferred Shares, as applicable, and impair your ability to sell or purchase our Common Stock or Preferred Shares, as applicable, when

 
SAFEBULKERS   ANNUAL REPORT 2019

 

you wish to do so. In January 2016, we announced that we received notice from the NYSE indicating that the trading price of our Common Stock was not in compliance with the NYSE’s continuing listing standard that requires a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days. On June 1, 2016, the NYSE notified us that our average stock price for the 30-trading days ended May 31, 2016 was above the NYSE’s minimum requirement of $1.00 based on a 30-trading day average and, accordingly, that the Company was no longer considered below the NYSE’s $1.00 continued listing standard.

In the future, if our Common Stock falls below the continued listing standard of $1.00 per share again or otherwise fails to satisfy any of the NYSE continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our Common Stock could be delisted from the NYSE. If our Common Stock ultimately were to be delisted for any reason, we could face significant material adverse consequences, including:

  ~ limited availability of market quotations for our Common Stock;
  ~ a limited amount of news and analyst coverage for us;
  ~ a decreased ability for us to issue additional securities or obtain additional financing in the future;
  ~ limited liquidity for our shareholders due to thin trading; and
  ~ loss of preferential tax rates for dividends received by certain non-corporate United States holders, loss of “mark-to-market” election by United States holders in the event we are treated as a passive foreign investment company (“PFIC”), and loss of our tax exemption under Section 883 of the Internal Revenue Code of 1986, as amended (the “Code”) (although we believe that we will not satisfy the requirements for this exemption).

 

Anti-takeover provisions in our organizational documents and Management Agreements could make it difficult for our stockholders to replace or remove our current board of directors and together with our adoption of a stockholder rights plan could have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of the shares of our Common Stock.

Several provisions of our articles of incorporation and bylaws 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 our management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. These provisions:

 

  ~ authorize our board of directors to issue “blank check” preferred stock without stockholder approval;
  ~ provide for a classified board of directors with staggered, three-year terms;
  ~ prohibit cumulative voting in the election of directors;
  ~ authorize the removal of directors only for cause;
  ~ prohibit stockholder action by written consent unless the written consent is signed by all stockholders entitled to vote on the action;
  ~ establish 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; and
  ~ provide that special meetings of our stockholders may only be called by the chairman of our board of directors, chief executive officer or a majority of our board of directors.

 

We have adopted a stockholder rights plan pursuant to which our board of directors may cause the substantial dilution of the holdings of any person that attempts to acquire us without the approval of our board of directors.

Each Manager may terminate the applicable Management Agreement prior to the end of its term if there is a change in directors after which at least one of the members of our board of directors is not a continuing director. “Continuing directors” means, as of any date of determination, any member of our board of directors who was (a) a member of our board of directors on May 29, 2018 or (b) nominated for election or elected to our board of directors with the approval of a majority of the directors then in office who were either directors on May 29, 2018 or whose nomination or election was previously so approved. In the event that either Management Agreement is so terminated, the Company shall pay to Safe Bulkers Management an amount in cash equal to the Management Fees paid or payable to either Manager, in the aggregate, during the 36 months preceding the applicable termination.

These anti-takeover provisions, including the provisions of our prospective stockholder rights plan, could substantially impede the ability of public stockholders to benefit from a change in control and, as a result, may adversely affect the market price of our Common Stock and your ability to realize any potential change of control premium.

 

We may not have sufficient cash from our operations to enable us to pay dividends on or to redeem our Preferred Shares following the payment of expenses and the establishment of any reserves.

We pay quarterly dividends on our Preferred Shares only from funds legally available for such purpose when, as and if declared by our board of directors. We may not have sufficient cash available each quarter to pay dividends. On February 20, 2018 (the “Redemption Date”), we completed the redemption of the outstanding 379,514 Series B Preferred Shares at a redemption price of $25.00 per Series B Preferred Share plus all accumulated and unpaid dividends to, but excluding, the Redemption Date. From and after the Redemption Date, all distributions on the Series B Preferred Shares ceased to accumulate, such Series B Preferred Shares are no longer outstanding, and all rights of the holders of such shares terminated. However, in the future, we may have insufficient cash available to redeem other series of our Preferred Shares. The amount of dividends we can pay or use to redeem Preferred Shares depends upon the amount of cash we generate from our operations, which may fluctuate.

 

The amount of cash we have available for dividends on or to redeem our Preferred Shares will not depend solely on our profitability.

The actual amount of cash we will have available for dividends or to redeem our Preferred Shares will depend on many factors, including the following:

 
      32 - 33

 

  ~ changes in our operating cash flow, capital expenditure requirements, working capital requirements and other cash needs;
  ~ restrictions under our existing or future credit facilities or any future debt securities, including existing restrictions under our existing credit facilities on our ability to pay dividends if an event of default has occurred and is continuing or if the payment of the dividend would result in an event of default and restrictions on our ability to redeem securities;
  ~ the amount of any cash reserves established by our board of directors; and
  ~ restrictions under the laws of the Republic of the Marshall Islands, which generally prohibits the payment of dividends other than from surplus (retained earnings and the excess of consideration received for the sale of shares above the par value of the shares) or while a company is insolvent or would be rendered insolvent by the payment of such a dividend.

 

The amount of cash we generate from our operations may differ materially from our net income or loss for the period, which will be affected by non-cash items, and our board of directors in its discretion may elect not to declare any dividends. As a result of these and the other factors mentioned above, we may pay dividends during periods when we record losses and may not pay dividends during periods when we record net income.

 

The Preferred Shares represent perpetual equity interests.

The Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, will not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the Preferred Shares may be required to bear the financial risks of an investment in the Preferred Shares for an indefinite period of time. In addition, the Preferred Shares rank junior to all our indebtedness and other liabilities, and to any other senior securities we may issue in the future with respect to assets available to satisfy claims against us. Each series of our Preferred Shares rank pari passu with one another and any class or series of capital stock established after the original issue date of such preferred shares that is not expressly subordinated or senior to such preferred shares as to the payment of dividends and amounts payable upon liquidation, dissolution or winding up.

 

Our Preferred Shares are subordinate to our debt, and your interests could be diluted by the issuance of additional preferred shares, including additional Preferred Shares, and by other transactions.

Our Preferred Shares are subordinate to all of our existing and future indebtedness. As of December 31, 2019, we had aggregate debt outstanding of $605.8 million, of which $65.5 million was the current portion of long term debt payable within the next 12 months. Our existing indebtedness restricts, and our future indebtedness may include restrictions on, our ability to pay dividends on or redeem preferred shares. Our articles of incorporation currently authorize the issuance of up to 20,000,000 shares of blank check preferred stock, par value $0.01 per share, of which, as of December 31, 2019, 2,300,000 shares of Series C Preferred Shares and 3,200,000 shares of Series D Preferred Shares were issued and outstanding. Of the blank check preferred stock, 1,000,000 shares have been designated Series A Participating Preferred Stock in connection with our adoption of a stockholder rights plan as described under “Item 10. Additional Information—B. Articles of Incorporation and Bylaws—Stockholder Rights Plan.” The issuance of additional preferred shares on a parity with or senior to the Preferred Shares would dilute the interests of holders of such shares, and any issuance of preferred shares senior to such preferred shares or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Preferred Shares.

 

The liquidation preference amount on our Preferred Shares is fixed and you will have no right to receive any greater payment regardless of the circumstances.

The payment due upon a liquidation to holders of any series of our Preferred Shares is fixed at the redemption preference of $25.00 per share plus accumulated and unpaid dividends to the date of liquidation. If, in the case of our liquidation, there are remaining assets to be distributed after payment of this amount, you will have no right to receive or to participate in these amounts. Furthermore, if the market price for our Preferred Shares is greater than the liquidation preference, you will have no right to receive the market price from us upon our liquidation.

 

Holders of Preferred Shares have extremely limited voting rights.

The voting rights of holders of Preferred Shares are extremely limited. Our Common Stock is the only class or series of our shares carrying full voting rights. Holders of Preferred Shares have no voting rights other than the ability (voting together as a class with all other classes or series of preferred stock upon which like voting rights have been conferred and are exercisable, including all of the Preferred Shares), subject to certain exceptions, to elect one director if dividends for six quarterly dividend periods (whether or not consecutive) payable on our Preferred Shares are in arrears and certain other limited protective voting rights.

 

Our ability to pay dividends on and to redeem our Preferred Shares is limited by the requirements of the laws of the Republic of the Marshall Islands, the laws of the Republic of Liberia and existing and future agreements.

The laws of the Republic of Liberia and of the Republic of the Marshall Islands, where our vessel-owning subsidiaries are incorporated, generally prohibit the payment of dividends other than from surplus or net profits, or while a company is insolvent or would be rendered insolvent by the payment of such a dividend. Our subsidiaries may not have sufficient funds, surplus or net profits to make distributions to us. In addition, under guarantees we have entered into with respect to certain of our subsidiaries’ existing credit facilities, we are subject to financial and other covenants, which may limit our ability to pay dividends and redeem the Preferred Shares. These and future agreements may limit our ability to pay dividends on and to redeem the Preferred Shares. We also may not have sufficient surplus or net profits in the future to pay dividends.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

TAX RISKS

 

In addition to the following risk factors, you should read “Item 10. Additional Information—E. Tax Considerations—Marshall Islands Tax Considerations,” “Item 10. Additional Information—E. Tax Considerations—Liberian Tax Considerations,” and “Item 10. Additional Information—E. Tax Considerations—United States Federal Income Tax Considerations” for a more complete discussion of expected material Marshall Islands, Liberian and United States federal income tax consequences of owning and disposing of our Common Stock and Preferred Shares.

 

We may earn shipping income that will be subject to United States income tax, thereby reducing our cash available for distributions to you.

Under United States tax rules, 50% of our gross income attributable to shipping that begins or ends in the United States may be subject to a 4% United States federal income tax (without allowance for deductions). The amount of this income may fluctuate, and we may not qualify for any exemption from this United States tax. Many of our charters contain provisions that obligate the charterers to reimburse us for this 4% United States tax. To the extent we are not reimbursed by our charterers, the 4% United States tax will decrease our cash that is available for dividends.

For a more complete discussion, see the section entitled “Item 10. Additional Information—Tax Considerations—E. United States Federal Income Tax Considerations—Taxation of Our Shipping Income.”

 

United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax consequences to United States holders.

A non-United States corporation will be treated as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes if either (a) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (b) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received 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.” United States stockholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC. In particular, United States holders who are individuals would not be eligible for preferential tax rates otherwise applicable to qualified dividends.

Based on our current operations and anticipated future operations, we believe that it is more likely than not that we currently will not be treated as a PFIC. In this regard, we intend to treat gross income we derive or are deemed to derive from our period time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our period time chartering activities should not constitute “passive income,” and that the assets we own and operate in connection with the production of that income should not constitute passive assets.

There are legal uncertainties involved in this determination. In Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the United States Court of Appeals for the Fifth Circuit held that, contrary to the position of the United States Internal Revenue Service, or the “IRS,” in that case, and for purposes of a different set of rules under the Internal Revenue Code of 1986, or the “Code,” income received under a period time charter of vessels should be treated as rental income rather than services income. If the reasoning of this case were extended to the PFIC context, the gross income we derive or are deemed to derive from our period time chartering activities would be treated as rental income, and we would probably be a PFIC. The IRS has stated that it disagrees with the holding in Tidewater and has specified that income from period time charters should be treated as services income. However, the IRS’ statement with respect to the Tidewater decision was an administrative action that cannot be relied upon or otherwise cited as precedent by taxpayers. In light of these authorities, the IRS or a United States court may not accept the position that we are not a PFIC, and there is a risk that the IRS or a United States court could determine that we are a PFIC. Moreover, we may constitute a PFIC for a future taxable year if there were to be changes in our assets, income or operations.

If the IRS were to find that we are or have been a PFIC for any taxable year, our United States stockholders will face adverse United States tax consequences. See “Item 10. Additional Information—E. “Tax Considerations—United States Federal Income Tax Considerations—United States Federal Income Taxation of United States Holders” for a more comprehensive discussion of the United States federal income tax consequences to United States stockholders if we are treated as a PFIC.

 

    ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

Safe Bulkers, Inc. was incorporated in the Republic of the Marshall Islands on December 11, 2007, under the BCA, for the purpose of acquiring ownership of various subsidiaries that either owned or were scheduled to own vessels. We are controlled by the Hajioannou family, which has a long history of operating and investing in the international shipping industry, including a long history of vessel ownership. Vassos Hajioannou, the late father of Polys Hajioannou, our chief executive officer, first invested in shipping in 1958. Polys Hajioannou has been actively involved in the industry since 1987, when he joined the predecessor of Safety Management.

Over the past 26 years under the leadership of Polys Hajioannou, we have sold 14 drybulk vessels during periods of what we viewed as favorable secondhand market conditions and have contracted to acquire 49 drybulk newbuilds and six drybulk secondhand vessels. Also under his leadership, we have expanded the classes of drybulk vessels in our fleet and the aggregate carrying capacity of our fleet has grown from 887,900 dead weight tons prior to our initial public offering in May 28, 2008 to 3,777,000 dwt as of March 13, 2020. Information on our capital expenditure requirements are discussed in “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.” The quality and size of our current fleet, together with our long-term

 
      34 - 35

 

relationships with several of our charter customers, are, we believe, the results of our long-term strategy of maintaining a high quality fleet, our broad knowledge of the drybulk industry and our strong management team. In addition to benefiting from the experience and leadership of Polys Hajioannou, we also benefit from the expertise of our Managers which, along with their predecessor, have specialized in drybulk shipping since 1965, providing services to over 50 drybulk vessels. In June 2008, we completed an initial public offering of our Common Stock in the U.S. and our Common Stock began trading on the NYSE. Our principal executive office is located at Apt. D11, Les Acanthes, 6, Avenue des Citronniers MC 98000 Monaco. Our registered address in the Republic of the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Republic of the Marshall Islands MH96960. The name of our registered agent at such address is The Trust Company of the Marshall Islands, Inc.

 

B. Business Overview

We are an international provider of marine drybulk transportation services, transporting bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes for some of the world’s largest consumers of marine drybulk transportation services. As of March 13, 2020, we had a fleet of 41 drybulk vessels, with an aggregate carrying capacity of 3,777,000 dwt.

We employ our vessels on both period time charters and spot time charters, according to our assessment of market conditions, with some of the world’s largest consumers of marine drybulk transportation services. The vessels we deploy on period time charters provide us with relatively stable cash flow and high utilization rates, while the vessels we deploy in the spot market allow us to maintain our flexibility in low charter market conditions.

During 2019, we continued our environmental investments, focusing on strict compliance with existing rules and regulations. We have already installed 15 Scrubbers and we expect to conclude our exhaust gas cleaning program by retrofitting the last five Scrubbers within 2020, obtaining operational flexibility and materializing financial benefits on the basis of the price differential between high sulfur fuel oil with 3.5% sulfur content and the new fuel with reduced sulfur content below 0.5%.

As of December 31, 2019, we had 19 vessels equipped with BWTS and we expect to retrofit 9 vessels with BWTS within the remainder of 2020, obtaining operational flexibility worldwide. We cooperate with key market players, shipyards, charterers, financial institutions and others to advance our business and create value for our stockholders.

 

General

As of March 13, 2020, our fleet comprised 41 vessels, of which 14 are Panamax class vessels, 10 are Kamsarmax class vessels, 13 are Post-Panamax class vessels and four are Capesize class vessels, with an aggregate carrying capacity of 3,777,000 dwt and an average age of 9.5 years. Assuming delivery of the last of our contracted vessels in 2020, our fleet will be comprised of 14 Panamax class vessels, 10 Kamsarmax class vessels, 14 Post-Panamax class vessels and four Capesize class vessels, and the aggregate carrying capacity of our 42 vessels will be 3,862,000 dwt. As of March 13, 2020, the average remaining duration of the charters for our existing fleet was 0.6 years.

The majority of vessels in our fleet have sister ships with similar specifications in our existing or newbuild fleet. We believe using sister ships provides cost savings because it facilitates efficient inventory management and allows for the substitution of sister ships to fulfill our period time charter obligations.

