UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
_________________
FORM
20-F
_________________
(Mark
One)
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
OR
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended
December 31,
2007
Commission file number
[
]
|
|
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
|
to
|
|
o
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date
of event requiring this shell company
report
|
For
the transition period from
|
to
|
|
Commission
file number _________________________________
- -
EUROSEAS
LTD.
|
(Exact
name of Registrant as specified in its charter)
|
|
|
Euroseas
Ltd.
|
(Translation
of Registrant’s name into English)
|
|
|
Marshall
Islands
|
(Jurisdiction
of incorporation or organization)
|
|
|
Aethrion
Center, 40 Ag. Konstantinou Street, 151 24 Maroussi
Greece
|
(Address
of principal executive offices)
|
|
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
|
|
Title of each class
|
|
Name of each exchange on which
registered
|
Common
shares, $0.03 par value
|
|
NASDAQ
Global Select Market
|
|
|
|
|
Securities
registered or to be 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:
|
|
|
Common
shares, $0.03 par value
|
(Title
of Class)
|
|
|
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:
|
|
30,261,113
|
|
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined by Rule 405 of the Securities Act.
|
|
|
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.
|
o
Yes
x
No
|
|
Note
– Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.
|
|
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.
|
x
Yes
o
No
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check One)
|
|
|
Large
accelerated filer
|
Accelerated
filer
|
Non-accelerated
filer
|
o
|
x
|
o
|
|
Indicate
by check mark which financial statement item the registrant has elected to
follow.
|
o
Item
17
x
Item
18
|
|
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).
|
o
Yes
x
No
|
|
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
|
|
Indicate
by check mark whether the registrant has filed all documents and reports
to be filed by Sections 12, 13 or 15(d) of the Securities Act of 1934
subsequent to the distribution of securities under a plan confirmed by a
court
|
o
Yes
o
No
|
|
TABLE OF
CONTENTS
Page
Part
I
|
Item
1.
|
Identity
of Directors, Senior Management and Advisers
|
2
|
|
Item
2.
|
Offer
Statistics and Expected Timetable
|
2
|
|
Item
3.
|
Key
Information
|
2
|
|
Item
4.
|
Information
on the Company
|
23
|
|
Item
4A.
|
Unresolved
Staff Comments
|
35
|
|
Item
5.
|
Operating
and Financial Review and Prospects
|
35
|
|
Item
6.
|
Directors,
Senior Management and Employees
|
46
|
|
Item
7.
|
Major
Shareholders and Related Party Transactions
|
52
|
|
Item
8.
|
Financial
information
|
55
|
|
Item
9.
|
The
Offer and Listing
|
56
|
|
Item
10.
|
Additional
Information
|
57
|
|
Item
11.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
64
|
|
Item
12.
|
Description
of Securities Other than Equity Securities
|
65
|
Part
II
|
Item
13.
|
Defaults,
Dividend Arrearages and Delinquencies
|
66
|
|
Item
14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
66
|
|
Item
15.
|
Controls
and Procedures
|
66
|
|
Item
16A
|
Audit
Committee Financial Expert
|
68
|
|
Item
16B
|
Code
of Ethics
|
68
|
|
Item
16C
|
Principal
Accountant Fees and Services
|
68
|
|
Item
16D
|
Excemptions
from the Listing Standards for Audit Committees
|
69
|
|
Item
16E
|
Purchase
of Equity Securities by the Issuer and Affiliated
Purchasers
|
69
|
Part
III
|
Item
17.
|
Financial
Statements
|
70
|
|
Item
18.
|
Financial
Statements
|
70
|
FORWARD-LOOKING
STATEMENTS
Euroseas
Ltd., or the Company, desires to take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and is including this
cautionary statement in connection with this safe harbor
legislation. This annual report contains forward-looking
statements. These forward-looking statements include information
about possible or assumed future results of our operations or our performance.
Words such as “expects,” “intends,” “plans,” “believes,” “anticipates,”
“estimates,” and variations of such words and similar expressions are intended
to identify the forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove to have been correct.
