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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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Aegean shareholder group reaffirms intentions in SEC filing

Group agreement filed as shareholders plan to nominate director candidates at next AGM.



Aegean Marine Petroleum Network Inc storage tank facility. Image credit: Aegean Marine Petroleum


Updated on 29 Dec 2017 13:22 GMT

Documentation was filed with the United States Securities and Exchange Commission (SEC) on Thursday, which outlined the "concerns" of The Committee for Aegean Accountability - a group of five long-term shareholders collectively owning around 12 percent of the outstanding shares of Aegean Marine Petroleum.

The Schedule 13D (SC 13D) filing follows the release, on December 20, of an open letter by the group to the chairman of the firm's board of directors, Yiannis Papanicolaou.

In the filing, the shareholders refer to the recent letter, they provide details of a group agreement entered into on December 18, and they reaffirm their intention to nominate director candidates at the next annual meeting.

Commenting on the issue, Aegean said in a 6-K SEC document on Thursday: "The Company is continuing to evaluate the shareholders' letter. As of the date of this Report on Form 6-K, the Company has not received any shareholder director nominations for its 2018 shareholder meeting and is not aware of any Schedule 13D filed by the shareholder group."

The key document text from the SC 13D filing has been provided below.

Purpose of transaction

On December 20, 2017, the Committee issued a press release announcing that it delivered an open letter (the "Letter") to the Chairman of the Issuer's [Aegean's] board of directors (the "Board") identifying severe concerns with the Board's ongoing conflicts of interest, poor financial management and inadequate corporate governance practices. The Committee noted in the Letter that its efforts to engage in constructive dialogue with the Board over the past eight months have not resulted in any meaningful changes to the Issuer's governance and performance. To this end, the Committee noted its intent to nominate a slate of four highly qualified independent director candidates for election at the Issuer's 2018 annual meeting of shareholders (the "2018 Annual Meeting"). Based on its discussions with the Issuer and its review of Marshall Islands law and the Issuer's Articles of Incorporation and Bylaws, the Committee has concluded that there are two seats up for election at the 2018 Annual Meeting, as well as two existing vacancies in Class B that the Committee intends to nominate director candidates to fill. The existing Class B vacancies are a result of the failure of two directors to receive a majority of the votes cast in favor of their election at the Issuer's 2017 annual meeting of shareholders. The Committee would view any attempt by the Board to eliminate or manipulate any existing vacancies as a transparent action to entrench management and the Board and to disenfranchise shareholders.

In the Letter, the Committee cited the impairment of shareholder value since the Issuer became publicly listed in 2006, noting that the Issuer's shares have declined by 75% and underperformed the Russel 2000 Index by more than 200%. The Committee further noted that the Issuer's valuation in relation to its net assets had reached an all-time low of 0.3x tangible book value and remains below a conservative estimate of liquidation value.

The Committee also expressed in the Letter its serious concerns regarding the Issuer's troubling corporate governance practices, stating that the Issuer had been majority owned and controlled by its founder Mr. Dimitris Melissanidis, who has been subject to a number of proceedings, including criminal cases for which he was indicted but later acquitted. In addition, the Committee noted that the Issuer has engaged in various related party transactions with entities controlled by Mr. Melissanidis, many of which still persist.

The Committee stated that three out of four Board members currently serving were appointed by Mr. Melissanidis at the time of the Issuer's IPO and shortly thereafter despite the fact that he is no longer a shareholder and the Issuer's share ownership is nearly entirely concentrated in the United States today. The Letter further stated that no new members have joined the Board since 2009.

The Committee highlighted that the Issuer's purchase of Mr. Melissanidis' remaining stake for $100 million last year at $8.81 per share triggered liquidity problems for the Issuer and noted a subsequent decline in Issuer's share price in the following months. The Committee also raised concerns in the Letter that the Issuer's governance structure presents seven out of the eight problematic provisions that inform voting recommendations by Institutional Shareholder Services ("ISS").