 

Our Fleet and Newbuild

The table below presents additional information with respect to our drybulk vessel fleet, including our newbuild, and its deployment as of March 13, 2020. Scrubber benefit for scrubber fitted vessels is calculated on the basis of the price differential between high sulfur fuel oil with 3.5% sulfur content and the new fuel with reduced sulfur content below 0.5%t for the specific voyage and is either presented as part of the daily charter hire or, in cases where it cannot be defined, is not part of the stated daily charter hire.

 

Vessel Name   Dwt Year
Built(1)
Country of
Construc-
tion
Charter
Type
Charter
Rate(2)
Com-
mis-
sions(3)
Charter Period(4) Sister
Ship(5)
CURRENT FLEET
Panamax                  
Maria   76,000 2003 Japan Period $9,349 5.00% Feb 2020 - Dec 2020 A
Koulitsa   76,900 2003 Japan Period $5,986 5.00% Dec 2019 - Apr 2020  
Paraskevi   74,300 2003 Japan Spot $4,500 5.00% Mar 2020 - Apr 2020  
Vassos   76,000 2004 Japan Spot $12,900 5.00% Sep 2019 - Mar 2020 A
Katerina   76,000 2004 Japan Spot $8,097 5.00% Feb 2020 - Dec 2020 A
Maritsa   76,000 2005 Japan Period $9,436 5.00% Feb 2020 - Nov 2020 A
Efrossini   75,000 2012 Japan Spot $5,972 3.75% Jan 2020 - Apr 2020 B
Zoe (12)   75,000 2013 Japan Spot $7,899 5.00% Jan 2020 - Apr 2020 B
Kypros Land (12)   77,100 2014 Japan Spot $5,616 5.00% Jan 2020 - Apr 2020 H
Kypros Sea   77,100 2014 Japan Spot $13,850 5.00% May 2019 - Mar 2020 H
Kypros Bravery   78,000 2015 Japan         I
Kypros Sky (10)   77,100 2015 Japan Spot $8,926 5.00% Jan 2020 - Mar 2020 H
Kypros Loyalty   78,000 2015 Japan Spot $6,367 5.00% Feb 2020 - Apr 2020 I
Kypros Spirit (10)   78,000 2016 Japan Spot $4,044 5.00% Jan 2020 - Apr 2020 I
 
SAFEBULKERS   ANNUAL REPORT 2019

 

Kamsarmax                  
Pedhoulas Merchant   82,300 2006 Japan Spot $7,000 5.00% Feb 2020 - Mar 2020 C
Pedhoulas Trader   82,300 2006 Japan Period $12,000 5.00% May 2019 - Mar 2020 C
Pedhoulas Leader   82,300 2007 Japan Spot $7,681 5.00% Feb 2020 - Apr 2020 C
Pedhoulas Commander   83,700 2008 Japan Period $10,850 5.00% Apr 2019 - May 2020  
Pedhoulas Builder   81,600 2012 China Spot (14) $8,321 5.00% Feb 2020 - Apr 2020 D
Pedhoulas Fighter   81,600 2012 China Spot (14) $9,548 5.00% Jan 2020 - Apr 2020 D
Pedhoulas Farmer(6)   81,600 2012 China Spot (14) $10,614 5.00% Dec 2019 - Mar 2020 D
Pedhoulas Cherry   82,000 2015 China Spot (14) $10,999 5.00% Jan 2020 - Apr 2020 K
Pedhoulas Rose(6)   82,000 2017 China Spot (14) $11,529 5.00% Mar 2020 - Jun 2020  
Pedhoulas Cedrus   81,800 2018 Japan Spot (14) $8,633 5.00% Mar 2020 - Jun 2020  
Post-Panamax                  
Marina   87,000 2006 Japan Spot (14) $6,616 5.00% Feb 2020 - Apr 2020 E
Xenia   87,000 2006 Japan Spot (15) $1,867 5.00% Jan 2020 - Mar 2020 E
Sophia   87,000 2007 Japan Spot (13) $8,780 5.00% Feb 2020 - Mar 2020 E
Eleni   87,000 2008 Japan Spot (13) $10,222 5.00% Jan 2020 - Apr 2020 E
Martine   87,000 2009 Japan Spot (14) $10,710 5.00% Feb 2020 - Mar 2020 E
Andreas K   92,000 2009 South Korea Spot (14) $6,765 5.00% Feb 2020 - May 2020 F
Panayiota K (11)   92,000 2010 South Korea Spot (14) $8,743 5.00% Feb 2020 - Mar 2020 F
Agios Spyridonas (11)   92,000 2010 South Korea Spot (14) $6,901 5.00% Feb 2020 - Apr 2020 F
Venus Heritage (12)   95,800 2010 Japan Spot (14) $5,951 5.00% Jan 2020 - Mar 2020 G
Venus History (12)   95,800 2011 Japan Spot (14) $8,681 5.00% Feb 2020 - Apr 2020 G
Venus Horizon   95,800 2012 Japan Spot (14) $7,166 5.00% Feb 2020 - Apr 2020 G
Troodos Sun   85,000 2016 Japan Spot $5,193 5.00% Jan 2020 - Mar 2020 J
Troodos Air   85,000 2016 Japan Spot $5,875 5.00% Feb 2020 - Mar 2020 J
Capesize                  
Mount Troodos   181,400 2009 Japan Dry docking(9)        
Kanaris   178,100 2010 China Period(7) $26,562 2.50% Sep 2011 – Jun 2031  
Pelopidas   176,000 2011 China Period $38,000 1.00% Feb 2012 – Jan 2022  
Lake Despina   181,400 2014 Japan Period(8) $24,376 1.25% Jan 2014 – Jan 2024  
Subtotal   3,777,000              
NEW BUILD                  
Post-Panamax                  
1772TBN   85,000 1H
2020
Japan          
Subtotal   85,000              
TOTAL   3,862,000              

 

  (1) For existing vessels, the year represents the year built. For our newbuild, the date shown reflects the expected delivery dates.
     
  (2) Quoted charter rates are the recognized daily gross charter rates. For charter parties with variable rates among periods or consecutive charter parties with the same charterer, the recognized gross daily charter rate represents the weighted average gross daily charter rate over the duration of the applicable charter period or series of charter periods, as applicable. In the case of a charter agreement that provides for additional payments, namely ballast bonus to compensate for vessel repositioning, the gross daily charter rate presented has been adjusted to reflect estimated vessel repositioning expenses. Gross charter rates are inclusive of commissions. Net charter rates are charter rates after the payment of commissions. In the case of voyage charters, the charter rate represents revenue recognized on a pro rata basis over the duration of the voyage from load to discharge port less related voyage expenses.
     
  (3) Commissions reflect payments made to third-party brokers or our charterers.
     
  (4) The start dates listed reflect either actual start dates or, in the case of contracted charters that had not commenced as of March 13, 2020, the scheduled start dates. Actual start dates and redelivery dates may differ from the referenced scheduled start and redelivery dates depending on the terms of the charter and market conditions and does not reflect the options to extend the period time charter.
 
      36 - 37

 

  (5) Each vessel with the same letter is a “sister ship” of each other vessel that has the same letter, and under certain of our charter contracts, may be substituted with its “sister ships.”
     
  (6) MV Pedhoulas Farmer and MV Pedhoulas Rose were sold and leased back, in 2015 and 2017, respectively, on a bareboat charter basis for a period of 10 years, with a purchase obligation at the end of the bareboat charter period and purchase options in favor of the Company after the second year of the bareboat charter, at annual intervals and predetermined purchase prices.
     
  (7) Charterer agreed to reimburse us for part of the cost of the Scrubbers and BWTS to be installed on the vessel, which is recorded by increasing the recognized daily charter rate by $634 over the remaining tenor of the time charter party.
     
  (8) A period time charter of 10 years at a gross daily charter rate of $23,100 for the first two and a half years and of $24,810 for the remaining period. In January 2017, the period time charter was amended to reflect substitution of the initial charterer with its subsidiary guaranteed by the initial charterer and changes in payment terms; all other period charter terms remained unchanged. The charter agreement grants the charterer the option to purchase the vessel at any time beginning at the end of the seventh year of the period time charter period, at a price of $39.0 million less 1.00% commission, decreasing thereafter on a pro-rated basis by $1.5 million per year. The Company holds a right of first refusal to buy back the vessel in the event that the charterer exercises its option to purchase the vessel and subsequently offers to sell such vessel to a third party. The charter agreement also grants the charterer an option to extend the period time charter for an additional twelve months at a time at a gross daily charter rate of $26,330, less 1.25% total commissions, which option may be exercised by the charterer a maximum of two times.
     
  (9) Vessel in dry-docking.
     
  (10) MV Kypros Sky and MV Kypros Spirit were sold and leased back in December 2019 on a bareboat charter basis for a period of eight years, with purchase options in favor of the Company commencing three years following the commencement of the bareboat charter period and a purchase obligation at the end of the bareboat charter period, all at predetermined purchase prices.
     
  (11) MV Panayiota K and MV Agios Spyridonas were sold and leased back in January 2020 on a bareboat charter basis for a period of six years, with purchase options in favor of the Company commencing three years following the commencement of the bareboat charter period and a purchase obligation at the end of the bareboat charter period, all at predetermined purchase prices.
     
  (12) MV Zoe, MV Kypros Land, MV Venus Heritage and MV Venus History were sold and leased back in November 2019, on a bareboat charter basis, one for a period of eight years and three for a period of seven and a half years, with a purchase option in favor of the Company five years and nine months following the commencement of the bareboat charter period at a predetermined purchase price.
     
  (13) Scrubber benefit was agreed on the basis of fuel consumption of heavy fuel oil and the price differential between the heavy fuel oil and the compliant fuel cost for the voyage and is included on the daily gross charter rate presented.
     
  (14) Scrubber benefit was agreed on the basis of fuel consumption of heavy fuel oil and the price differential between the heavy fuel oil and the compliant fuel cost for the voyage and is not included on the daily gross charter rate presented.
     
  (15) Voyage related to repositioning close to the shipyard where the vessel would undertake dry-docking.

 

From the beginning of 1995 through March 13, 2020, we have taken delivery of 49 newbuilds and six secondhand vessels. As of March 13, 2020, we were contracted to take delivery of one Japanese-built Post-Panamax class resale newbuild vessel. As of March 13, 2020, our remaining capital expenditure requirements to shipyards or sellers with respect to our newbuild amounted to $20.2 million all of which is due in 2020. The Company has the option to pay for up to $3.3 million of the remaining capital expenditure of the vessel through the issuance of our Common Stock to the seller.

 

Chartering of Our Fleet

Our vessels are used to transport bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes. We may employ our vessels in time charters or in voyage charters.

A time charter is a contract to charter a vessel for a fixed period of time at a set daily rate and can last from a few days up to several years, where the vessel performs one or more trips between load port(s) and discharge port(s). Based on the duration of vessel’s employment, a time charter can be either a long-term, or period, time charter with duration of more than three months, or a short-term, or spot, time charter with duration of up to three months. Under our time charters, the charterer pays for most voyage expenses, such as port, canal and fuel costs, agents’ fees, extra war risks insurance and any other expenses related to the cargoes, and we pay for vessel operating expenses, which include, among other costs, costs for crewing, provisions, stores, lubricants, insurance, maintenance and repairs, tonnage taxes, drydocking and intermediate and special surveys.

Voyage charters are generally contracts to carry a specific cargo from a load port to a discharge port, including positioning the vessel at the load port. Under a voyage charter, the charterer pays an agreed upon total amount or on a per cargo ton basis, and we pay for both vessel operating expenses and voyage expenses. We infrequently enter into voyage charters. Voyage charters together with spot time charters are referred to in our industry as employment in the spot market.

We intend to employ our vessels on both period time charters and spot time charters, according to our assessment of market conditions, with some of the world’s largest consumers of marine drybulk transportation services. The vessels we deploy on period time charters provide us with relatively stable cash flow and high utilization rates, while the vessels we deploy in the spot market allow us to maintain our flexibility in low charter market conditions.

 

Our Customers

Since 2005, our customers have included over 30 national, regional and international companies, including Bunge, Cargill, Daiichi, Intermare Transport G.m.b.H., Energy Eastern Pte. Ltd., NYK, NS United Kaiun Kaisha, Kawasaki Kisen Kaisha, Oldendorff GmbH and Co. KG, Louis Dreyfus Armateurs, Louis Dreyfus Commodities, ArcelorMittal or their affiliates. During 2019, two of our charterers, namely Glencore Agriculture B.V. and Bunge S.A., accounted for 31.40% of our revenues, with each one accounting for more than 10.0% of total revenues. During 2018, two of our charterers, namely Glencore Agriculture B.V. and Bunge S.A., accounted for 28.49% with each one accounting for more than 10.0% of total revenues. During 2017, one of our charterers, Bunge S.A., accounted for 12.72% of total revenues. We seek to charter our vessels primarily to charterers who intend to use our vessels without sub-chartering them to third parties. A prospective charterer’s financial condition and reliability are also important factors in negotiating employment for our vessels.

 

Management of Our Fleet

In May 2008, we entered into a management agreement with Safety Management and in May 2015, we entered into a management agreement with Safe Bulkers Management, pursuant to which our Managers provided us with our executive officers, techni-

 
SAFEBULKERS   ANNUAL REPORT 2019

 

cal, administrative, commercial and certain other services. Each of these management agreements expired on May 28, 2018. In May 2018, we entered into new Management Agreements, pursuant to which our Managers continue to provide us with technical, administrative, commercial and certain other services. Each of the Management Agreements was effective as of May 29, 2018 and has an initial three-year term which may be extended on a three-year basis up to two times. Our arrangements with our Managers and their performance are reviewed by our board of directors. Our chief executive officer, president, chief financial officer and chief operating officer, collectively referred to in this annual report as our “executive officers,” provide strategic management for our company and also supervise the management of our day-to-day operations by our Managers. Our Managers report to us and our board of directors through our executive officers. The Management Agreements with our Managers have a maximum expiration date in May 2027 and we expect to enter into new agreements with the Managers upon their expiration. The terms of any such new agreements have not yet been determined.

Pursuant to the Management Agreements, in return for providing such services our Managers receive a ship management fee of €875 per day per vessel and one of our Managers receives an annual ship management fee of €3 million. Our Managers also receive a commission of 1.0% based on the contract price of any vessel sold by it on our behalf, and a commission of 1.0% based on the contract price of any vessel bought by it on our behalf, including the acquisition of each of our contracted newbuilds. We also pay our Managers a supervision fee of $550,000 per newbuild, of which 50% is payable upon the signing of the relevant supervision agreement, and 50% upon successful completion of the sea trials of each newbuild, which we capitalize, for the on-premises supervision by selected engineers and others on the Managers’ staff of newbuilds we have agreed to acquire pursuant to shipbuilding contracts, memoranda of agreement, or otherwise.

Our Managers have agreed that, during the term of our Management Agreements and for a period of one year following their termination, our Managers will not provide management services to, or with respect to, any drybulk vessels other than (a) on our behalf or (b) with respect to drybulk vessels that are owned or operated by companies affiliated with our chief executive officer or his family members, and drybulk vessels that are acquired, invested in or controlled by companies affiliated with our chief executive officer or his family members, subject in each case to compliance with, or waivers of, the restrictive covenant agreements entered into between us and such companies. Our Managers have also agreed that if one of our drybulk vessels and a drybulk vessel owned or operated by any such company are both available and meet the criteria for a charter being arranged by our Managers, our drybulk vessel will receive such charter.

The foregoing description of the Management Agreements does not purport to be complete and is qualified in its entirety by reference to the Management Agreements, copies of which are attached as Exhibit 4.1 and Exhibit 4.2 and incorporated herein by reference.

See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Management Agreements” for more information.

 

Competition

We operate in highly competitive markets that are based primarily on supply and demand. Our business fluctuates in line with the main patterns of trade of the major drybulk cargoes and varies according to changes in the supply and demand for these items. We believe we differentiate ourselves from our competition by providing modern vessels with advanced designs and technological specifications. As of March 13, 2020, our fleet had an average age of 9.5 years. Upon delivery of our contracted newbuild vessel, the majority of our fleet will have been built in Japanese shipyards, which we believe provides us with an advantage in attracting large, well-established customers, including Japanese customers.