These statements involve known and unknown risks and are based upon a number of
assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control. Actual
results may differ materially from those expressed or implied by such
forward-looking statements. Forward-looking statements include, but are not
limited to, statements regarding:
|
·
|
our
future operating or financial
results;
|
|
·
|
future,
pending or recent acquisitions, business strategy, areas of possible
expansion, and expected capital spending or operating
expenses;
|
|
·
|
drybulk
and container shipping industry trends, including charter rates and
factors affecting vessel supply and
demand;
|
|
·
|
our
financial condition and liquidity, including our ability to obtain
additional financing in the future to fund capital expenditures,
acquisitions and other general corporate
activities;
|
|
·
|
availability
of crew, number of off-hire days, drydocking requirements and insurance
costs;
|
|
·
|
our
expectations about the availability of vessels to purchase or the useful
lives of our vessels;
|
|
·
|
our
expectations relating to dividend payments and our ability to make such
payments;
|
|
·
|
our
ability to leverage to our advantage our manager’s relationships and
reputations in the drybulk and container shipping
industry;
|
|
·
|
changes
in seaborne and other transportation
patterns;
|
|
·
|
changes
in governmental rules and regulations or actions taken by regulatory
authorities;
|
|
·
|
potential
liability from future litigation;
|
|
·
|
global
and regional political conditions;
|
|
·
|
acts
of terrorism and other hostilities;
and
|
|
·
|
other
factors discussed in the section titled “Risk
Factors.”
|
WE UNDERTAKE NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
ANNUAL REPORT, OR THE DOCUMENTS TO WHICH WE REFER YOU IN THIS ANNUAL REPORT, TO
REFLECT ANY CHANGE IN OUR EXPECTATIONS WITH RESPECT TO SUCH STATEMENTS OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY STATEMENT IS
BASED.
PART
I
Item 1.
|
Identity
of Directors, Senior Management and Advisers
|
Not
Applicable.
Item 2.
|
Offer
Statistics and Expected Timetable
|
Not
Applicable.
A.
|
Selected
Financial Data
|
SELECTED
CONSOLIDATED FINANCIAL DATA
The
following information shows selected historical financial data for Euroseas. We
derived this information from our audited financial statements for the years
ended December 31, 2005, 2006 and 2007 included in this annual report. The
information is only a summary and should be read in conjunction with our
historical financial statements and related notes, and our Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere herein. The historical financial and other data presented
for the years ended December 31, 2003, and 2004 and as of December 31, 2005 have
been derived from audited financial statements not included in this Annual
Report and are provided for comparison purposes. The historical results included
below and elsewhere in this annual report are not indicative of our future
performance.
See next
page for table of Euroseas Ltd. – Summary of Selected Historical
Financials.
|
|
Euroseas
Ltd. - Summary of Selected Historical Financials
|
|
|
|
Year
Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(All
amounts in U.S. dollars, except for share data)
|
|
Income
Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
25,951,023
|
|
|
|
45,718,006
|
|
|
|
44,523,401
|
|
|
|
42,143,361
|
|
|
|
86,104,365
|
|
Commissions
|
|
|
(906,017
|
)
|
|
|
(2,215,197
|
)
|
|
|
(2,388,349
|
)
|
|
|
(1,829,534
|
)
|
|
|
(4,024,032
|
)
|
Net
revenue
|
|
|
25,045,006
|
|
|
|
43,502,809
|
|
|
|
42,135,052
|
|
|
|
40,313,827
|
|
|
|
82,080,333
|
|
Voyage
expenses
|
|
|
(436,935
|
)
|
|