In the Letter, the Committee recommended changing the Issuer's financing structure, reducing costs of capital, rationalizing the fixed asset base, instilling capital discipline and repositioning operations ahead of the significant industry changes prompted by IMO 2020 regulations expected to take effect in two years.

The Committee believes that the Board needs to be immediately reconstituted with directors who are fully committed to representing the best interests of all shareholders. The Committee further stated that the director candidates it has already recommended to the Board are uniquely well qualified to carry out the changes that are needed to restore shareholder value.

The Reporting Persons purchased the Shares based on the Reporting Persons' belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.

No Reporting Person has any present plan or proposal which would relate to or result in any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon or in connection with completion of, or following, any of the actions discussed herein. The Reporting Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer's financial position and investment strategy, the price levels of the Shares, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, continuing to attempt to engage in communications with management and the Board of the Issuer, engaging in discussions with stockholders of the Issuer or other third parties about the Issuer and the Reporting Persons' investment, including potential business combinations or dispositions involving the Issuer or certain of its businesses, making recommendations or proposals to the Issuer concerning changes to the capitalization, ownership structure, board structure (including board composition and board representation), potential business combinations or dispositions involving the Issuer or certain of its businesses, or suggestions for improving the Issuer's financial and/or operational performance, purchasing additional Shares, selling some or all of their Shares, engaging in short selling of or any hedging or similar transaction with respect to the Shares, including swaps and other derivative instruments, or changing their intention with respect to any and all matters referred to in Item 4.

The Committee calculated its percentage ownership in the Letter based on the Issuer's diluted weighted average shares outstanding as reported in the Issuer's Quarterly Report on Form 6-K filed with the Securities and Exchange Commission (the "SEC") on November 15, 2017. The full text of the Letter is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Contracts, arrangements, understandings or relationships with respect to securities of the issuer

On December 20, 2017, the Reporting Persons entered into a Group Agreement (the "Group Agreement") pursuant to which the Reporting Persons agreed, among other things, to (i) engage in discussions with the Issuer regarding means to enhance stockholder value and the corporate governance of the Issuer and (ii) the joint filing on behalf of each of them of statements on Schedule 13D with respect to the securities of the Issuer to the extent required by applicable law. The Group Agreement is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

Other than as described herein, there are no contracts, arrangements, understandings or relationships among the Reporting Persons, or between the Reporting Persons and any other person, with respect to the securities of the Issuer.

Group agreement

This Agreement (this "Agreement") is made and entered into as of December 20, 2017, by and among (1) Tyler Baron, (2) August Roth, (3) Justin Moore, (4) Shah Capital Management, Inc., a North Carolina corporation ("Shah Capital"), and (5) Towle & Co., a Missouri corporation ("Towle"), each a "Party" to this Agreement, and collectively, the "Parties" or the "Group".

WHEREAS, each of the Parties is a shareholder, direct or beneficial, of Aegean Marine Petroleum Network Inc., a Marshall Islands holding company (the "Company"); and

WHEREAS, the Parties have formed the Group for the purpose of (i) undertaking a plan of action at the Company aimed at enhancing shareholder value, which plan may include, but is not limited to, proposals relating to the Company's operations, cost and capital allocation, strategic alternatives, the calling of special meeting(s), and/or reconstitution of the Company's Board of Directors, (ii) taking all action necessary or advisable to achieve the foregoing, and (iii) taking any other actions the Group determines to undertake in connection with its respective investment in the Company (collectively, the "Group Activities").

NOW, IT IS AGREED, this 18th day of December 2017 by the Parties hereto:

1. In accordance with Rule 13d-1(k)(1)(iii) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), each member of the Group agrees to the joint filing on behalf of each of them of statements on Schedule 13D, and any amendments thereto, with respect to the securities of the Company (including options to purchase or sell equity securities of the Company, and swaps, synthetics and other derivative securities or instruments, the value of which is solely and directly related to equity securities of the Company, each a "Security" and collectively, the "Securities"). Each member of the Group shall be responsible for the accuracy and completeness of its own disclosure therein, and is not responsible for the accuracy and completeness of the information concerning the other members, unless such member knows or has reason to know that such information is inaccurate.