The drybulk sector is characterized by relatively low barriers to entry, and ownership of drybulk vessels is highly fragmented. In general, we compete with other owners of Panamax class or larger drybulk vessels for charters based upon price, customer relationships, operating expertise, professional reputation and size, age, location and condition of the vessel.

 

Crewing and Shore Employees

Our management team consists of our chief executive officer, president, chief financial officer, chief operating officer, chief financial controller, chief compliance officer and our internal auditor. Our Managers are responsible for the technical management of our fleet and therefore also handle the recruiting, either directly or through crewing agents, of the senior officers and all other crew members for our vessels. As of December 31, 2019, approximately 952 people served on board the vessels in our fleet, and our Managers employed approximately 117 people on shore.

 

Permits and Authorizations

We are required by various governmental and other agencies to obtain certain permits, licenses, certificates and financial assurances with respect to each of our vessels. The kinds of permits, licenses, certificates and financial assurances required by governmental and other agencies depend upon several factors, including the commodity being transported, the waters in which the vessel operates, the nationality of the vessel’s crew and the type and age of the vessel. All permits, licenses, certificates and financial assurances currently required to operate our vessels have been obtained. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of doing business.

 

RISK OF LOSS AND LIABILITY INSURANCE

 

General

The operation of our fleet involves risks such as mechanical failure, collision, property loss, cargo loss or damage as well as personal injury, illness and loss of life. In addition, the operation of any oceangoing vessel is subject to the inherent possibility of marine disaster, including oil spills and other environmental mishaps, the risk of piracy and the liabilities arising from owning and operating

 
      38 - 39

 

vessels in international trade. The U.S. Oil Pollution Act of 1990 (“OPA 90”), which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for vessel owners and operators trading in the United States market.

Our Managers are responsible for arranging insurance for all our vessels on the terms specified in our Management Agreements, which we believe are in line with standard industry practice. In accordance with our Management Agreements, our Managers procure and maintain hull and machinery insurance, war risks insurance, freight, demurrage and defense coverage and protection and indemnity coverage with mutual assurance associations. Due to our low incident rate and the relatively young age of our fleet, we are generally able to procure relatively low rates for all types of insurance.

While our insurance coverage for our drybulk vessel fleet is in amounts that we believe to be prudent to protect us against normal risks involved in the conduct of our business and consistent with standard industry practice, our Managers may not be able to maintain this level of coverage throughout a vessel’s useful life. Furthermore, all risks may not be adequately insured against, any particular claim may not be paid and adequate insurance coverage may not always be obtainable at reasonable rates.

 

Hull and machinery insurance

Our marine hull and machinery insurance covers risks of partial loss or actual or constructive total loss from collision, fire, grounding, engine breakdown and other insured risks up to an agreed amount per vessel. Our vessels will each be covered up to at least their fair market value after meeting certain deductibles per incident per vessel. We also maintain increased value coverage for each of our vessels. Under this increased value coverage, in the event of the total loss of a vessel, we are entitled to recover amounts in excess of the total loss amount recoverable under our hull and machinery policy.

 

Protection and indemnity insurance

Protection and indemnity insurance is a form of mutual indemnity insurance provided by mutual marine protection and indemnity associations (“P&I Associations”) formed by vessel owners to provide protection from large financial loss to one club member by contribution towards that loss by all members.

Protection and indemnity insurance covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew members, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Our coverage, except for pollution, will be unlimited. Furthermore, within this aggregate limit, club coverage is also limited to the amount of the member’s legal liability.

Our protection and indemnity insurance coverage for pollution is limited to $1.0 billion per vessel per incident. Our protection and indemnity insurance coverage in respect of passengers is limited to $2.0 billion and in respect of passengers and seamen is limited to $3.0 billion per vessel per incident. The 13 P&I Associations that comprise the International Group of P&I Clubs (the “International Group”) insure approximately 90.0% of the world’s commercial blue-water tonnage and have entered into a pooling agreement to reinsure each P&I Association’s liabilities. As a member of a P&I Association that is a member of the International Group, we are subject to calls payable to the P&I Association based on the International Group’s claim records, as well as the claim records of all other members of the individual associations.

Although the P&I Associations compete with each other for business, they have found it beneficial to mutualize their larger risks among themselves through the International Group. This is known as the “Pool.” This pooling is regulated by a contractual agreement which defines the risks that are to be covered and how claims falling on the Pool are to be shared among the participants in the International Group. The Pool provides a mechanism for sharing all claims in excess of $10.0 million up to, currently, approximately $8.2 billion. On that basis, all claims up to $10.0 million will be covered by each Club’s Individual Retention and all claims in excess of $10.0 million up to $100.0 million will be covered by the Pool. The Pool is structured in three layers from $10 million to $100 million. For amounts in excess of $30 million, the Pool is reinsured by the Group captive reinsurance vehicle, Hydra Insurance Company Limited. Hydra is a Bermuda incorporated Segregated Accounts company in which each of the 13 Group Clubs has its own segregated account (or “cell”) ring fencing its assets and liabilities from those of the company or any of the other Club cells. Hydra reinsures each Club in respect of that Club’s liabilities within the Pool and reinsurance layers in which it participates. Through the participation of Hydra, the Group Clubs can retain, within their Hydra cells, premium which would otherwise have been paid to the commercial reinsurance markets.

For the 2020/2021 policy year, the International Group maintained a three layer GXL reinsurance program, together with an additional Collective Overspill layer, which combine to provide commercial reinsurance cover of up to $3.1 billion per vessel per incident, comprising of reinsurance for all claims of up to $2.1 billion per vessel per incident in excess of the $100.0 million insured by the Pool and an additional $1.0 billion in excess of the aforesaid $2.1 billion per vessel per incident in respect of claims for overspill.

 

War Risks Insurance

Our war risk insurance covers hull or freight damage, detention or diversions risks and P&I liabilities (including crew) arising out of confiscations, seizure, capture, vandalism, sabotage and/or other war risks and is subject to separate limits of:

  (i) each vessel’s hull and machinery value and each vessel’s corresponding increased value insured up to $400.0 million per vessel per incident, and
  (ii) for war risks P&I liabilities including crew up to $400.0 million per vessel per incident.

 

Inspection by Classification Societies

Every oceangoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is “in class,” signifying that the vessel has been built and maintained in accordance with the rules and regulations of the classification society. In addition, each vessel must comply with all applicable laws, rules and regulations of the vessel’s country of registry, or

 
SAFEBULKERS   ANNUAL REPORT 2019

 

“flag state,” as well as the international conventions of which that flag state is a member. A vessel’s compliance with international conventions and corresponding laws and ordinances of its flag state can be confirmed by the applicable flag state, port state control or, upon application or by official order, the classification society, acting on behalf of the authorities concerned.

The classification society also undertakes, upon request, other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case or to the regulations of the country concerned.

All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years. The maintenance of class, regular and extraordinary surveys of a vessel’s hull and machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:

 

  ~ Annual Surveys. For oceangoing vessels, annual surveys are conducted for their hulls and machinery, including the electrical plants, and for any special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate.
  ~ Intermediate Surveys. Extended annual surveys are referred to as “intermediate surveys” and typically are conducted on the occasion of the second or third annual survey after commissioning and after each class renewal.
  ~ Class Renewal / Special Surveys. Class renewal surveys, also known as “special surveys,” are more extensive than intermediate surveys and are carried out at the end of each five-year period. During the special survey the vessel is thoroughly examined, including thickness-gauging to determine any diminution in the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. It may be expensive to have steel renewals pass a special survey if the vessel is aged or experiences excessive wear and tear. A vessel owner has the option of arranging with the classification society for the vessel’s machinery to be on a continuous survey cycle, according to which all machinery would be surveyed within a five-year cycle. At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class.

 

Vessels are drydocked during intermediate and special surveys for repairs of their underwater parts. Intermediate surveys may not be required for vessels under the age of 15 years. If “in water survey” notation is assigned by class, as is the case for our vessels, the vessel owner has the option of carrying out an underwater inspection of the vessel in lieu of drydocking, subject to certain conditions. In the event that an “in water survey” notation is assigned as part of a particular intermediate survey, dry-docking would be required for the following special survey thereby generally achieving a higher utilization for the relevant vessel. Drydocking can be undertaken as part of a special survey if the drydocking occurs within 15 months prior to the special survey due date. Special survey may be extended under certain provisions for a period of up to three months from their due date. In some vessels, BWTS installation will be undertaken concurrently with the scheduled drydocking. Scrubber retrofit may be undertaken either as a stand-alone retrofit or concurrently with the scheduled drydocking. The following table lists the dates by which we expect to start the next drydocking, BWTS retrofit and/or Scrubber retrofit and the special survey for the vessels in our current drybulk vessel fleet:

 

Vessel Name Drydocking/BWTS/Scrubber(1) Special Survey (2)
Mount Troodos (3),(4),(5) March 2020 December 2019
Troodos Sun (3),(4),(5) April 2020 January 2021
Troodos Air (3),(4),(5) April 2020 March 2021
Xenia (3),(4),(5) April 2020 April 2021
Kanaris (3),(4),(5) May 2020 May 2020
Kypros Sky (3),(4) June 2020 April 2020
Kypros Bravery (3),(4) June 2020 June 2020
Kypros Loyalty (3),(4) September 2020 September 2020
Venus History (3),(4) January 2021 September 2021
Pedhoulas Merchant (3),(4) February 2021 March 2021
Pedhoulas Trader (3),(4) March 2021 May 2021
Pelopidas (3),(4) March 2021 November 2021
Venus Horizon (3),(4) March 2021 February 2022
Kypros Spirit (3),(4) April 2021 July 2021
Koulitsa(3) June 2021 April 2023
Maria (3) June 2021 April 2023
Vassos (3) October 2021 February 2024
Pedhoulas Leader (3),(4) November 2021 February 2022
Pedhoulas Rose (3) January 2022 January 2022
Pedhoulas Fighter (3),(4) January 2022 August 2022
Efrossini (3),(4) February 2022 February 2022
Pedhoulas Farmer (3),(4) February 2022 September 2022
Pedhoulas Builder (3),(4) March 2022 May 2022
 
      40 - 41

 

Vessel Name Drydocking/BWTS/Scrubber(1) Special Survey (2)
Sophia (3),(4) March 2022 June 2022
Katerina (3) May 2022 May 2024
Eleni (3) November 2022 November 2023
Marina (3) December 2022 January 2021
Lake Despina (3) December 2022 January 2024
Paraskevi (3),(4) January 2023 January 2023
Maritsa (3) January 2023 January 2025
Xenia (3) April 2023 April 2021
Pedhoulas Commander (3) May 2023 May 2023
Pedhoulas Cedrus (3) June 2023 June 2023
Zoe (3) July 2023 July 2023
Andreas K (3) August 2023 August 2024
Pedhoulas Cherry (3) August 2023 July 2020
Panayiota K (3) October 2023 April 2020
Kypros Land (3) December 2023 January 2024
Kypros Sea (3) January 2024 March 2024
Martine (3) January 2024 February 2024
Agios Spyridonas (3) January 2024 January 2025
Venus Heritage (3) March 2024 December 2025

 

  (1) Scheduled date for initiation of a drydocking, BWTS retrofit and/or Scrubber retrofit.
  (2) Special survey date.
  (3) Drydocking.
  (4) BWTS retrofit.
  (5) Scrubber retrofit.

 

Following an incident or a scheduled survey, if any defects are found, the classification surveyor will issue a “recommendation or condition of class” which must be rectified by the vessel owner within the prescribed time limits.

In general, insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society which is a member of the International Association of Classification Societies (“IACS”). All of our vessels are certified as being “in class” by either Lloyd’s Register of Shipping, the American Bureau of Shipping or Bureau Veritas, each of which is a member of IACS.

 

Environmental and Other Regulations

 

General

Government regulation significantly affects the ownership and operation of our vessels. Our vessels are subject to international conventions and national, state and local laws and regulations in force in international waters and the countries in which they operate or are registered, including environmental protection requirements governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and the management of other contamination, air emissions, water discharges and ballast water. These laws and regulations include the International Convention for Prevention of Pollution from Ships, the International Convention for Safety of Life at Sea (“SOLAS”) and implementing regulations adopted by the IMO, the E.U. and other international, national and local regulatory bodies. They also include laws and regulations in the jurisdictions where our vessels travel and in the ports where our vessels call. In the U.S., the requirements include OPA 90, the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Clean Water Act (“CWA”) and U.S. Clean Air Act (“CAA”). Compliance with these environmental protection requirements has imposed significant cost and expense, including the cost of vessel modifications and implementation of certain operating procedures. Our fleet complies with all current requirements. However, we incurred significant vessel modification expenditures in 2019 and we anticipate to incur additional expenditures in the current or subsequent fiscal years to comply with certain requirements, including mainly the installation of BWTS and Scrubbers. In 2019, we installed Scrubbers in 15 vessels and we expect to install five additional Scrubbers in 2020. The installation of the remaining five Scrubbers and related capital expenditure is expected to be both time consuming and costly and may be delayed by the 2019-nCoV outbreak, which has caused delays in the resumption of shipyard operations following the Chinese New Year and a shortage of personnel to perform Scrubber installations. If we fail to timely install the Scrubbers in the vessels that we have scheduled to, then we may not realize any return, or we may realize a lower return on our investment in Scrubbers than that which we expected, which could have a material adverse effect on our results of operations, cash flows and financial position. The construction of new building vessels and scheduled ship repairs and upgrades, including Scrubber and BWTS installations, has been delayed as a result of the impact of outbreak on the Chinese workforce. Many Chinese repair yards have declared force majeure, which may extend the duration or delay scheduled dry-dockings, intermediate or special surveys of certain vessels, which in turn may affect the renewal of vessels’ certificates. The Company has scheduled several yard repairs during 2020 and has already rescheduled a number of them for a later time. Failure to timely complete such yard repairs or the extension of their duration may affect our results of operations.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

As of March 2020, the outbreak of the 2019-nCoV has been declared a pandemic by the WHO. The outbreak of the 2019-nCoV in China and other countries led a number of countries, ports and organizations to take measures against its spread, such as quarantines and restrictions on travel. Such measures were taken in Chinese ports and other locations where we conduct a large part of our operations. For example, travel restrictions on Chinese workers and delays in other countries as a result of quarantines and port checks due to cases, or suspected cases, of the 2019-nCoV amongst crew on board vessels, have prevented the normal resumption of work after Chinese New Year and have affected the operation of manufacturing plants within China and are likely to have an impact on construction projects including the construction of newbuild vessels, either in China or in Japan, the delivery of which may be delayed for such reasons. The Company has one resale newbuild in Japan which may face delays, which may affect our results of operations.

Under our Management Agreements, our Managers have assumed technical management responsibility for our fleet, including compliance with all applicable government and other regulations. If the Management Agreements with our Managers terminate, we would attempt to hire another party to assume this responsibility. In the event of termination, we might be unable to hire another party to perform these and other services for the present fee structure and related costs. However, due to the nature of our relationship with our Managers, we do not expect our Management Agreements to be terminated early.

A variety of governmental and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (such as the U.S. Coast Guard, harbor master or equivalent), classification societies, flag state administration (country of registry), charterers and terminal operators. Certain of these entities require us to obtain permits, licenses, financial assurances and certificates for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.

We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the drybulk shipping industry. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with U.S. and international regulations. Our Managers and our vessels are certified in accordance with ISO 14001 and ISO 50001 relating to environmental standards and energy efficiency. Moreover we have obtained additional class notation for most of our fleet for the prevention of sea and air pollution while we are in the process of obtaining such class notation for the remaining vessels. We believe that the operation of our vessels is in substantial compliance with all environmental laws and regulations applicable to us as of the date of this annual report. However, because such laws and regulations are subject to frequent change and may impose increasingly stricter requirements, such future requirements could limit our ability to do business, increase our operating costs, force the early retirement of our vessels and/or affect their resale value, all of which could have a material adverse effect on our financial condition and results of operations.

