Greek shipowner DryShips has terminated the disputed common stock purchase agreement, dated April 3, 2017, with the British Virgin Islands-based Kalani Investments Limited, the company said on Friday, effective immediately.
In addition, the company’s Chairman and CEO, George Economou, agreed to refrain from re-selling, either directly or through his affiliated entities, for a six month period any company common shares. Finally, the company pledged not to conduct any equity offerings until after December 31, 2017, without the prior approval of the majority of its unaffiliated shareholders.
To remind, DryShips saw a class action filed against it based on accusations of a stock-manipulation scheme aimed at artificially inflating its share price.
The transactions trace back to June 8, 2016, when DryShips raised hundreds of millions of dollars by selling newly-issued shares directly to Kalani at a discount to market value. It is claimed that the new capital enabled DryShips to roughly double the size of its fleet to 36 vessels.
On the other hand, Kalani is believed to have bought the shares with the intention of reselling and had failed to register as an underwriter with the U.S. Securities & Exchange Commission.
The issuance of shares caused the dropping of diluted shareholder value, while the frequent fluctuation in DryShip’s common share price, caused by the company’s capital-raising, reportedly cost the shareholders hundreds of millions of dollars, according to the lawsuit.
The announcement was made as DryShips informed of an approved binding term sheet, pursuant to which the company plans to sell its common shares to entities affiliated with Mr. Economou for aggregate consideration of USD 100 million at a price of USD 2.75 per share.
In line with the term sheet, a subsequent rights offering has been approved that would allow the company’s shareholders to purchase their pro rata portion of up to USD 100 million of DryShip’s common shares at the same price.
The rights offering will be backstopped in full by Sierra Investments (Sierra), an entity affiliated with Mr. Economou, who will not exercise his subscription rights in the offering outside of the backstop commitment.
As disclosed, the consideration for the company’s common shares in the private placement include the acquisition of 100% of the issued and outstanding equity interests of Shipping Pool Investors Inc., which directly holds a 49% interest in Heidmar Holdings LLC, a global tanker operator, from SPII Holdings Inc., an entity affiliated with Mr. Economou, along with the termination of the participation rights by and between DryShips and Mountain Investment Inc., also an entity affiliated with Mr. Economou.
This will also include the forfeiture by Sifnos Shareholders Inc., another entity affiliated with Mr. Economou, of all outstanding Series D preferred shares (which carry 100,000 votes per share) of the company that it currently holds, and repaying of USD 27 million of credit facility with Sierra.
DryShips said that it would not receive any cash proceeds from the private placement, while the cash proceeds from the rights offering are expected to be used for general corporate purposes, vessel acquisitions and/or repaying of the Sierra Credit Facility.