|
(370,345
|
)
|
|
|
(670,551
|
)
|
|
|
(1,154,738
|
)
|
|
|
(897,463
|
)
|
Vessel
operating expenses
|
|
|
(8,775,730
|
)
|
|
|
(8,906,252
|
)
|
|
|
(8,610,279
|
)
|
|
|
(10,368,817
|
)
|
|
|
(17,240,132
|
)
|
Amortization
drydocking and special survey expense and vessel
depreciation (1)
|
|
|
(4,757,933
|
)
|
|
|
(3,461,678
|
)
|
|
|
(4,208,252
|
)
|
|
|
(7,292,838
|
)
|
|
|
(17,963,072
|
)
|
Management
fees
|
|
|
(1,722,800
|
)
|
|
|
(1,972,252
|
)
|
|
|
(1,911,856
|
)
|
|
|
(2,266,589
|
)
|
|
|
(3,669,137
|
)
|
Other
general and administration expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
(420,755
|
)
|
|
|
(1,076,884
|
)
|
|
|
(2,656,176
|
)
|
Net
gain on sale of vessels
|
|
|
-
|
|
|
|
2,315,477
|
|
|
|
-
|
|
|
|
4,445,856
|
|
|
|
3,411,397
|
|
Operating
income
|
|
|
9,351,608
|
|
|
|
31,107,759
|
|
|
|
26,313,359
|
|
|
|
22,599,817
|
|
|
|
43,065,750
|
|
Interest
and other financing costs
|
|
|
(793,257
|
)
|
|
|
(708,284
|
)
|
|
|
(1,495,871
|
)
|
|
|
(3,398,858
|
)
|
|
|
(4,850,239
|
)
|
Interest
income
|
|
|
36,384
|
|
|
|
187,069
|
|
|
|
460,457
|
|
|
|
870,046
|
|
|
|
2,357,633
|
|
Net
income
|
|
|
8,426,612
|
|
|
|
30,611,765
|
|
|
|
25,178,454
|
|
|
|
20,069,407
|
|
|
|
40,664,064
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
9,409,339
|
|
|
|
16,461,159
|
|
|
|
25,350,707
|
|
|
|
9,975,596
|
|
|
|
118,307,463
|
|
Vessels,
net
|
|
|
41,096,067
|
|
|
|
34,171,164
|
|
|
|
52,334,897
|
|
|
|
95,494,342
|
|
|
|
238,248,984
|
|
Deferred
assets and other long term assets
|
|
|
952,613
|
|
|
|
2,205,178
|
|
|
|
1,855,829
|
|
|
|
12,035,321
|
|
|
|
14,634,384
|
|
Total
assets
|
|
|
51,458,019
|
|
|
|
52,837,501
|
|
|
|
79,541,433
|
|
|
|
117,505,259
|
|
|
|
371,190,831
|
|
Current
liabilities including current portion of long term debt
|
|
|
8,481,773
|
|
|
|
13,764,846
|
|
|
|
18,414,877
|
|
|
|
21,665,399
|
|
|
|
35,182,511
|
|
Long
term debt, including current portion
|
|
|
20,595,000
|
|
|
|
13,990,000
|
|
|
|
48,560,000
|
|
|
|
74,950,000
|
|
|
|
81,590,000
|
|
Total
liabilities
|
|
|
23,971,773
|
|
|
|
21,724,846
|
|
|
|
52,544,877
|
|
|
|
79,493,599
|
|
|
|
99,400,483
|
|
Common
shares outstanding (adjusted for the 1-for-3 split)
|
|
|
9,918,056
|
|
|
|
9,918,056
|
|
|
|
12,260,387
|
|
|
|
12,620,150
|
|
|
|
30,261,113
|
|
Share
capital
|
|
|
297,542
|
|
|
|
297,542
|
|
|
|
367,812
|
|
|
|
378,605
|
|
|
|
907,834
|
|
Total
shareholders' equity
|
|
|
27,486,246
|
|
|
|
31,112,655
|
|
|
|
26,996,556
|
|
|
|
38,011,660
|
|
|
|
271,790,348
|
|
Other
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
10,956,132
|
|
|
|
34,208,693
|
|
|
|
20,594,782
|
|
|
|
20,968,824
|
|
|
|
48,958,771
|
|
Net
cash provided by (used in) investing activities
|
|
|
214,832
|
|
|
|
6,756,242
|
|
|
|
(21,833,616
|
)
|
|
|
(55,367,015
|
)
|
|
|
(146,671,991
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(4,778,000
|
)
|
|
|
(33,567,500
|
)
|
|
|
6,188,653
|
|
|
|
16,741,997
|
|
|
|
199,057,433
|
|
Earnings
per share, basic
|
|
|
0.85
|
|
|
|
3.09
|
|
|
|
2.34
|
|
|
|
1.60
|
|
|
|
1.89
|
|
Earnings
per share, diluted
|
|
|
0.85
|
|
|
|
3.09
|
|
|
|
2.34
|
|
|
|
1.60
|
|
|
|
1.88
|
|
Dividends
declared
|
|
|
1,276,000
|
|
|
|
25,435,501
|
|
|
|
30,175,223
|
(2)
|
|
|
9,465,082
|
|
|
|
20,278,538
|
|
Cash
paid for common dividend / return of capital
|
|
|
1,200,000
|
|
|
|
26,962,500
|
|
|
|
46,875,223
|
(2)
|
|
|
9,465,082
|
|
|
|
20,278,538
|
|
Cash
dividends / return of capital, declared per common share
|
|
|
0.12
|
|
|
|
2.72
|
|
|
|
4.67
|
(2)
|
|
|
0.75
|
|
|
|
1.00
|
|
Weighted
average number of shares outstanding during period, basic
|
|
|
9,918,056
|
|
|
|
9,918,056
|
|
|
|
10,739,476
|
|
|
|
12,535,365
|
|
|
|