 

The International Maritime Organization

Our vessels are subject to standards imposed by the IMO, the United Nations agency for maritime safety and the prevention of pollution by ships. The IMO has adopted regulations to reduce pollution in international waters, both from accidents and routine operations, and has negotiated international conventions that impose liability for oil pollution in international waters and a signatory’s territorial waters. For example, Annex III of the International Convention for the Prevention of Pollution from Ships (“MARPOL”) regulates the transportation of marine pollutants and imposes standards on packing, marking, labeling, documentation, stowage, quantity limitations and pollution prevention. These requirements have been expanded by the International Maritime Dangerous Goods Code, which imposes additional standards for all aspects of the transportation of dangerous goods and marine pollutants by sea.

In 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Annex VI became effective in 2005, and sets limits on sulfur oxide and nitrogen oxide emissions from vessel exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of marine fuels and allows for the establishment of Emission Control Areas (“ECAs”) with more stringent controls on sulfur emissions. Presently, designated ECAs include North America, the Caribbean, the North Sea and Baltic Sea. In 2008, the IMO Marine Environment Protection Committee (“MEPC”) adopted amendments to Annex VI regarding particulate matter, nitrogen oxides and sulfur oxide emissions. These amendments, which entered into force in 2010, are designed to reduce air pollution from vessels by, among other things, (i) implementing a progressive reduction of sulfur oxide emissions from ships; and (ii) establishing new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation.

A global 0.5% sulfur cap on marine fuels came into force on January 1, 2020, as agreed in amendments adopted in 2008 for Annex VI to MARPOL, unless vessels are equipped with Scrubbers, in which case HFO with a maximum sulfur content of 3.5% may be used. The 0.5% sulfur cap marks a significant reduction from the previous global sulfur cap of 3.5%, which had been implemented since January 1, 2012. Global approved limits from Scrubber effluents are in place; however, certain questions have been raised by E.U. which has requested the IMO to do further studies.

Starting January 1, 2015, reduced limits of sulfur content of fuel oil were introduced resulting to the use of lighter fuels, namely low sulfur MGO with a maximum sulfur content of 0.1%, for ECA passage. Additional or new requirements, conventions, laws or regulations, including the adoption of additional ECAs, or other new or more stringent emissions requirements adopted by the IMO, the E.U., the U.S. or individual states, or other jurisdictions in which we operate, could require vessel modifications or otherwise increase the costs of our operations.

In 2015, China designated the Pearl River Delta, the Yangtze River Delta and the Bohai-Rim Area (Beijing, Tianjin and Hebei) as Domestic Emission Control Areas (“DECAs”). Vessels navigating, berthing and operating within this area are required to use fuel oil with a maximum sulfur content of 0.5%. As of January 1, 2019, China expanded the scope of the DECAs to include all coastal waters within 12 nautical miles of the mainland.

 
      42 - 43

 

The E.U. has established separate limitations on the sulfur content of marine fuels, and some E.U. countries may be declared ECAs in the future, pursuant to Annex VI and its amendments.

All our ships have the capacity to use 0.1% sulfur content MGO or 0.5% sulfur content compliant fuels. In response to the implementation of 0.5% sulfur cap since January 1, 2020, we have entered into an agreement to install Scrubbers in approximately half of our vessels. In 2019, we installed Scrubbers in 15 vessels and we expect to install five additional Scrubbers in 2020. The installation of the remaining five Scrubbers and related capital expenditure is expected to be concluded in 2020. The installation of the remaining Scrubbers may be delayed by the 2019-nCoV outbreak, which has caused delays in the resumption of shipyard operations following the Chinese New Year and a shortage of personnel to perform Scrubber installations, which has resulted in a corresponding delay in the installation of Scrubbers by such shipyards . The installation of Scrubbers is both time consuming and costly, but we expect to achieve increased revenue on the basis of price differential between the 0.5% sulfur cap compliant fuels and the 3.5% sulfur content HFO that these vessels will continue to use. For the other half of our fleet we use 0.5% sulfur content compliant fuels, the use of such fuels may reduce our competitiveness in the market particularly if such fuels are sold at prices substantially higher compared to the cost of the 3.5% sulfur content HFO that is primarily used today. In all vessels, the Company has introduced critical spares inventory on board in order to secure smooth operation and compliance with existing laws and regulations.

The IMO adopted vessel energy efficient requirements, which took effect in January 2013. The requirements impose energy efficiency design on new vessels and require energy efficiency management plans for existing vessels. By 2025, all new ships built must be 30% more energy efficient than those built in 2014. These requirements have not had and we do not expect they will have a material effect on our operations.

The IMO adopted new guidelines in 2012 under the revised Annex V to MARPOL, which prohibit discharge of garbage into the open sea, with certain exceptions, and require vessels to dispose of garbage at port garbage reception facilities. These guidelines became effective in January 2013. These requirements have not had and we do not expect they will have a material effect on our operations.

In 2001, the IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (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 also requires registered owners of ships over 1,000 gross tons to maintain insurance in specified amounts to cover their liability for relevant pollution damage. The Bunker Convention became effective on November 21, 2008. Liability limits under the Bunker Convention were increased as of June 2015. With respect to non-ratifying states, including the United States, liability for spills and releases of oil carried as bunker in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur. The IMO also adopted a requirement, which became effective in 2011, that vessels traveling through the Antarctic region (waters south of latitude 60 degrees south) must use lower density fuel. This requirement has not had and we do not expect that it will have a material effect on our operations, which do not involve Antarctic travel.

The operation of our vessels is also affected by the requirements set forth in the IMO’s International Safety Management (“ISM”) Code. The ISM Code requires vessel owners or any other person, such as a manager or bareboat charterer, who has assumed responsibility for the operation of a vessel from the vessel owner and on assuming such responsibility has agreed to take over all the duties and responsibilities imposed by the ISM Code, to develop and maintain an extensive safety management system (“SMS”) that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The ISM Code requires that vessel operators obtain a “Safety Management Certificate” for each vessel they operate from the government of the vessel’s flag state. The certificate verifies that the vessel operates in compliance with its approved SMS. Currently, our Managers have the requisite documents of compliance and safety management certificates for each of the vessels in our fleet for which the certificates are required by the IMO. Our Managers are required to renew these documents of compliance and safety management certificates every five years. Compliance is externally verified on an annual basis for the Managers and between the second and third years for each vessel by the applicable flag state.

Although all our vessels are currently ISM Code-certified, such certification may not be maintained by all our vessels at all times. Non-compliance with the ISM Code may subject such party to increased liability, invalidate existing insurance or decrease available insurance coverage for the affected vessels and result in a denial of access to, or detention in, certain ports. For example, the U.S. Coast Guard and E.U. authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and E.U. ports.

 

The Maritime Labour Convention

The International Labour Organization’s Maritime Labour Convention was adopted in 2006 (“MLC 2006”). The basic aims of the MLC 2006 are to ensure comprehensive worldwide protection of the rights of seafarers (the MLC 2006 is sometimes called the Seafarers’ Bill of Rights) and, to establish a level playing field for countries and ship owners committed to providing decent working and living conditions for seafarers, protecting them from unfair competition on the part of substandard ships. The MLC 2006 was ratified on August 20, 2012, and all our vessels were certified by August 2013, as required. The MLC 2006 requirements have not had, and we do not expect that the MLC 2006 requirements will have, a material effect on our operations.

 

The U.S. Oil Pollution Act of 1990

OPA 90 established an extensive regulatory and liability regime for the protection of the environment from oil spills and cleanup of oil spills. OPA 90 applies to discharges of any oil from a vessel, including discharges of fuel and lubricants. OPA 90 affects all owners and operators whose vessels trade in the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’ territorial sea and its two hundred nautical mile exclusive economic zone. While our vessels do not carry oil as cargo, they do carry lubricants and fuel oil (“bunkers”), which subjects our vessels to the requirements of OPA 90.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

Under OPA 90, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the discharge of pollutants 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 pollutants from their vessels, including bunkers.

OPA 90 preserves the right to recover damages under other existing laws, including maritime tort law.

Effective December 21, 2015, the U.S. Coast Guard adopted regulations that adjust the limits of liability of responsible parties under OPA 90 to the greater of $1,200 per gross ton or $997,100 per non-tank vessel and established a procedure for adjusting the limits for inflation every three years. These limits of liability do not apply if an incident was directly caused by violation of applicable U.S. safety, construction or operating regulations or by a responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities. As a result of the oil spill in the Gulf of Mexico resulting from the explosion of the Deepwater Horizon drilling rig, bills have been introduced in the U.S. Congress to increase the limits of OPA liability for all vessels, including tanker vessels.

All owners and operators of vessels over 300 gross tons are required to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet their potential aggregate liabilities under OPA 90 and CERCLA, which is discussed below. 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 vessel in the fleet having the greatest maximum liability under OPA 90 and CERCLA. We have complied with these requirements by providing a financial guarantee evidencing sufficient self-insurance. We have satisfied these requirements and obtained a U.S. Coast Guard certificate of financial responsibility for all of our vessels.

The U.S. Coast Guard’s regulations concerning certificates of financial responsibility provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility and that the insurer or guarantor may only assert limited defenses. Certain organizations that had typically provided certificates of financial responsibility under pre-OPA 90 laws, including the major protection and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses. This requirement may limit the availability of coverage required by the U.S. Coast Guard and could increase our costs of obtaining this insurance for our fleet, as well as the costs of our competitors that also require such coverage.

We currently maintain, for each of our vessels, oil pollution liability coverage insurance in the amount of $1.0 billion per incident. Although our vessels carry a relatively small amount of bunkers, a spill of oil from one of our vessels could be catastrophic under certain circumstances. We also carry hull and machinery protection and indemnity insurance to cover the risks of fire and explosion.

Losses as a result of fire or explosion could be catastrophic under some conditions. While we believe that our existing insurance coverage is adequate, not all risks can be insured and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates. If the damages from a catastrophic spill exceed our insurance coverage, the payment of those damages could have a severe, adverse effect on us and could possibly result in our insolvency.

OPA 90 requires the owner or operator of any non-tank vessel of 400 gross tons or more that carries oil of any kind as a fuel for main propulsion, including bunkers, to prepare and submit a response plan for each vessel. These vessel response plans include detailed information on actions to be taken by vessel personnel to prevent or mitigate any discharge or substantial threat of such a discharge of ore from the vessel due to operational activities or casualties. All of our vessels have U.S. Coast Guard-approved response plans.

OPA 90 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. Comprehensive Environmental Response, Compensation, and Liability Act

CERCLA applies to spills or releases of hazardous substances other than petroleum or petroleum products, whether on land or at sea. CERCLA imposes joint and several liability, without regard to fault, on the owner or operator of a ship, vehicle or facility from which there has been a release, and on other specified parties. Liability under CERCLA is generally limited to the greater of $300 per gross ton or $0.5 million per vessel carrying non-hazardous substances ($5.0 million for vessels carrying hazardous substances), unless the incident is caused by gross negligence, willful misconduct or a violation of certain regulations, in which case liability is unlimited. As described above, owners and operators of vessels must establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under CERCLA.

 

The U.S. Clean Water Act

The 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. It also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under the more recently enacted OPA 90 and CERCLA, discussed above. The U.S. Environmental Protection Agency (“EPA”) regulates the discharge in U.S. ports of ballast water and other substances incidental to the normal operation of vessels. Under EPA regulations, commercial vessels greater than 79 feet in length are required to obtain coverage under the National Pollutant Discharge Elimination System (“NPDES”) Vessel General Permit (the “VGP”) to discharge ballast water and other wastewater into U.S. waters by submitting a Notice of Intent (a “NOI”). The VGP requires vessel owners and operators to comply with a range of best management practices and reporting and other requirements for a number of incidental discharge types and incorporates current U.S. Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements. We have submitted NOIs for our vessels operating in U.S. waters and anticipate incurring costs to meet the requirements of the VGP. In addition, various states have enacted legislation restricting ballast water discharges and the introduction of non-indigenous species considered to be invasive. These and any similar ballast water discharge restrictions enacted in the future could increase the costs of operating in the relevant waters.

 
      44 - 45

 

The 2013 VGP became effective in December 2013 and remains in effect during the implementation of the 2018 Vessel Incident Discharge Act (the “VIDA”), as discussed below. The 2013 VGP requires most vessels to meet numeric ballast water discharge limits on a staggered schedule based on the first dry docking after January 1, 2014, or January 1, 2016 (depending on vessel ballast capacity). The 2013 VGP also imposes more strict technology-based limits in the form of best management practices for discharges related to oil-to-sea interfaces and requires routine inspections, monitoring, reporting, and recordkeeping. The 2013 VGP also requires vessel modifications and the installation of ballast treatment equipment which will significantly increase the cost of investments to comply with such requirements.

For the first time, the 2013 VGP contains numeric ballast water discharge limits for most vessels. The 2013 VGP also contains more stringent effluent limits for oil to sea interfaces and exhaust gas scrubber washwater, which will improve environmental protection of U.S. waters. The EPA has also improved the efficiency of several of the VGP’s administrative requirements, including allowing electronic recordkeeping, requiring an annual report in lieu of the one-time report and annual noncompliance report, and requiring small vessel owners and/or operators to obtain coverage under the VGP by completing and agreeing to the terms of a Permit Authorization and Record of Inspection form. The 2013 vessel general permit requires the use of an environmentally acceptable lubricant for all oil to sea interfaces for vessels or alternative seal systems, unless technically infeasible. The intent of this new requirement is to reduce the environmental impact of lubricant discharges on the aquatic ecosystem by increasing the use of environmentally acceptable lubricants for vessels operating in waters of the U.S. We believe all our vessels are in compliance with the 2013 VGP.

On December 4, 2018, the VIDA was signed into law, establishing a new framework for the regulation of vessel incidental discharges under the CWA. The VIDA requires the EPA to develop performance standards for those discharges within two years of enactment and requires the U.S. Coast Guard to develop implementation, compliance and enforcement regulations within two years of the EPA’s promulgation of standards. Under the VIDA, all provisions of the 2013 VGP will remain in force and effect until the U.S. Coast Guard’s regulations are finalized.

 

U.S. Air Emission Requirements

In 2008, the U.S. ratified the amended Annex VI of MARPOL, addressing air pollution from ships, which went into effect in 2009. In December 2009, the EPA announced its intention to publish final amendments to the emission standards for new marine diesel engines installed on ships flagged or registered in the U.S. that are consistent with standards required under recent amendments to Annex VI of MARPOL. The regulations include near-term standards that began in 2011 for newly built engines requiring more efficient use of engine technologies in use today and long-term standards that began in 2016 requiring an 80 percent reduction in nitrogen oxide emissions below current standards. The CAA also requires states to adopt State Implementation Plans (“SIPs”) designed to attain air quality standards. Several SIPs regulate emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment.

New or more stringent air emission regulations which may be adopted could require significant capital expenditures to retrofit vessels and could otherwise increase our investment and operating costs.

 

Other Environmental Initiatives

The E.U. has adopted legislation that (1) requires member states to refuse access to their ports by certain substandard vessels, according to vessel type, flag and number of previous detentions; (2) obliges member states to inspect at least 25.0% of vessels using their ports annually and increase surveillance of vessels posing a high risk to maritime safety or the marine environment; (3) provides the E.U. with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies; and (4) requires member states to impose criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings. It is also considering legislation that will affect the operation of vessels and the liability of owners for oil pollution. While we do not believe that the costs associated with our compliance with these adopted and proposed E.U. initiatives will be material, it is difficult to predict what additional legislation, if any, may be promulgated by the E.U. or any other country or authority.

The U.S. National Invasive Species Act (“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. Under NISA, the U.S. Coast Guard adopted regulations in July 2004 imposing 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 and alternative methods are still under development.

In 2012, the U.S. Coast Guard finalized amendments to its ballast water management regulations that impose stricter discharge limits for allowable concentrations of various invasive species and include approval process requirements for BWTS. The regulations require ships calling at U.S. ports to treat ballast water and regularly remove hull fouling. In particular, it is required for existing vessels to be equipped with approved BWTS by their first drydocking after January 2016 and for newbuilds with a keel laying date after December 2013 to be equipped upon their delivery. These regulations require modifications and installation of ballast water treatment equipment to our current vessels that call in U.S. ports, resulting in significant capital expenditures and an increase in our operational costs to call in U.S. ports.