2. So long as this Agreement is in effect, the Parties shall provide reasonable advance notice to Olshan Frome Wolosky LLP ("Olshan") prior to effecting any purchase, sale, acquisition or disposal of any and all Securities of which it has, or would have, direct or indirect beneficial ownership so that Olshan may advise the Group on the potential filing implications for any such contemplated transactions. In order to facilitate the monitoring of the sale, acquisition and/or disposition of any Security beneficially owned by any and every Party (and related disclosure requirements under applicable law), the Parties further agree to provide notice to Olshan by 5:00 PM (EST) of the day of such purchase(s), sale(s) or disposal of Securities by any such Party.

3. Each of the undersigned agrees to form the Group for the purposes of undertaking the Group Activities.

4. The Parties understand that certain expenses and costs (including all legal fees) are likely to be incurred in connection with the Group Activities (the "Expenses"), and, subject to the letter agreement dated as of the date hereof entered into by certain of the Parties (the "Expense Letter Agreement"), each of Tyler Baron, August Roth, Justin Moore, Shah Capital and Towle agrees to pay its pro rata portion of all such Expenses based on the number of shares of the Company in the aggregate beneficially owned by each of Tyler Baron, August Roth, Justin Moore, Shah Capital and Towle. The pro rata distribution shall be adjusted each month based on each of Tyler Baron, August Roth, Justin Moore, Shah Capital and Towle's respective ownership percentage as of the last day of the preceding month. Any reimbursement from the Company regarding the Expenses paid pursuant to this Section 4 shall be split by Tyler Baron, August Roth, Justin Moore, Shah Capital and Towle in proportion to the Expenses paid pursuant to this Section 4.

5. Each of the Parties hereto agrees that any filing with the U.S. Securities and Exchange Commission (the "SEC"), press release, communication or communication proposed to be made or issued by the Group or any member of the Group in connection with the Group Activities shall be as directed and first approved by Tyler Baron, who will provide notice to, and a reasonable opportunity for, August Roth, Justin Moore, Shah Capital and Towle to review and comment upon any SEC filing, press release, communication, communication, or any proposed agreement or negotiating position with respect to the Company. The Parties hereby agree to work in good faith to resolve any disagreement that may arise between or among any of the members of the Group concerning decisions to be made, actions to be taken or statements to be made in connection with the Group Activities. The Parties further agree that Tyler Baron shall be the primary decision maker with respect to the content and timing of public or private communications and negotiating positions taken on behalf of the Group. Each of the Parties hereto further agrees that any communication with the Company in connection with or related to Group Activities shall be at Tyler Baron's direction, and that the Parties shall not participate in such communications with the Company on the Group's behalf without Tyler Baron's prior written consent.

6. The relationship of the Parties hereto shall be limited to carrying on the Group Activities in accordance with the terms of this Agreement. Such relationship shall be construed and deemed to be for the sole and limited purpose of carrying on such Group Activities as described herein. Nothing herein shall be construed to authorize any Party to act as an agent for any other party, or to create a joint venture or partnership, or to constitute an indemnification. Except as otherwise may be provided herein, nothing shall restrict any Party's right to purchase or sell Securities, as it deems appropriate, in its sole discretion, provided that all such purchases and sales are made in compliance with all applicable securities laws and the provisions of this Agreement.

7. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute but one (1) and the same instrument, which may be sufficiently evidenced by one counterpart.

8. In the event of any dispute arising out of the provisions of this Agreement or their investment in the Company, the Parties hereto consent and submit to the exclusive jurisdiction the United States District Court for the Southern District of New York located in the Borough of Manhattan or the courts of the State of New York located in the County of New York.

9. This Agreement shall terminate upon the earlier of (i) the certification of votes in connection with the Company's 2018 annual meeting of shareholders, or any other meeting of shareholders held in lieu thereof, and any adjournments, postponements, reschedulings or continuations thereof or (ii) the written notice of Tyler Baron, August Roth, Justin Moore, Shah Capital or Towle delivered to the remaining Parties, provided, however, that if one Party chooses to terminate this Agreement, such termination would be effective only with respect to the terminating party, and this Agreement would remain in effect between the non-terminating Parties.