21,566,619
|
|
Weighted
average number of shares outstanding during period,
diluted
|
|
|
9,918,056
|
|
|
|
9,918,056
|
|
|
|
10,739,476
|
|
|
|
12,535,365
|
|
|
|
21,644,920
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Other
Fleet Data (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of vessels
|
|
|
8.00
|
|
|
|
7.31
|
|
|
|
7.10
|
|
|
|
8.09
|
|
|
|
11.48
|
|
Calendar
days
|
|
|
2,920
|
|
|
|
2,677
|
|
|
|
2,591
|
|
|
|
2,942
|
|
|
|
4,190
|
|
Available
days
|
|
|
2,867
|
|
|
|
2,554
|
|
|
|
2,546
|
|
|
|
2,895
|
|
|
|
3,980
|
|
Voyage
days
|
|
|
2,846
|
|
|
|
2,542
|
|
|
|
2,508
|
|
|
|
2,864
|
|
|
|
3,969
|
|
Utilization
Rate (percent)
|
|
|
99.3
|
%
|
|
|
99.5
|
%
|
|
|
98.5
|
%
|
|
|
98.9
|
%
|
|
|
99.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
U.S. dollars per day per vessel)
|
|
Average
TCE rate (4)
|
|
|
8,965
|
|
|
|
17,839
|
|
|
|
17,485
|
|
|
|
14,312
|
|
|
|
21,468
|
|
Vessel
Operating Expenses
|
|
|
3,005
|
|
|
|
3,327
|
|
|
|
3,323
|
|
|
|
3,524
|
|
|
|
4,115
|
|
Management
Fees
|
|
|
590
|
|
|
|
737
|
|
|
|
738
|
|
|
|
770
|
|
|
|
875
|
|
G&A
Expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
162
|
|
|
|
366
|
|
|
|
634
|
|
Total
Operating Expenses
|
|
|
3,595
|
|
|
|
4,064
|
|
|
|
4,223
|
|
|
|
4,660
|
|
|
|
5,624
|
|
(1) In
2004, the estimated scrap value of the vessels was increased from $170 to $300
per light ton to better reflect market price developments in the scrap metal
market. The effect of this change in estimate was to reduce 2004 depreciation
expense by $1,400,010 and increase 2004 net income by the same amount. In
addition, in 2004, the estimated useful life of the vessel m/v
Ariel
was extended from 28
years to 30 years since the vessel performed drydocking and it was not expected
to be sold until year - 2007 (m/v
Ariel
was sold in February
2007. The m/v
Widar
was sold in April 2004.
Depreciation expenses for m/v
Widar
for the year ended
December 31, 2004 amounted to $136,384 compared to $409,149 in
2003.
(2) This
amount reflects a dividend in the amount of $30,175,223 ($2.99 per share) and a
return of capital in the amount of $16,700,000 ($1.68 per share). The total
payment to shareholders made in 2005 is in excess of previously retained
earnings because the Company decided to distribute to its original shareholders
in advance of going public most of the profits relating to the Company’s
operations up to that time and to recapitalize the Company. This one-time
dividend cannot be considered indicative of future dividend payments and the
Company refers you to the other sections in this annual report for a clearer
understanding of the Company’s dividend policy.
(3) For
the definition of calendar days, available days, voyage days and utilization
rate see Item 5A-Operating Results.
(4) Time
charter equivalent rate, or, “TCE rate”, is determined by dividing voyage
revenues less voyage expenses or time charter equivalent revenue or “TCE
revenues” by the number of voyage days during the relevant time period. TCE
revenues, a non-GAAP measure, provides additional meaningful information in
conjunction with shipping revenues, the most directly comparable GAAP measure,
because it assists Company management in making decisions regarding the
deployment and use of its vessels and in evaluating their financial performance.
TCE revenues and TCE rate is also a standard shipping industry performance
measure used primarily to compare period-to-period changes in a shipping
company’s performance despite changes in the mix of charter types (i.e., spot
charters, time charters and bareboat charters) under which the vessels may be
employed between the periods. (see also Item 5A-Operating
Results).