Several U.S. states, such as California, adopted more stringent legislation or regulations relating to the permitting and management of ballast water discharges compared to EPA regulations. These requirements do not currently impact our operational costs, as such technologies are not currently available. However if a decision is made to comply with such requirements, we could incur additional investment during the installation of any such ballast water treatment plants.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

In 2004, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”). The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention took effect in September 2017. Many of the implementation dates in the BWM Convention had already passed prior to its effectiveness, so that the period of installation of mandatory ballast water exchange requirements would be extremely short, with several thousand ships a year needing to install BWTS. For this reason, on December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that they are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels constructed before September 8, 2017 “existing vessels” and allows for the installation of a BWTS on such vessels at the first renewal survey following entry into force of the convention. In July 2017, the implementation scheme was further changed to require vessels with International Oil Pollution Prevention (“IOPP”) certificates expiring between September 8, 2017 and September 8, 2019 to comply at their second IOPP renewal. Each vessel in our current fleet has been issued a Ballast Water Management Plan Statement of Compliance by the classification society with respect to the applicable IMO regulations and guidelines. In addition, we are required to install BWTS in each vessel in our fleet during the next drydocking, which is expected to cause us to incur additional expenditures and operating costs.

In November 2014 and May 2015, the IMO’s Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the “Polar Code”). The Polar Code entered into force on January 1, 2017. The Polar Code covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. Ships intending to operate in the applicable areas must have a Polar Ship Certificate. This requires an assessment of operating in said waters and includes operational limitations, additional safety equipment and plans or procedures, necessary to respond to incidents involving possible safety or environmental consequences. A Polar Water Operational Manual is also needed on board the ship for the owner, operator, master, and crew to have sufficient information regarding the ship to assist in their decision-making process. The Polar Code applies to new ships constructed after January 1, 2017. After January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate, or renewal survey.

On June 29, 2017, the Global Industry Alliance (the “GIA”) was officially inaugurated. The GIA is a program, under the Global Environmental Facility-United Nations Development Program-IMO project, which supports shipping, and related industries, as they move towards a low carbon future. Organizations including, but not limited to, ship owners, operators, classification societies, and oil companies, signed to launch the GIA.

In addition, the United States is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in April 2017, the U.S. President signed an executive order regarding the environment that targets the United States’ offshore energy strategy, which affects parts of the maritime industry and may affect our business operations. Additional legislation or regulation applicable to the operation of our ships that may be implemented in the future could negatively affect our profitability. Furthermore, recent action by the IMO’s Maritime Safety Committee and U.S. agencies indicate that cyber security regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cyber security threats. For example, cyber risk management systems must be incorporated by ship owners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cyber security, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is difficult to predict at this time.

 

Greenhouse Gas Regulation – United Nations Framework Convention on Climate Change

In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change 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, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change in December 2015 contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures but did not include any restrictions or other measures specific to shipping emissions. However, a new treaty may be adopted in the future that includes restrictions on shipping emissions. International and multinational bodies or individual countries also may adopt their own climate change regulatory initiatives. The IMO recently announced its intention to develop reduction measures for greenhouse gases from international shipping. The E.U. enacted a regulation requiring ships over 5,000 gross tons docking in E.U. ports to monitor, report and verify greenhouse gas emissions which went into effect in 2018. See “Item 4. Information on the Company-B. Business Overview-European Monitoring, Reporting and Verification Regulation” for more information. The United States or individual U.S. states could also enact environmental regulations that could affect our operations. For example, California has introduced a cap-and-trade program for greenhouse gas emissions, aiming to reduce emissions by 40% by 2030. These or other developments may result in regulations relating to the control of greenhouse gas emissions. Any passage of climate control legislation or other regulatory initiatives in the jurisdictions where we operate could result in financial impacts on our operations that we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or more intense weather events.

 

European Monitoring, Reporting and Verification Regulation

The European Parliament and the Council of the E.U. have adopted regulation 2015/757 on the monitoring, reporting and verification (the “EU-MRV”) of carbon dioxide (“CO2”) emissions from maritime transport. It entered into force on July 1, 2015 and monitoring began January 1, 2018.

 
      46 - 47

 

The maritime EU-MRV regulation applies to all merchant ships of 5,000 gross tons or above on voyages from, to and between ports under jurisdiction of E.U. member states. Ships above 5,000 gross tons account for around 55.0% of the number of ships calling into E.U. ports and represent around 90.0% of the related emissions. Companies operating the vessels will have to monitor the CO2 emissions released while in port and for any voyages to or from a port under the jurisdiction of an E.U. member state and to keep records on CO2 emissions on both per-voyage and annual bases.

As of January 1, 2018, our vessels began monitoring and reporting CO2 emissions pursuant to this regulation. This monitoring and reporting process adopted by the EU-MRV regulation may be a precursor to a market-based mechanism to be adopted in the future. This or other developments may result in financial impacts on our operations that we cannot predict with certainty at this time.

 

IMO Data Collection System

MARPOL Annex VI, as amended on November 6, 2016, requires mandatory fuel oil consumption data collection and reporting. The requirement was effective as of March 1, 2018 and requires ships above 5,000 gross tons to collect and report annual data on fuel oil consumption to an IMO database with the first reporting period being in effect for the 2019 calendar year.

Countermeasures against greenhouse gas emissions from international shipping have been deliberated at IMO, and so far, the Energy Efficiency Design Index (“EEDI”) and the Ship Energy Efficiency Management Plan (“SEEMP”) have been implemented.

 

Ship’s Energy Consumption Data Reporting

The China Maritime Safety Administration (the “China MSA”) issued the Regulation on Data Collection of Energy Consumption for Ships in November 2018. This regulation is effective as of January 1, 2019 and requires ships calling on Chinese ports to report fuel consumption and transport work details directly to the China MSA. This regulation also contains additional requirements for Chinese-flagged vessels (domestic and international) and other non-Chinese-flagged international navigating vessels.

 

Vessel Security Regulations

Several initiatives have been implemented to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002 (the “MTSA”) came into effect. To implement certain portions of the MTSA, the U.S. Coast Guard issued regulations in July 2003 requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the U.S. Similarly, in December 2002, amendments to SOLAS created a chapter of the convention dealing specifically with maritime security. This chapter came into effect in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the International Ship and Port Facilities Security Code (the “ISPS Code”). Among the various requirements are:

 

  ~ on-board installation of automatic information systems to enhance vessel-to-vessel and vessel-to-shore communications;
  ~ on-board installation of ship security alert systems;
  ~ the development of vessel security plans; and
  ~ compliance with flag state security certification requirements.

 

The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid “International Ship Security Certificate” that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by the IMO, SOLAS and the ISPS Code, and we have approved ISPS certificates and plans on board all our vessels, which have been certified by the applicable flag state.

 

Inventory of Hazardous Materials

Hong Kong Convention

On May 15, 2009, the IMO adopted the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 (the “Hong Kong Convention”). The Hong Kong Convention will enter into force two years after it has been ratified by 15 states representing 40% of the world fleet. The Hong Kong Convention has not yet entered into force. One of the key requirements of the Hong Kong Convention will be for ships over 500 gross tonnes operating in international waters to maintain an Inventory of Hazardous Materials (an “IHM”). Only warships, naval auxiliary and governmental, non-commercial vessels are exempt from the requirements of the Hong Kong Convention. The IHM has three parts:

 

  ~ Part I - hazardous materials inherent in the ship’s structure and fitted equipment;
  ~ Part II - operationally generated wastes; and
  ~ Part III - stores.

 

Once the Hong Kong Convention has entered into force, each new and existing ship will be required to maintain Part I of IHM.

 

E.U. Ship Recycling Regulation

On November 20, 2013, the E.U. adopted Regulation (EU) No 1257/2013 (the “E.U. Ship Recycling Regulation”), which seeks to facilitate the ratification of the Hong Kong Convention and sets forth rules relating to vessel recycling and management of hazardous materials on vessels. In addition to new requirements for the recycling of vessels, the E.U. Ship Recycling Regulation contains rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation or use of certain hazardous materials on vessels. The E.U. Ship Recycling Regulation applies to vessels flying the flag of an E.U.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

member state and certain of its provisions apply to vessels flying the flag of a third country calling at a port or anchorage of a member state. For example, when calling at a port or anchorage of a member state, a vessel flying the flag of a third country will be required, among other things, to have on board an IHM that complies with the requirements of the E.U. Ship Recycling Regulation and the vessel must be able to submit to the relevant authorities of that member state a copy of a statement of compliance issued by the relevant authorities of the country of the vessel’s flag verifying the inventory. The E.U. Ship Recycling Regulation will take effect on non-E.U.-flagged vessels calling on E.U. ports of call beginning on December 31, 2020.

 

Disclosure of Activities Pursuant to Section 13(r) of the U.S. Securities Exchange Act of 1934

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran. Disclosure is required even where the activities, transactions or dealings are conducted in compliance with applicable law. Provided in this section is information concerning the activities of us and our affiliates that occurred in 2019 and which we believe may be required to be disclosed pursuant to Section 13(r) of the Exchange Act.

In 2019, our vessels made ten port calls to Iran to discharge corn and soybeans.

The vessel Kypros Land made a call to the port of Bandar Imam Khomeini on July 02, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for eighteen days. During this time, the Kypros Land was on time charter to Cargill at a gross charter rate of $17,400 per day.

The vessel Kypros Sky made a call to the port of Bandar Imam Khomeini on January 20, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for thirteen days. During this time, the Kypros Sky was on time charter to Cargill at a gross charter rate of $16,550 per day.

The vessel Kypros Sky made a call to the port of Bandar Imam Khomeini on April 20, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for twenty-three days. During this time, the Kypros Sky was on time charter to Cargill at a gross charter rate of $11,400 per day.

The vessel Kypros Sky made a call to the port of Bandar Imam Khomeini on September 03, 2019, discharging corn, and remained in the port of Bandar Imam Khomeini during 2019 for twenty-two days. During this time, the Kypros Sky was on time charter to Bunge S.A at a gross charter rate of $14,000 per day.

The vessel Pedhoulas Trader made a call to the port of Bandar Imam Khomeini on April 18, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for eighteen days. During this time, the Pedhoulas Trader was on time charter to Bunge S.A. at a gross charter rate of $9,400 per day.

The vessel Pedhoulas Commander made a call to the port of Bandar Imam Khomeini on August 05, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for thirty-one days. During this time, the Pedhoulas Commander was on time charter to Glencore Agriculture B.V. at a gross charter rate of $10,850 per day.

The vessel Xenia made a call to the port of Bandar Imam Khomeini on June 07, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for twenty-six days. During this time, the Xenia was on time charter to Bunge S.A. at a gross charter rate of $12,500 per day.

The vessel Troodos Sun made a call to the port of Bandar Imam Khomeini on January 15, 2019, discharging corn, and remained in the port of Bandar Imam Khomeini during 2019 for eighty-three days. During this time, the Troodos Sun was on time charter to Bunge S.A. at a gross charter rate of $15,950 per day.

The vessel Troodos Air made a call to the port of Bandar Imam Khomeini on June 13, 2019, discharging soybeans, and remained in the port of Bandar Imam Khomeini during 2019 for eighty-one days. During this time, the Troodos Air was on time charter to Bunge S.A. at a gross charter rate of $13,875 per day.

The vessel Kypros Bravery made a call to the port of Chabahar on October 13, 2019, discharging corn, and remained in the port of Chabahar during 2019 for thirty-three days. During this time, the Kypros Bravery was on time charter to Glencore Agriculture B.V. at a gross charter rate of $19,250 per day.

These port calls represented approximately 1.29% of the total port calls made by all the vessels owned by us in 2019. As the vessel owner, we earned revenues at the agreed daily charter rates from the charterers. The aggregate gross revenue attributable to these 348 days that our vessels remained in Iranian ports was approximately $5.0 million. As we do not attribute profits to specific voyages under a time charter, we have not attributed any profits to the voyages which included these port calls. Our charter party agreements for our vessels restrict the charterers from calling in Iran in violation of E.U., U.S. or United Nation sanctions and that has not been authorized by the Office of Foreign Assets Control of the U.S. Department of the Treasury. There can be no assurance that the vessels referenced above or another of our vessels will not, from time to time in the future on charterer’s instructions, perform voyages which would require disclosure pursuant to Exchange Act Section 13(r).

We do not believe that any of these transactions or activities are sanctionable. On January 16, 2016, the U.S. and the E.U. lifted nuclear-related sanctions on Iran through the implementation of the Joint Comprehensive Plan of Action (“JCPOA”) among the P5+1 (China, France, Germany, Russia, the U.K. and the U.S.), the E.U. and Iran to ensure that Iran’s nuclear program will be exclusively peaceful. All activities, transactions and dealings reported in this section occurred after the implementation of the JCPOA. However, U.S. nuclear-related sanctions have been re-imposed effective August 7, 2018 and November 5, 2018 as a result of the withdrawal of the U.S. from the JCPOA. We intend to continue to charter our respective vessels to charterers and sub-charterers, including, as the case may be, Iran-related parties, who may make, or may sublet the vessels to sub-charterers who may make, port calls to Iran, so long as the activities continue to be permissible and not sanctionable under applicable U.S. and E.U. and other applicable laws.

 

Seasonality

We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. Seasonality is related to several factors and may result in quarter-to-quarter volatility in our results of operations, which could affect the

 
      48 - 49

 

amount of dividends, if any, that we pay to our stockholders. For example the market for marine drybulk transportation services is typically stronger in the fall months in anticipation of increased consumption of coal in the northern hemisphere during the winter months and the grain export season from North America. Similarly, the market for marine drybulk transportation services is typically stronger in the spring months in anticipation of the South American grain export season due to increased distance traveled known as ton mile effect, as well as increased coal imports in parts of Asia due to additional electricity demand for cooling during the summer months. Demand for marine drybulk transportation services is typically weaker at the beginning of the calendar year and during the summer months. In addition, unpredictable weather patterns during these periods tend to disrupt vessel scheduling and supplies of certain commodities.

 

C. Organizational Structure

Safe Bulkers, Inc. is a holding company with 50 subsidiaries, 23 of which are incorporated in Liberia, and 27 in the Republic of the Marshall Islands, each as of March 13, 2020. Our subsidiaries are wholly-owned by us. A list of our subsidiaries as of March 13, 2020 is set forth in Exhibit 8.1 to this annual report.

 

D. Property, Plant and Equipment

We have no freehold or material leasehold interest in any real property. We occupy office space at Apt. D11, Les Acanthes, 6, Avenue des Citronniers, MC98000 Monaco, where our principal executive office is established. Other than our vessels, we do not have any material property. Our vessels are subject to priority mortgages, which secure our obligations under our various credit facilities. For further details regarding our credit facilities, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities.”

 

 ITEM 4A. Unresolved staff comments
None. 
   
 ITEM 5. Operating and financial review and prospects

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking statements. Please see the section “Forward-Looking Statements” at the beginning of this annual report.

 

Overview

Our business is to provide international marine drybulk transportation services by operating vessels in the drybulk sector of the shipping industry. As of March 13, 2020, our fleet consisted of 41 drybulk vessels with an aggregate capacity of 3,777,000 dwt and we had a memorandum of agreement for the purchase of one additional resale newbuild vessel. We deploy our vessels on a mix of period time and spot time charters according to our assessment of market conditions, adjusting the mix of these charters to take advantage of the relatively stable cash flow and high utilization rates associated with period time charters, or to profit from attractive spot time charter rates during periods of strong charter market conditions, or to maintain employment flexibility that the spot market offers during periods of weak time charter market conditions. As of March 13, 2020, 6 out of 41 drybulk vessels of the Company were employed under period time charters of more than three months outstanding charter duration. We believe our customers, some of which have been chartering our vessels for over 26 years, enter into period time and spot time charters with us because of the quality of our modern vessels and our record of safe and efficient operations.