10. Each of the undersigned Parties hereby agrees that Olshan shall act as counsel for the Group and each of Tyler Baron, August Roth, Justin Moore, Shah Capital and Towle as relating to their investment in the Company and the Group Activities set forth herein.

11. Each of the undersigned Parties hereby agrees that this Agreement shall be filed as an exhibit to any Schedule 13D that may in the future be required to be filed under applicable law pursuant to Rule 13d-1(k)(1)(iii) under the Exchange Act.

Open letter (December 20)

Dear Mr. Papanicolaou:

We are writing to inform you that a group of concerned and long-term shareholders representing more than 12% of the outstanding shares of Aegean Marine Petroleum Network Inc. ("Aegean Marine" or the "Company") have formed The Committee for Aegean Accountability (the "Committee"). We have made every effort in numerous private communications spanning the past eight months to engage in a productive dialogue with the board of directors (the "Board") to remedy the chronic failures in corporate governance, financial management and operations that have impaired shareholder value for far too long. It has unfortunately become clear that the Board is more concerned with entrenching itself and management rather than working with us in good faith regarding the changes required to improve the Company's governance and performance. We were both surprised and disappointed by your recent statement that you are considering reducing the Board to four members from its existing size of seven, which would severely disenfranchise shareholders and suppress their ability to seek due representation on the Board. We are therefore left with little choice but to publicly express our concerns and intention to nominate four highly qualified director candidates for election at the Company's 2018 annual meeting of shareholders (the "2018 Annual Meeting").

Impairment of shareholder value

We have been shareholders in Aegean Marine for several years, over which time the share price has dramatically underperformed any relevant comparison. In addition, since becoming public in 2006 shares have declined by 75%, underperforming the Russel 2000 Index by more than 200%. The valuation of the Company has also reached an all-time low in relation to its net assets, trading at less than 0.3x tangible book value and well below a conservative estimate of liquidation value. Aegean Marine has chronically traded at steeply discounted multiples of cash flow and net asset value since at least 2010, driven by persistent concerns about corporate governance and management competence due to extensive related party transactions and value destructive capital expenditure projects.

Corporate Governance: From bad to worse

Since its origins as a public company, Aegean Marine's corporate governance has been troubling. The Company was majority owned and controlled by its founder Mr. Melissanidis who, according to the Company's October 25, 2007 registration statement, "has been subject to a number of proceedings, including criminal cases," some of which involved "sham bunkering transactions intended to avoid customs duties and taxes" for which he was indicted but later acquitted. In addition, the Company engaged in various related party transactions with entities controlled by the founder. In acknowledgement of these potential conflicts, the Company sought to mitigate them at the time of the IPO by limiting the founder's influence per the "Framework Agreement" (F-1/A ex. 10.30 filed 11/3/06). This had the effect of precluding the founder from either joining the seven-member Board or naming directors that would serve as Board Chairman or Chairman of the Audit and Nominating Committees. In addition, the Company's principal executive offices responsible for all financial and control functions were to be maintained in the U.S.

Given this provenance of already weak corporate governance, it is stunning that shareholders today find themselves with even less aligned representation on the Board. The present shareholder base is comprised nearly entirely of U.S. holders and the founder no longer retains any ownership stake whatsoever (more on this below), yet shareholders are represented by only four seated directors, three of whom were appointed by the founder at the time of the IPO and shortly thereafter. Mr. Fokas is one of these original board members, as well as the Company's General Counsel, and continues to have close ties to the founder, recently acting as the deputy chairman of the Greek gambling monopoly (OPAP) which is partly owned by Mr. Melissanidis. Furthermore, you rightly pointed out in your recent correspondence with us that the majority of current Board members have been with the Company since the IPO, and no new board members have been added since 2009. Considering the value destruction shareholders have endured over the past decade, we hardly view this as a positive.