Reconciliation
of TCE revenues as reflected in the consolidated statement of income and
calculation of TCE rate follow:
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
(In
U.S. dollars except TCE rates, expressed in U.S. dollars per day and
voyage days)
|
|
Voyage
revenues
|
|
|
25,951,023
|
|
|
|
45,718,006
|
|
|
|
44,523,401
|
|
|
|
42,143,361
|
|
|
|
86,104,365
|
|
Voyage
expenses
|
|
|
(436,935
|
)
|
|
|
(370,345
|
)
|
|
|
(670,551
|
)
|
|
|
(1,154,738
|
)
|
|
|
(897,463
|
)
|
Time
Charter Equivalent Revenues
|
|
|
25,514,088
|
|
|
|
45,347,661
|
|
|
|
43,852,850
|
|
|
|
40,988,623
|
|
|
|
85,206,902
|
|
Voyage
days
|
|
|
2,846
|
|
|
|
2,542
|
|
|
|
2,508
|
|
|
|
2,864
|
|
|
|
3,969
|
|
Average
Time Charter Equivalent (“TCE”) rate
|
|
|
8,965
|
|
|
|
17,839
|
|
|
|
17,485
|
|
|
|
14,312
|
|
|
|
21,468
|
|
|
Capitalization
and Indebtedness
|
Not
Applicable.
C.
|
Reasons
for the Offer and Use of Proceeds
|
Not
Applicable.
Any
investment in our stock involves a high degree of risk. You should consider
carefully the following factors, as well as the other information set forth in
this annual report, before making an investment in our common stock. Some of the
following risks relate principally to the industry in which we operate and our
business in general. Other risks relate to the securities market for and
ownership of our common stock. Any of the described risks could significantly
and negatively affect our business, financial condition, operating results and
common stock price. The following risk factors describe the material risks that
are presently known to us.
Industry
Risk Factors
We are an
independent shipping company that operates in the drybulk and container shipping
industry. Our profitability is dependent upon the freight rates we are able to
charge. The supply of and demand for shipping capacity strongly influences
freight rates. The demand for shipping capacity is determined primarily by the
demand for the type of commodities carried and the distance that those
commodities must be moved by sea. The demand for commodities is affected by,
among other things, world and regional economic and political conditions
(including developments in international trade, fluctuations in industrial and
agricultural production and armed conflicts), environmental concerns, weather
patterns, and changes in seaborne and other transportation costs. The size of
the existing fleet in a particular market, the number of new vessel deliveries,
the scrapping of older vessels and the number of vessels out of active service
(i.e., laid-up, drydocked, awaiting repairs or otherwise not available for
hire), determines the supply of shipping capacity, which is measured by the
amount of suitable tonnage available to carry cargo. The cyclical nature of the
shipping industry may lead to volatile changes in freight rates which may reduce
our revenues and net income.
In
addition to the prevailing and anticipated freight rates, factors that affect
the rate of newbuilding, scrapping and laying-up include newbuilding prices,
secondhand vessel values in relation to scrap prices, costs of bunkers and other
operating costs, costs associated with classification society surveys, normal
maintenance and insurance coverage, the efficiency and age profile of the
existing fleet in the market and government and industry regulation of maritime
transportation practices, particularly environmental protection laws and
regulations. These factors influencing the supply of and demand for shipping
capacity are outside of our control, and we may not be able to correctly assess
the nature, timing and degree of changes in industry conditions. Some of these
factors may have a negative impact on our revenues and net income.
The
value of our vessels may fluctuate, adversely affecting our earnings, liquidity
and causing us to breach our secured credit agreements.
The
market value of our vessels can fluctuate significantly. The market value of our
vessels may increase or decrease depending on the following
factors:
|
·
|
general
economic and market conditions affecting the shipping
industry;
|
|
·
|
supply
of drybulk, container and multipurpose
vessels;
|
|
·
|
demand
for drybulk, container and multipurpose
vessels;
|
|
·
|
types
and sizes of vessels;
|
|
·
|
other
modes of transportation;
|
|
·
|
new
regulatory requirements from governments or self-regulated organizations;
and
|
|
·
|
prevailing
level of charter rates.
|
As
vessels grow older, they generally decline in value. Due to the cyclical nature
of the drybulk and container shipping industry, if for any reason we sell
vessels at a time when prices have fallen, we could incur a loss and our
business, results of operations, cash flow, financial condition and ability to
pay dividends could be adversely affected.