The average number of vessels in our fleet for the years ended December 31, 2017, 2018 and 2019 was 38.0, 39.9 and 41.0 respectively. After delivery of our last contracted newbuild vessel, our fleet will consist of 42 drybulk vessels and will have an aggregate carrying capacity of 3,862,000 dwt, assuming we do not acquire any additional vessels or dispose of any of our vessels.

 

Our Managers

Our operations are managed by our Managers, Safety Management and Safe Bulkers Management, under the supervision of our executive officers and our board of directors. Under our Management Agreements, our Managers provide us with technical, administrative and commercial services and our executive management. Both of our Managers are controlled by Polys Hajioannou. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Management Agreements” for more information.

 

A. Operating Results

Our operating results are largely driven by the following factors:

 

  ~ Ownership days. We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
  ~ Available days. We define available days (also referred to as voyage days) as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with scheduled maintenance, which includes major repairs, drydockings, vessel upgrades or special or intermediate surveys. Available days are used to measure the number of days in a period during which vessels should be capable of generating revenues.
 
SAFEBULKERS   ANNUAL REPORT 2019

 

  ~ Operating days. We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason, excluding scheduled maintenance. Operating days are used to measure the aggregate number of days in a period during which vessels actually generate revenues.
  ~ Fleet utilization on ownership days. We calculate fleet utilization on ownership days by dividing the number of our operating days during a period by the number of our ownership days during that period. This measure demonstrates the percentage of time in the relevant period our vessels generate revenue. During the three years ended December 31, 2019, our average annual fleet utilization on ownership days rate was approximately 96.24%.
  ~ Fleet utilization on available days. We calculate fleet utilization on available days by dividing the number of operating days by the number of our available days during that period. Fleet utilization is used to measure a company’s ability to efficiently find suitable employment for its vessels and minimize the number of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades, drydockings or special surveys. During the three years ended December 31, 2019, our average annual fleet utilization on available days rate was approximately 98.45%.
  ~ Time charter equivalent rates. We define time charter equivalent rates (“TCE rates”) as our charter revenues less commissions and voyage expenses during a period divided by the number of our available days during the period. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on period time charters and spot time charters with daily earnings generated by vessels on voyage charters, because charter rates for vessels on voyage charters are generally not expressed in per day amounts, while charter rates for vessels on period time charters and spot time charters generally are expressed in such amounts. We use TCE to compare period-to-period changes in our performance despite changes in the mix of charter types and it assists investors and our management in evaluating our financial performance. We have only rarely employed our vessels on voyage charters and, as a result, generally our TCE rates approximate our time charter rates.

 

The following table reflects our time charter revenues, commissions, voyage expenses, time charter equivalent revenue, available days and time charter equivalent rate for the periods indicated:

 

    Year Ended December 31,  
      2017     2018     2019  
  (in thousands of U.S. dollars except available days and time charter equivalent rate)  
Time charter revenues   $ 154,040   $ 201,548   $ 206,682  
Less commissions     6,008     8,357     8,921  
Less voyage expenses     3,932     6,378     13,715  
Time charter equivalent revenue   $ 144,100   $ 186,813   $ 184,046  
Available days     13,788     14,258     14,373  
Time charter equivalent rate   $ 10,451   $ 13,102   $ 12,805  

 

  ~ Daily vessel operating expenses. We define vessel operating expenses to include the costs for crewing, insurance, lubricants, spare parts, provisions, stores, repairs, maintenance, statutory and classification expense, drydocking, intermediate and special surveys, tonnage taxes and other miscellaneous items. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period. Our ability to control our fixed and variable expenses, including our daily vessel operating expenses, also affects our financial results. In addition, factors beyond our control can cause our vessel operating expenses to increase, including developments relating to market premiums for insurance, cost of lubricants and changes in the value of the U.S. dollar compared to currencies in which certain of our expenses are denominated, such as certain crew wages.
  ~ Daily vessel operating expenses excluding drydocking and pre-delivery expenses. We calculate daily vessel operating expenses excluding drydocking and pre-delivery expenses by dividing vessel operating expenses excluding drydocking and pre-delivery expenses for the relevant period by ownership days for such period. This measure assists our management and investors by increasing the comparability of our performance from period to period. Drydocking expenses include costs of shipyard, paints and agent expenses, and pre-delivery expenses include initially supplied spare parts, stores, provisions and other miscellaneous items provided to a newbuild or secondhand acquisition prior to their operation, which costs may vary from period to period.
  ~ Daily general and administrative expenses. We define general and administrative expenses to include daily management fees and daily company administration expenses as defined below. Daily vessel general and administrative expenses are calculated by dividing general and administrative expenses by ownership days for the relevant period.
  ~ Daily management fees. We define management fees to include the fees payable to our Managers for managing our fleet. Daily management fees are calculated by dividing management fees by ownership days for the relevant period.
  ~ Daily company administration expenses. We define company administration expenses to include expenses incurred related to the administration of our company such as legal costs, audit fees, independent directors’ compensation, listing fees to NYSE and other miscellaneous expenses. Daily company administration expenses are calculated by dividing company administration expenses by ownership days for the relevant period.

 

The following table reflects our ownership days, available days, operating days, fleet utilization, TCE rates, daily vessel operating expenses, daily vessel operating expenses excluding drydocking and pre-delivery expenses, daily general and administrative expenses and daily management fees for the periods indicated:

 
      50 - 51

 

   Year Ended December 31, 
   2017   2018   2019 
Ownership days   13,858    14,568    14,965 
Available days   13,788    14,258    14,373 
Operating days   13,673    14,075    14,012 
Fleet utilization on ownership days   98.67%   96.62%   93.63%
Fleet utilization on available days   99.17%   98.72%   97.49%
TCE rates  $10,451   $13,102   $12,805 
Daily vessel operating expenses  $3,810   $4,360   $4,582 
Daily vessel operating expenses excluding drydocking and pre-delivery expenses  $3,731   $4,141   $4,257 
Daily general and administrative expenses consisting of:  $1,163   $1,321   $1,379 
(a) Daily management fees  $975   $1,135   $1,206 
(b) Daily company administration expenses  $188   $186   $173 

 

Revenues

Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate and the amount of daily charter rates that our vessels earn under our charters, which, in turn, are affected by a number of factors, including:

 

  ~ levels of demand and supply in the drybulk shipping industry;
  ~ the age, condition and specifications of our vessels;
  ~ the duration of our charters;
  ~ our decisions relating to vessel acquisitions and disposals;
  ~ the amount of time that we spend positioning our vessels;
  ~ the availability of our vessels, which is related to the amount of time that our vessels spend in drydock undergoing repairs and the amount of time required to perform necessary maintenance or upgrade work; and
  ~ other factors affecting charter rates for drybulk vessels.

 

Revenue is recognized as earned on a straight-line basis over the charter period in respect of charter agreements that provide for varying rates. The difference between the revenue recognized and the actual charter rate is recorded either as unearned revenue or accrued revenue (see “—Unearned Revenue / Accrued Revenue” below). Commissions (address and brokerage), regardless of charter type, are always charged to us and are deferred and amortized over the related charter period and are presented as a separate line item in revenues to arrive at net revenues in the accompanying consolidated statements of operations.

Revenues from our period time charters comprised 82.2%, 80.2% and 67.7%, respectively, of our charter revenues for the years ended December 31, 2017, 2018 and 2019. The revenues from our spot time charters and voyage charters comprised 17.8%, 19.8% and 32.3%, respectively, of our charter revenues for the years ended December 31, 2017, 2018 and 2019.

 

Unearned Revenue / Accrued Revenue

Unearned revenue as of December 31, 2019 includes: (i) cash received prior to the balance sheet date relating to services to be rendered after the balance sheet date amounting to $1.8 million and (ii) deferred revenue resulting from straight-line revenue recognition in respect of charter agreements that provide for variable charter rates amounting to $1.9 million.

Unearned revenue as of December 31, 2018 includes: (i) cash received prior to the balance sheet date relating to services to be rendered after the balance sheet date amounting to $4.9 million and (ii) deferred revenue resulting from straight-line revenue recognition in respect of charter agreements that provide for variable charter rates amounting to $0.7 million.

Accrued revenue as of December 31, 2019 represents revenue in the amount of $0.6 million earned prior to cash being received in respect of charter agreements that provide for variable charter rates.

Accrued revenue as of December 31, 2018 represents revenue in the amount of $1.1 million earned prior to cash being received in respect of charter agreements that provide for variable charter rates.

 

Commissions

We pay commissions currently ranging up to 5.0% on our period time and spot time charters, to unaffiliated ship brokers, to brokers associated with our charterers and to our charterers. These commissions are directly related to our revenues, from which they are deducted. The amount of our total commissions to unaffiliated ship brokers and other brokers associated with our charterers and to our charterers might grow, as revenues increase due to improving market conditions and delivery of our one remaining contracted newbuild vessel, or decrease as a result of deteriorating market conditions. These commissions do not include fees we pay to our Managers, which are described under “Item 4. Information on the Company—B. Business Overview—Management of Our Fleet.”

 

Voyage Expenses

We charter our vessels primarily through period time charters and spot time charters under which the charterer is responsible for most voyage expenses, such as the cost of bunkers, port expenses, agents’ fees, canal dues, extra war risks insurance and any other expenses related to the cargo. We are responsible for the remaining voyage expenses such as draft surveys, hold cleaning, bunkers during ballast period or for vessel repositioning, courier and other minor miscellaneous expenses related to the voyage. We expect that our voyage

 
SAFEBULKERS   ANNUAL REPORT 2019

 

expenses will decrease in the future if fewer vessels are employed in the spot market, in which case vessel repositioning costs should decrease. We generally do not employ our vessels on voyage charters under which we would be responsible for all voyage expenses.

 

Vessel Operating Expenses

Vessel operating expenses include costs for crewing, insurance, lubricants, spare parts, provisions, stores, repairs, maintenance, statutory and classification expense, drydocking, intermediate and special surveys, tonnage taxes and other minor miscellaneous items. We expect that our vessel operating expenses will slowly increase in the future as our fleet grows. Our crewing costs, which are a significant part of our vessel operating expenses, may increase in the future due to the limited supply and increase in demand for well-qualified crew. Furthermore, we expect that insurance costs, drydocking, maintenance, spare parts and stores costs will increase from the levels achieved in 2019 as our vessels age. A portion of our vessel operating expenses including crew wages paid to our Greek crew members are in currencies other than the U.S. dollar. These expenses may increase or decrease as a result of fluctuation of the U.S. dollar against these currencies.

 

Depreciation

We depreciate our drybulk vessels on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard. Secondhand vessels are depreciated from the date of their acquisition through their remaining estimated useful life. Furthermore, we estimate the residual value of our vessels is equal to the product of its lightweight tonnage and estimated scrap rate, which is estimated to be $182 per light-weight ton.

 

Vessels, Net

Vessels are stated at their historical cost, which consists of the contracted purchase price and any direct material expenses incurred upon acquisition (including improvements, on-site supervision expenses incurred during the construction period if the vessels are newbuilds, commissions paid, delivery expenses and other expenditures to prepare the vessel for her initial voyage), less accumulated depreciation and impairment charges, if any. Financing costs incurred during the construction period of the vessels if the vessels are newbuilds are also capitalized and included in the vessels’ cost. Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels.

As of December 31, 2018 and 2019, we capitalized interest amounting to zero and $114 respectively.

 

General and Administrative Expenses

General and administrative expenses consist of management fees paid to our Managers and expenses incurred relating to the administration of the Company.

Management fees paid to our Managers include services offered to us for managing our vessels (i.e., chartering, operations, technical, supply, crewing and accounting services), the services provided to us by our executive officers as well as the preparation of disclosure documents and the preparation for compliance with the Sarbanes-Oxley Act. Pursuant to the terms of the Management Agreements with our Managers, for the provision of such services, we pay a daily ship management fee of €875 per vessel and pay Safe Bulkers Management an annual ship management fee of €3 million.

Expenses related to the administration of our company primarily include legal costs, audit fees, independent directors’ compensation, listing fees to the NYSE and other miscellaneous expenses such as director and officer liability insurance costs and public relations expenses.

 

Interest Expense and Other Finance Costs

We incur interest expense on outstanding indebtedness under our existing loan and credit facilities, which we include in interest expense. We also incurred financing costs in connection with establishing those facilities, which are deferred and amortized over the period of the facility. The amortization of the finance costs is included in amortization and write-off of deferred finance charges. We will incur additional interest expense in the future on our outstanding borrowings and under future borrowings.

 

Inflation

Inflation has only a moderate effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing expenses.

 

Early Redelivery Income/(Cost), Net

Early redelivery cost reflects amounts payable to charterers for early termination of a period time charter resulting from our request for early redelivery of a vessel. We generally request such early redelivery when we would like to take advantage of a favorable period time charter market environment and believe that an opportunity to enter into a similarly priced period time charter is not likely to be available when the relevant vessel is scheduled to be redelivered.

Early redelivery income reflects amounts payable to us for early termination of a period time charter resulting from a charterer’s request for early redelivery of a vessel. We may accept such requests from charterers when we believe that we are compensated for a substantial portion of the contracted revenue, reduce our third party risk or maintain the opportunity to re-employ the vessel either in the spot market or in the period time charter market at adequate levels.

We have entered into such arrangements for early redelivery, and incurred such costs or earned such income in the past and we may continue to do so in the future, depending on market conditions.

 

Critical Accounting Policies

We prepared our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the

 
      52 - 53

 

application of our accounting policies based on our best assumptions, judgments and opinions. We base these estimates on the information currently available to us and on various other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application. For a further description of our material accounting policies, please read Note 2 of the consolidated financial statements included elsewhere in this annual report.

 

Impairment of long-lived assets

The Company reviews for impairment its long-lived assets held and used whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we are required to evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset.

The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuilds. Historically, both charter rates and vessel values tend to be cyclical. Declines in the fair market value of vessels, prevailing market charter rates, vessel sale and purchase considerations, and regulatory changes in drybulk shipping industry, changes in business plans or changes in overall market conditions that may adversely affect cash flows are considered as potential impairment indicators. In the event the independent fair market value of a vessel is lower than its carrying value, we determine undiscounted projected net operating cash flow for such vessel and compare it to the vessel carrying value.

The undiscounted projected net operating cash flows for each vessel are determined by considering the charter revenues from existing time charters for the fixed vessel days and an estimated daily time charter equivalent for the unfixed days, using the twelve month budgeted rates for the unchartered period of the first twelve months, the Forward Freight Agreement (“FFA”) rates for the unchartered period of the second twelve months and the most recent historical 10-year average daily rates of similar size vessels thereafter, until the end of the remaining estimated useful life of the asset, a premium on future daily charter rates for vessels with installed Scrubbers based on actual premium included on existing charter contracts of our fleet for that period and an estimated premium thereafter, until the end of the remaining useful life of the asset, net of brokerage commissions; expected outflows for vessel operating expenses which include drydocking costs, voyage expenses and management fees. The undiscounted cash flows incorporate various factors, such as estimated future charter rates, estimated vessel operating costs assuming an average annual inflation rate of 2.0%, estimated vessel utilization rates, estimated remaining lives of the vessels (assumed to be 25 years from the initial delivery of each vessel from the shipyard) and estimated salvage value of the vessels based on period end ten-year historical average demolition prices per light-weight ton.

Historically, a full shipping cycle has variable duration. Since 2008, when we identified impairment indications for the first time, we have used the ten-year average of the one-year time charter rate for the computation of an estimated daily time charter rate for the unfixed days for each of our vessel types. We used the historical ten-year average, as we believed it captures on average the highs and lows of a full shipping cycle, and therefore, was considered a reasonable estimation of expected future time charter rates over the remaining useful life of our vessels.

These assumptions are based on historical trends as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective.

Our impairment test as of December 31, 2019 on our vessels held and used, which also involved sensitivity tests on the future time charter rates, (which is the input that is most sensitive to variations), allowing for variances ranging from 3.0% to 10.0% for five of our vessels, and higher variations for the remaining fleet, depending on the vessel type on time charter rates from our base scenario, indicated no impairment on any of our vessels that were held and used.