Notwithstanding the complete turnover of Aegean Marine's shareholder base, the related party transactions persist as the Company still conducts significant business with entities controlled by the founder such as Aegean Oil. In addition, not only are the Company's executive functions, including financial and control, no longer based in the U.S., they are actually housed in the very same offices in Piraeus as the founder's other entities. Incredibly, our review of the Aegean Oil website and corporate magazine revealed that even today Aegean Marine is very much considered to be a subsidiary or sister company despite zero common ownership. But most concerning is the fact pattern related to the transaction last year in which the Company purchased the remaining stake owned by Mr. Melissanidis for $100MM at $8.81 per share. Aegean Marine's use of cash for this transaction caused the company to violate its borrowing base certificate only a few months later, and the subsequent liquidity crunch was cured by a dilutive convertible bond offering which drove the share price down 16%. Within nine months of the transaction the share price had declined by 48%, and today it sits 54% lower.

Finally, per the most recent proxy voting guidelines on director accountability provided by Institutional Shareholder Services ("ISS"), Aegean Marine's governance structure includes seven out of the eight listed "problematic provisions" that inform voting recommendations.

The Company's governance structure and Board composition are artifacts of its origins, when its founder exerted control and influence due to his majority economic stake. While even maintaining that status quo would have been entirely inappropriate given the Company's present ownership, in fact shareholder representation on the Board has degraded and inherent conflicts of interest have grown.

Change is needed now

We have already identified and proposed the addition of highly qualified Board candidates with expertise spanning global physical bunkering markets, strategic management, fuel distribution operations, financing and capital markets. Not only will these candidates restore accountability at the Company, their skillsets are particularly well-suited to the challenges and opportunities the Company faces. This includes improving the financing structure and reducing costs of capital, rationalizing the fixed asset base, instilling capital discipline, and effectively positioning for the significant industry changes prompted by IMO 2020 regulations expected to take effect only two years from now.

The financing structure and financial management of Aegean Marine desperately require change. The Company's inefficiency in accessing its cheapest sources of funds, the borrowing base facilities, has led to a reliance on sources of capital that are much higher cost and are now effectively inaccessible. Harmonizing commercial and financing decisions will enable qualifying borrowing base collateral at closer to stated advance rates of 80-95 cents on the dollar compared to the 50-55 currently achieved. This could generate potentially hundreds of millions of dollars of low cost liquidity that can be used to retire high cost convertible bonds and shares, or to expand volumes and successfully manage the higher fuel prices expected with IMO 2020.

The Company's capital expenditure projects have destroyed an immense amount of shareholder value. For example, had Aegean Marine simply not constructed the Fujairah terminal, we believe the share price would be well more than double its present level based on the current enterprise value and cash flow valuation multiples. Not only does capital discipline need to be instilled to avoid such calamities, but the current sprawling fixed asset base should be opportunistically rationalized. Creating an internal entity to manage the Company's logistics assets and charge market rates within the organization will inform "own vs. lease" decisions. Members of management have even described ports in which the cost of operating the Company's owned vessels is millions of dollars higher than that of chartering third party barges. In the context of the Company's $570MM of fixed assets and exceedingly high cost of capital, the opportunity for accretive asset sales is significant.

Finally, we expect IMO 2020 will dramatically increase the complexity of the marine fuel logistics industry and provide opportunities to leverage Aegean Marine's extensive network into improved financial returns. Accordingly, repositioning the asset base ahead of this change is of critical importance. As you know, one of our recommended director candidates is arguably more qualified than anyone in the world to guide these efforts.

The Committee's Schedule 13D filing and notice to nominate four director candidates for election to the Board at the 2018 Annual Meeting will be forthcoming, in accordance with applicable securities laws and the Company's Bylaws. As always, we remain willing to discuss these issues with you at any time. Rest assured, however, we will take whatever actions we may deem necessary to ensure that the best interests of all shareholders remain paramount.

Sincerely,

The Committee for Aegean Accountability






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