Our analysis for the year ended December 31, 2018 on our vessels held and used, which also involved sensitivity tests on the future time charter rates, (which is the input that is most sensitive to variations), allowing for variances of up to 7.2%, depending on the vessel type on time charter rates from our base scenario, indicated no impairment on any of our vessels that were held and used.

Our comparison of the actual 2019 net receipts to the forecast net receipts used in the impairment test performed for the year ended December 31, 2018 indicated a favorable variance of 75.6%, between actual net receipts during 2019 and net receipts forecast by the Company for the same period, due to improvements in the dry bulk market rates during 2019, which were not anticipated.

To assist investors in evaluating the possible impact on future results of operations, the following table shows the effect on the Company’s impairment analysis of using the 3-year, 5-year and 15-year historical average daily rates as of December 31, 2019, as opposed to using the 10-year historical average daily rates.

 

   3-Year   Impairment
Charge
   5-Year   Impairment
Charge
   15-Year   Impairment
Charge
 
   Historical
Average
Daily Rates
   (in USD
million)
   Historical
Average
Daily Rates
   (in USD
million)
   Historical
Average
Daily Rates
   (in USD
million)
 
Panamax Class Vessels  $11,857       $9,865    22.7   $19,666     
Kamsarmax Class Vessels  $12,569       $10,457       $20,846     
Post Panamax Class Vessels  $13,280       $11,049    28.2   $22,026     
Capesize Class Vessels  $16,166       $13,169    33.0   $34,348     
Total             83.9        
 
SAFEBULKERS   ANNUAL REPORT 2019

 

At each quarter-end, the Company assesses the assumptions used for performing its impairment analysis, and considers the appropriate duration of historical average charter rates to be used.

While the Company intends to continue to hold and operate its vessels, the following table presents the carrying values of the Company’s vessels and indicates whether their estimated fair market values, were below their carrying values as of December 31, 2018 and December 31, 2019. The carrying value of each of the Company’s vessels does not necessarily represent its fair market value or the amount that could be obtained if the vessel was sold. The Company’s estimates of basic market values assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified as being in class without recommendations of any kind and are based on the estimated market values for our vessels received from third-party independent shipbrokers approved by our banks. In addition, because vessel market values are highly volatile, these estimates may not be indicative of either the current or future prices that the Company could achieve if it were to sell any of the vessels. The Company would not record impairment for any of the vessels for which the fair market value is below its carrying value unless and until the Company either determines to sell the vessel for a loss or determines that the vessel’s carrying value is not recoverable.

To assist investors in evaluating the possible impact on future results of operations, the following table shows the number of vessels whose estimated basic market value, exceeded their carrying value and their aggregate carrying value in each case, as of December 31, 2018 and December 31, 2019, respectively. For purposes of this calculation, we have assumed that the vessels would be sold at a price that reflects our estimate of their current basic market values.

 

    As of December 31, 2018   As of December 31, 2019  
    Number of
vessels
  Aggregate
Carrying Value
($ US Million)
  Number of
vessels
  Aggregate
Carrying Value
($ US Million)
 
Vessels whose fair market value was below their carrying value   21(1)   616.6   29(2)   778.2  
Vessels whose carrying value was written down to their estimated fair market value          
Vessels whose fair market value, exceeded their carrying value   20   338.7   12   166.5  
Total   41   955.3   41   944.7  

 

  (1) As of December 31, 2018, the aggregate carrying value of these 21 vessels was $120.6 million more than their fair market value, based on broker quotes.
  (2) As of December 31, 2019, the aggregate carrying value of these 29 vessels was $153.9 million more than their fair market value, based on broker quotes.

 

Recent accounting pronouncements

Refer to Note 2 of the consolidated financial statements included elsewhere in this annual report.

 

Results of Operations

 

Year ended December 31, 2019 compared to year ended December 31, 2018

During the year ended December 31, 2019, we had an average of 41.0 drybulk vessels in our fleet. During the year ended December 31, 2018, we had an average of 39.9 drybulk vessels in our fleet.

During the year ended December 31, 2019, we did not acquire any vessels.

During the year ended December 31, 2018, we acquired Pedhoulas Cedrus, a Kamsarmax newbuild vessel, and Mount Troodos, a secondhand Capesize class vessel.

 

Revenues

Revenues increased by 2.5%, or $5.1 million, to $206.7 million during the year ended December 31, 2019 from $201.5 million during the year ended December 31, 2018, due to the following factors: (i) an increase in prevailing charter rates during 2019, and (ii) an increase in ballast bonus earnings.

 

Commissions

Commissions to unaffiliated ship brokers, other brokers associated with our charterers and our charterers during the year ended December 31, 2019 amounted to $8.9 million, an increase of $0.6 million, or 6.7%, compared to $8.4 million during the year ended December 31, 2018. Commissions as a percentage of revenues remained rather stable at 4.3% of revenues during the year ended December 31, 2019 compared to 4.1% of revenues during the year ended December 31, 2018.

 

Voyage expenses

During the year ended December 31, 2019, we recorded voyage expenses of $13.7 million, compared to $6.4 million during the year ended December 31, 2018, a 115.0% increase mainly due to increased vessel repositioning expenses and decreased prices of fuel sold on delivery.

 

Vessel operating expenses

Vessel operating expenses increased by 8.0% to $68.6 million during the year ended December 31, 2019 from $63.5 million during the year ended December 31, 2018, with the contribution of the 2.7% increase of ownership days from 14,568 in 2018

 
      54 - 55

 

to 14,965 in 2019. Daily operating expenses increased by 5.1% to $4,582 during the year ended December 31, 2019 from $4,360 during the year ended December 31, 2018.

The increase in vessel operating expenses was primarily attributed to:

 

  (i) the increase in repairs, maintenance and drydocking costs by 35.1% to $8.9 million in 2019, compared to $6.6 million in 2018, primarily due to the 13 drydockings fully completed and one partially completed during 2019, compared to nine completed during 2018;
  (ii) the increase in cost for spares, stores and provisions by 6.6% to $14.8 million in 2019, compared to $13.9 million in 2018 due to completed and forthcoming drydockings affecting costs of spares and repairs and maintenance as above;
  (iii) the increase in lubricant costs by 17.0% to $4.6 million in 2019, compared to $3.9 million in 2018, primarily due to higher prices and increased consumption; and
  (iv)  the increase in other miscellaneous expenses by 45.9% to $2.6 million in 2019, compared to $1.8 million in 2018, primary due to increased upgrades on telecommunication hardware on our vessels.

 

Other factors influencing vessel operating expenses, such as costs for crew and insurance expenses, had a minor effect on the increased operating expenses.

The Company expenses drydocking and pre-delivery costs as incurred, which costs may vary from period to period . Vessel operating expenses excluding vessel drydocking and pre-delivery costs increased by 5.6% to $63.7 million in 2019, compared to $60.3 million in 2018, due to completed and forthcoming dry-dockings affecting costs of spares and repairs and maintenance as above. Drydocking expense is related to the number of drydockings in each period and pre-delivery expense is related to the number of vessel deliveries and secondhand acquisitions in each period. Certain other shipping companies may defer and amortize drydocking expense. Daily operating expenses, excluding vessel drydocking and pre-delivery costs, increased by 2.8% to $4,257 during the year ended December 31, 2019 from $4,141 during the year ended December 31, 2018.

 

Depreciation

Depreciation expense increased by 4.7% to $50.3 million during the year ended December 31, 2019, compared to $48.1 million during the year ended December 31, 2018, due to new investments in Scrubbers and BWTS installation, which increased the carrying value of our vessels.

 

General and administrative expenses

General and administrative expenses increased by 7.3% to $20.6 million during the year ended December 31, 2019, compared to $19.2 million during the year ended December 31, 2018. The increase of $1.4 million is mainly due to the increase in the management fees charged by our Managers of $18.1 million in 2019 from $16.5 million in 2018. Management fees in 2019 compared to 2018 were increased due to: (i) increase of ownership days from 14,568 in 2018 to 14,965 in 2019 and (ii) increase of the fees paid to our Managers.

As a result:

 

  ~ Daily general and administrative expenses which consist of daily management fees and daily company administration expenses, increased by 4.4% to $1,379 during the year ended December 31, 2019, from $1,321 during the year ended December 31, 2018;
  ~ Daily management fees increased by 6.3% to $1,206 during the year ended December 31, 2019, from $1,135 during the year ended December 31, 2018; and
  ~ Daily company administration expenses decreased by 6.9% to $173 during the year ended December 31, 2019, from $186 during the year ended December 31, 2018.

 

Interest expense

Interest expense increased by 4.3% to $26.8 million during the year ended December 31, 2019, compared to $25.7 million, during the year ended December 31, 2018. This was the result of the increase in the weighted average interest rate of our outstanding indebtedness of 4.624% per annum (“p.a.”) for the year ended December 31, 2019 , compared to the weighted average interest rate of our outstanding indebtedness of 4.428% p.a. for the year ended December 31, 2018, and the increase in average loans outstanding of $577.4 million during the year ended December 31, 2019, compared to the average loans outstanding of $572.2 million during the year ended December 31, 2018. The total principal amount of loans outstanding as of December 31, 2019 was $605.8 million, compared to $579.6 million as of December 31, 2018.

 

Impairment loss

We did not incur any impairment loss for the year ended December 31, 2019, and for the year ended December 31, 2018.

 

Year ended December 31, 2018 compared to year ended December 31, 2017

During the year ended December 31, 2018, we had an average of 39.9 drybulk vessels in our fleet. During the year ended December 31, 2017, we had an average of 38.0 drybulk vessels in our fleet.

During the year ended December 31, 2018, we acquired Pedhoulas Cedrus, a Kamsarmax newbuild vessel, and Mount Troodos, a secondhand Capesize class vessel.

During the year ended December 31, 2017, we acquired Agios Spyridonas, a secondhand Post-Panamax class vessel, and Pedhoulas Rose, a Kamsarmax class newbuild vessel.

 
SAFEBULKERS   ANNUAL REPORT 2019

 

Revenues

Revenues increased by 30.8%, or $47.5 million, to $201.5 million during the year ended December 31, 2018 from $154.0 million during the year ended December 31, 2017, due to the following factors: (i) an increase in the TCE rate for 2018 by 25.4% to $13,102 compared to $10,451 for 2017 due to increase in prevailing charter rates, and (ii) an increase in operating days for the year ended December 31, 2018 by 2.9% to 14,075 days compared to 13,673 days for the year ended December 31, 2017, mainly due to the delivery of the vessels Pedhoulas Cedrus and Mount Troodos.

 

Commissions

Commissions to unaffiliated ship brokers, other brokers associated with our charterers and our charterers during the year ended December 31, 2018 amounted to $8.4 million, an increase of $2.4 million, or 40.0%, compared to $6.0 million during the year ended December 31, 2017. Commissions as a percentage of revenues remained rather stable at 4.2% of revenues during the year ended December 31, 2018 compared to 3.9% of revenues during the year ended December 31, 2017.

 

Voyage expenses

During the year ended December 31, 2018, we recorded voyage expenses of $6.4 million, compared to $3.9 million during the year ended December 31, 2017, a 64.1% increased mainly due to an increase in vessel repositioning expenses affected by higher fuel prices.

 

Vessel operating expenses

Vessel operating expenses increased by 20.3% to $63.5 million during the year ended December 31, 2018 from $52.8 million during the year ended December 31, 2017, with the contribution of the 5.1% increase of ownership days from 13,858 in 2017 to 14,568 in 2018. Daily operating expenses, increased by 14.4% to $4,360 during the year ended December 31, 2018 from $3,810 during the year ended December 31, 2017.

The increase in vessel operating expenses was primarily attributed to:

  ~ the increase in cost for spares, stores and provisions by 49.5% to $13.9 million in 2018, compared to $9.3 million in 2017;
  ~ the increase in crew wages and related costs by 7.8% to $33.3 million in 2018, compared to $30.9 million in 2017, primarily due to currency fluctuation and increased ownership days;
  ~ the increase in repairs, maintenance and drydocking costs by 78.4% to $6.6 million in 2018, compared to $3.7 million in 2017, primarily due to the nine drydockings performed during 2018, compared to five completed during 2017; and
  ~ the increase in lubricant costs by 21.9% to $3.9 million in 2018, compared to $3.2 million in 2017, primarily due to higher prices.

 

Other factors influencing vessel operating expenses such as costs for insurance, taxes and other miscellaneous expenses had a minor increased effect on operating expenses.

The Company expenses drydocking and pre-delivery costs as incurred, which costs may vary from period to period. Vessel operating expenses excluding vessel drydocking and pre-delivery costs increased by 16.6% to $60.3 million in 2018, compared to $51.7 million in 2017. Drydocking expense is related to the number of drydockings in each period and pre-delivery expense is related to the number of vessel deliveries and secondhand acquisitions in each period. Certain other shipping companies may defer and amortize drydocking expense. Consequently, daily operating expenses, excluding vessel drydocking and pre-delivery costs, increased by 11.0% to $4,141 during the year ended December 31, 2018 from $3,731 during the year ended December 31, 2017.

 

Depreciation

Depreciation expense decreased by 6.4% to $48.1 million during the year ended December 31, 2018, compared to $51.4 million during the year ended December 31, 2017, due to impairment loss of $91.3 million recorded during the year ended December 31, 2017, which reduced the carrying value of four of our vessels.

 

General and administrative expenses

General and administrative expenses increased by 19.3% to $19.2 million during the year ended December 31, 2018, compared to $16.1 million during the year ended December 31, 2017. The increase of $3.1 million is mainly due to the increase in the management fees charged by our Managers of $16.5 million in 2018 from $13.5 million in 2017. Management fees in 2018 compared to 2017 were increased due to: (i) increase of ownership days from 13,858 in 2017 to 14,568 in 2018 and (ii) increase of the fees paid to our Managers.

As a result:

  ~ Daily general and administrative expenses increased by 13.6% at $1,321 during the year ended December 31, 2018, from $1,163 during the year ended December 31, 2017;
  ~ Daily management fees which are part of daily general and administrative expenses increased by 16.4% to $1,135 during the year ended December 31, 2018, from $975 during the year ended December 31, 2017; and
  ~ Daily company administration expenses, which are part of daily general and administrative expenses, decreased by 1.1% to $186 during the year ended December 31, 2018, from $188 during the year ended December 31, 2017.

 

Interest expense

Interest expense increased by 10.8% to $25.7 million during the year ended December 31, 2018, compared to $23.2 million, during the year ended December 31, 2017. This was the result of the increase in the weighted average interest rate of our

 
      56 - 57

 

outstanding indebtedness of 4.428% per annum (“p.a.”) for the year ended December 31, 2018 as a result of the increased USD LIBOR, compared to the weighted average interest rate of our outstanding indebtedness of 3.838% p.a. for the year ended December 31, 2017, partly offset by the decrease in average loans outstanding of $572.2 million during the year ended December 31, 2018, compared to the average loans outstanding of $594.6 million during the year ended December 31, 2017. The total principal amount of loans outstanding as of December 31, 2018 was $579.6 million, compared to $571.8 million as of December 31, 2017.

 

Impairment loss

We did not incur any impairment loss for the year ended December 31, 2018, compared to $91.3 million for the year ended December 31, 2017. The impairment loss recorded in December 31, 2017 related to the write down of the carrying value of four of our vessels to their estimated fair market value as our impairment test indicated that the carrying amount of these vessels may not be recoverable.

 

B. Liquidity and Capital Resources

As of December 31, 2019, we had liquidity of $178.0 million consisting of cash, cash equivalents and bank time deposits of $106.4 million, $13.7 million in restricted cash, $20.0 million available under a revolving credit facility that we entered into in 2019, up to $26.4 million secured under a commitment from a financial institution for the post-delivery financing of our contracted newbuild with Hull No. S 1772 (scheduled to be delivered to us in the second quarter of 2020) and $11.5 million surplus liquidity from refinancing available under sale and lease back agreements that two of our subsidiaries entered into in 2019, concluded in January 2020, whereby the two vessels would be sold to third parties and immediately leased back to us under bareboat charters. Furthermore, we had additional financing capacity of $6.6 million under an agreement of our Company to issue common equity to an unaffiliated third party in respect of Hull No. S 1772. The Company had an existing fleet of 41 vessels and one vessel in our orderbook; remaining capital expenditure requirements relating to the purchase consideration of the newbuild of $23.5 million, which includes $0.6 million supervision costs and commissions payable to our Manager, all of which is due in 2020; and remaining vessel upgrades and improvements, relating to the Scrubbers and BWTS investments of $5.0 million, with scheduled payments of $2.8 million in 2020, $1.6 million in 2021 and $0.6 million in 2022. As of December 31, 2019, our aggregate debt outstanding was $605.8 million of which $65.5 million was the current portion of long term debt payable within the next 12 months.

As of March 13, 2020, we had liquidity of $172.4 million consisting of cash, cash equivalents and bank time deposits of $111.8 million, $14.2 million in restricted cash, $20.0 million available under the revolving credit facility and up to $26.4 million secured under the commitment for the post-delivery financing of our newbuild. Furthermore, we had an aggregate additional financing capacity of $3.3 million under an agreement of our Company to issue common equity to an unaffiliated third party in respect of in respect of Hull No. S 1772. The Company had an existing fleet of 41 vessels and one vessel in our orderbook; remaining capital expenditure requirements relating to the purchase consideration of the newbuild of $20.2 million, all of which are due in 2020; and remaining vessel upgrades and improvements, relating to the Scrubbers and BWTS investments, of $3.8 million, with scheduled payments of $1.6 million in 2020, $1.6 million in 2021 and $0.6 million in 2022.

Our primary liquidity needs are to fund financing expenses, debt repayment or refinancing, vessel operating expenses, general and administrative expenses, capital expenditures in relation to vessel acquisitions and vessel improvements, and dividend payments to our stockholders. We anticipate that our primary sources of funds will be existing cash and cash equivalents and bank time deposits as of December 31, 2019 of $106.4 million, restricted cash of $13.7 million, cash generated from operations, committed aggregate borrowing capacity of up to $46.4 million, equity financing under our agreement to issue common shares to an unrelated third party of up to $6.6 million, and, possibly, other future equity or debt financing.

In our opinion, the contracted cash flow from operations, the committed borrowing capacity, the issuance of common equity, and the existing cash and cash equivalents will be sufficient to fund the operations of our fleet and any other present financial requirements of the Company, including our working capital requirements, and our capital expenditure requirements at least through the end of the first quarter of 2021. However, we may seek additional indebtedness to refinance our debt and to maintain a strong cash position. Future needs in relation to financing and investing activities may involve refinancing of existing debt and financing of any future fleet replacement and expansion program or fleet upgrades and improvements. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering, including the actual or perceived credit quality of our charterers and the market value of our fleet, as well as by adverse market conditions resulting from, among other things, general economic conditions, weakness in the financial and equity markets and contingencies and uncertainties that are beyond our control. To the extent that market conditions deteriorate, charterers may default or seek to renegotiate charter contracts, and vessel valuations may decrease, resulting in a breach of our debt covenants. In addition, refinancing of our existing debt in the future may be difficult. Our contracted revenues may decrease and we may be required to make additional prepayments under existing loan facilities, resulting in additional financing needs. If we acquire additional vessels, our capital expenditure requirements will increase and we will need to rely on existing cash and time deposits, debt financing and operating cash surplus.

A failure to fulfill our capital expenditures commitments generally results in a forfeiture of advances paid with respect to the contracted newbuild vessel and a write-off of capitalized expenses. In addition, we may also be liable for other damages for breach of contract. A failure to satisfy our financial commitments could result in the acceleration of our indebtedness and foreclosure on our vessels. Such events could adversely impact the dividends we intend to pay, and could have a material adverse effect on our business, financial condition and results of operation.

We paid dividends to our common stockholders each quarter between the date of our initial public offering in June 2008 and the second quarter of 2015. We have not paid any dividends to our common stockholders since the second quarter of 2015. During

 
SAFEBULKERS   ANNUAL REPORT 2019

 

2019, we declared and paid four quarterly consecutive dividends of $0.50 per share for each, of Series C Preferred Shares, totaling $4.6 million, and of Series D Preferred Shares, totaling $6.4 million. In January 2020, we declared and paid a quarterly dividend of $0.50 per share for each of Series C Preferred Shares, totaling $1.1 million, and of Series D Preferred Shares, totaling $1.6 million.

Our future liquidity needs will impact our dividend policy. The declaration and payment of dividends, if any, will always be subject to the discretion of our board of directors. The timing and amount of any dividends declared will depend on, among other things: (i) our earnings, financial condition and cash requirements and available sources of liquidity; (ii) decisions in relation to our leverage and growth strategies; (iii) provisions of Marshall Islands and Liberian law governing the payment of dividends; (iv) restrictive covenants in our existing and future debt instruments; and (v) global financial conditions. Dividends on our Common Stock might continue not to be paid in the future. In addition, cash dividends on our Common Stock are subject to the priority of dividends on our Preferred Shares.

 

Cash Flows

Cash and cash equivalents increased to $78.9 million as of December 31, 2019, compared to $51.9 million as of December 31, 2018. We consider highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents were primarily held in U.S. dollars.

 

Net Cash Provided by Operating Activities

Net cash provided by operating activities amounted to $58.3 million in 2019, $85.4 million in 2018 and $50.1 million in 2017, consisting of net income after non-cash items of $68.7 million, $77.8 million and $52.5 million respectively plus a decrease in working capital of $10.4 million during 2019, an increase in working capital of $7.6 million during 2018 and a decrease in working capital of $2.4 million during 2017 respectively.

The major drivers of the change of net cash provided by operating activities are the increased cash outflows related to operating expenses of $5.1 million in 2019 compared to 2018, the increased cash outflows related to voyage expenses of $7.3 million in 2019 compared to 2018, and the increased cash outflows related to management fees of $1.5 million in 2019 compared to 2018, counter balanced by the increased inflows related to net revenues of $4.6 million in 2019 compared to 2018. The major drivers of the cash outflow of the working capital are the increased inventories of $5.5 million in 2019 compared to 2018, as a result of the increased bunker inventory due to increased number of vessels in the spot market and the increased accounts receivable of $4.2 million in 2019 compared to 2018, as a result of increased outstanding bunker settlement from charterers due to increased number of vessels in the spot market.

The major drivers of the change of net cash provided by operating activities in 2018 compared to 2017, are the increased net revenues we earned from chartering our vessels of $45.2 million in 2018 compared to 2017 reduced by the increased cash outflows related to operating expenses of $10.7 million in 2018 compared to 2017.

 

Net Cash Used in Investing Activities

Net cash flows used in investing activities were $36.8 million for the year ended December 31, 2019 compared to $63.7 million for the year ended December 31, 2018. The decrease in cash flows used in investing activities of $26.9 million from 2018 is mainly attributable to the following factors: (i) a decrease of $6.7 million in payments for vessel acquisitions, advances for vessels under construction and major improvements during the year ended December 31, 2019 compared to the same period of 2018; and (ii) a net decrease of $2.4 million in time deposits during the year ended December 31, 2019, compared to a net increase of $17.8 million during the same period of 2018.

Net cash flows used in investing activities were $63.7 million for the year ended December 31, 2018 compared to $39.6 million for the year ended December 31, 2017. The net increase in cash flows used in investing activities of $24.1 million from 2017 is mainly attributable to the following factors: (i) a decrease of $14.0 million in payments for vessel acquisitions, advances for vessels under construction and major improvements during the year ended December 31, 2018 compared to the same period of 2017; (ii) zero proceeds from asset sales during the year ended December 31, 2018, compared to $20.5 million proceeds during the year ended December 31, 2017 and (iii) a net increase of $17.8 million in time deposits during the year ended December 31, 2018, compared to a net increase of $0.2 million during the same period of 2017.

 

Net Cash Used in/ Provided by Financing Activities

Net cash flows provided by financing activities were $8.5 million for the year ended December 31, 2019, compared to net cash flows used in financing activities of $15.6 million for the year ended December 31, 2018. This increase in cash flows provided by financing activities of $24.1 million, compared to the year ended December 31, 2018, is mainly attributable to a decrease of $28.4 million in long term debt principal payments, a decrease in repurchases of common and preferred stock by $5.9 million compared to the year ended December 31, 2018, offset by a decrease in proceeds from long-term debt by $9.9 million, an increase in dividends paid of $0.1 million and an increase of $0.2 million in the payment of deferred financing costs compared to the year ended December 31, 2018.

Net cash flows used in financing activities were $15.6 million for the year ended December 31, 2018, compared to net cash flows used in financing activities of $47.1 million for the year ended December 31, 2017. This decrease in cash flows used in financing activities of $31.5 million, compared to the year ended December 31, 2017, is mainly attributable to an increase in proceeds from long-term debt by $72.3 million compared to the year ended December 31, 2017, zero payment for Tender offer redemption of preferred shares and tender offer expenses during the year ended December 31, 2018, compared to $25.2 million during the same period of 2017 and a decrease in dividends paid of $0.9 million offset by an increase of $56.9 million in long term debt principal payments, an increase in repurchases of common and preferred stock by $10.0 million compared to the same period ended December 31, 2017.

 
      58 - 59

 

Credit Facilities

We operate in a capital intensive industry which requires significant amounts of investment, and we fund a portion of this investment through long-term bank debt. We or our subsidiaries have generally entered into credit facilities in order to finance the acquisition of our vessels, to refinance existing indebtedness and for general corporate purposes. In 2019, (a) one of our subsidiaries entered into a credit facility which was used for general corporate purposes, (b) we entered into a credit facility for general corporate purposes but did not make any drawings under such credit facility in 2019, (c) we amended one of our credit facilities for general corporate purposes and made a drawing under such credit facility in 2019, and (d) four of our subsidiaries amended a credit facility and made a drawing under such credit facility in 2019 for general corporate purposes. In addition, during 2019, four of our subsidiaries entered into a sale and lease back transaction for four of our vessels, whereby the four vessels were sold to third parties and immediately leased back to us under bareboat charters for eight years for one of the vessels and seven and a half years for the other three vessels, with a purchase option for all four vessels five years and nine months after the commencement of the bareboat charter. We have verbally committed to exercise the purchase option for all four vessels, and, in view of this, we have assessed that these transactions should be recorded as financing transactions. The proceeds from these transactions were used to repay the credit facilities secured by the relevant vessels and for general corporate purposes. Furthermore, during 2019, two of our subsidiaries entered into a sale and lease back transaction for two of our vessels, whereby the two vessels were sold to third parties and immediately leased back to us under bareboat charters for eight years with a purchase obligation for both vessels at the end of the bareboat period and with purchase options at predetermined dates and prices during the period of the bareboat charter. The proceeds from these transactions were used to repay the credit facilities secured by the relevant vessels and for general corporate purposes. In view of the purchase obligation at the end of the bareboat charters, we have assessed that these transactions should also be recorded as financing transactions. Finally, during 2019, two of our subsidiaries each entered into a sale and lease back transaction for two of our vessels, whereby the two vessels would be sold to third parties and immediately leased back to us under bareboat charters for six years with a purchase obligation for both vessels at the end of the bareboat period and with purchase options at predetermined dates and prices during the period of the bareboat charter. These transactions were completed in January 2020.

The term of our 20 credit facilities outstanding on December 31, 2019, ranged from three to 10 years. They are generally repaid by quarterly or semi-annual principal installments and a balloon payment due on maturity, with the exception of two credit facilities which are repaid by principal installments every 45 days and a balloon payment due on maturity equal to the purchase obligation. We generally pay interest at LIBOR plus a margin, except for six facilities, two of which principal amounts are deemed to bear a fixed interest and four of which a portion of the principal amounts are deemed to incur interest at a fixed rate.

The obligations under our credit facilities are secured by, among other types of security, first priority mortgages over the vessels owned by the respective borrower subsidiaries, first priority assignments of all insurances and earnings of the mortgaged vessels or ownership of the vessels under sale and leaseback financing and guarantees by us. One of the credit facilities that we have entered into is not secured by any securities.

During 2019, we incurred an additional $177.6 million of indebtedness under our credit facilities and we repaid $151.3 million of our indebtedness. As of December 31, 2019, we had 20 outstanding credit facilities with a combined outstanding balance of $605.8 million. These debt facilities had maturity dates between 2021 and 2027. For a description of our debt facilities as of December 31, 2019, please see Note 6 of the consolidated financial statements included elsewhere in this annual report. During 2020, we are scheduled to repay $65.5 million of our long-term debt outstanding as of December 31, 2019.

 

Covenants Under Credit Facilities

The credit facilities impose operating and financial restrictions on us. These restrictions in our existing credit facilities generally limit our subsidiaries’ ability to, among other things, and subject to exceptions set forth in such credit facilities:

 

  ~ pay dividends if an event of default has occurred and is continuing or would occur as a result of the payment of such dividends;
  ~ enter into certain long-term charters without the lenders’ consent;
  ~ incur additional indebtedness, including through the issuance of guarantees;
  ~ change the flag, class or management of the vessel mortgaged under such facility or terminate or materially amend the management agreement relating to such vessel;
  ~ create liens on their assets;
  ~ make loans;
  ~ make investments;
  ~ make capital expenditures;
  ~ undergo a change in ownership or control or permit a change in ownership and control of our Managers;
  ~ sell the vessel mortgaged under such facility; and
  ~ permit our chief executive officer to change.

 

Our existing credit facilities also require certain of our subsidiaries to maintain financial ratios and satisfy financial covenants. Depending on the credit facility, certain of our subsidiaries are subject to financial ratios and covenants requiring that these subsidiaries:

 

  ~ meet the Minimum Value Covenant of 115% or 120%, as the case may be, for credit facilities outstanding;
  ~ maintain a minimum cash balance per vessel with the respective lender from $150,000 to $1,000,000 as the case may be; and
  ~ ensure that we comply with certain financial covenants under the guarantees described below.
 
SAFEBULKERS   ANNUAL REPORT 2019

 

In addition, under guarantees we have entered into with respect to certain of our subsidiaries’ existing credit facilities, we are subject to financial covenants. Depending on the facility, these financial covenants include the following:

 

  ~ under the Consolidated Leverage Covenant, our total consolidated liabilities divided by our total consolidated assets (based on the market value of all vessels owned or leased on a finance lease taking into account their employment, and the book value of all other assets) must not exceed 85%;
  ~ under the Net Worth Covenant, our total consolidated assets (based on the market value of all vessels owned or leased on a finance lease taking into account their employment, and the book value of all other assets) less our total consolidated liabilities must not be less than $150,000,000;
  ~ under the EBITDA Covenant, the ratio of our EBITDA over consolidated interest expense must not be less than 2.0:1, on a trailing 12 months’ basis, applicable as of January 1, 2018 onwards;
  ~ under the Maximum Debt Covenant, our consolidated debt in relation to the 41 vessels currently owned by the our subsidiaries must not exceed $630,000,000;
  ~ under the Control Covenant, a minimum of 30% or 35%, as the case may be, of our shares shall remain directly or indirectly beneficially owned by the Hajioannou family for the duration of the relevant credit facilities and, in the case of one facility, Polys Hajioannou beneficially holds a minimum of 20% of the voting and ownership rights; and
  ~ payment of dividends is subject to no event of default having occurred and be continuing or would occur as a result of the payment of such dividends.

 

The Minimum Value Covenant, Consolidated Leverage Covenant, EBITDA Covenant, Net Worth Covenant and Control Covenant do not apply to the loan facility of our subsidiary Shikokuepta Shipping Inc. The Minimum Value Covenant and EBITDA Covenant do not apply to financing agreements entered into by our subsidiaries Maxeikosiena Shipping Corporation, and Youngtwo Shipping Corporation. The EBITDA Covenant does not apply to financing agreements entered into by our subsidiaries Shikokuokto Shipping Corporation, Gloversix Shipping Corporation, Pentakomo Shipping Corporation and Maxdekatria Shipping Corporation. The Maximum Debt Covenant only applies to the credit facility entered by us which is not secured by any securities.

As of December 31, 2019, the Company was in compliance with all debt covenants that were in effect with respect to its loan and credit facilities.

 

C. Research and Development, Patents and Licenses

We have not incurred expenditures relating to research and development, patents or licenses for the last three years.