In
addition, we periodically re-evaluate the carrying amount and period over which
long-lived assets are depreciated to determine if events have occurred which
would require modification to their carrying values or their useful lives. A
determination that a vessel’s estimated remaining useful life or fair value has
declined below its carrying amount could result in an impairment charge against
our earnings and a reduction in our shareholders’ equity. Any change in the
assessed market value of any of our vessels might also cause a violation of the
covenants of each secured credit agreement which in turn might restrict our cash
and affect our liquidity. All of our credit agreements provide for a minimum
security maintenance ratio. If the assessed market value of our vessels declines
below certain thresholds, we will be deemed to have violated these covenants and
may incur penalties for breach of our credit agreements. For example, these
penalties could require us to prepay the shortfall between the assessed market
value of our vessels and the value of such vessels required to be maintained
pursuant to the secured credit agreement, or to provide additional security
acceptable to the lenders in an amount at least equal to the amount of any
shortfall. Further, we may agree on future loans to may include various other
covenants, in addition to the vessel-related ones, that may ultimately depend on
the assessed values of our
vessels
. Such covenants could
include, but are not limited to, maximum fleet leverage covenants and minimum
fair net worth covenants.
Our future
profitability will be dependent on the level of charter rates in the
international drybulk and container shipping
industry.
Charter
rates for the international drybulk and container shipping industry reached
record highs during 2004 and 2005; however, by the beginning of 2006 rates
declined. Drybulk rates recovered since early 2006 and reached new historic
highs in the fall of 2007. Although, drybulk rates have since
declined they remain high by historical standards. At the same time,
containership rates, after reaching historic highs in the middle of 2005,
declined by the end of the year and remained flat for most of 2006, further
declined by the end of 2006 and steadily recovered during 2007. Containership
rates remained at about the same level since the end of 2007 and are still below
the high levels achieved in the middle of 2005.
Rates
in drybulk or
containership
markets are influenced by the balance of demand for and supply of vessels and
may decline in the future.
Because
the factors affecting the supply and demand for vessels are outside of our
control and are unpredictable, the nature, timing, direction and degree of
changes in industry conditions are unpredictable. In addition, we may
not be able to successfully charter our vessels in the future or renew existing
charters at rates sufficient to allow us to meet our obligations or to pay
dividends to our shareholders.
Some of
the factors that influence demand for vessel capacity include:
|
·
|
supply
and demand for drybulk and containership commodities, and separately for
containerized cargo;
|
|
·
|
global
and regional economic and political
conditions;
|
|
·
|
the
distance drybulk and containerized commodities are to be moved by
sea;
|
|
·
|
environmental
and other regulatory developments;
|
|
·
|
currency
exchange rates;
|
|
·
|
changes
in global production and manufacturing distribution patterns of finished
goods that utilize drybulk and other containerized commodities;
and
|
|
·
|
changes
in seaborne and other transportation
patterns.
|
|
·
|
Some
of the factors that influence the supply of vessel capacity
include:
|
|
·
|
the
number of newbuilding deliveries;
|
|
·
|
the
scrapping rate of older vessels;
|
|
·
|
the
price of steel and other materials;
|
|
·
|
changes
in environmental and other regulations that may limit the useful life of
vessels; and
|
|
·
|
the
number of vessels that are out of
service.
|
We
anticipate that the future demand for our drybulk, container and multipurpose
vessels and the charter rates of the corresponding markets will be dependent
upon continued economic growth in China, India and the overall world economy,
seasonal and regional changes in demand, and changes to the capacity of the
world fleet. The capacity of the world fleet seems likely to increase and
economic growth may not continue. Adverse economic, political, social or other
developments could also have a material adverse effect on our business and
results of operations. If the number of new ships delivered exceeds the number
of vessels being scrapped and lost, vessel capacity will increase. For instance,
given that as of April 1, 2008 the capacity of the fully cellular worldwide
container vessel fleet was approximately 11.1 million teu, with approximately
6.4 million teu of additional capacity on order, the growing supply of container
vessels may exceed future demand, particularly in the short term. If the supply
of vessel capacity increases but the demand for vessel capacity does not
increase correspondingly, charter rates and vessel values could materially
decline.
An
economic slowdown in the Asia Pacific region could materially reduce the amount
and/or profitability of our business.
A
significant number of the port calls made by our vessels involve the loading or
discharging of raw materials and semi-finished products in ports in the Asia
Pacific region. As a result, a negative change in economic conditions in any
Asia Pacific country, particularly in China, may have an adverse effect on our
business, financial position and results of operations, as well as our future
prospects. In particular, in recent years, China has been one of the world’s
fastest growing economies in terms of gross domestic product. Such growth may
not be sustained and the Chinese economy may experience contraction in the
future. Moreover, any slowdown in the economies of the United States of America,
the European Union or certain Asian countries may adversely effect economic
growth in China and elsewhere. Our business, financial position and results of
operations, as well as our future prospects, will likely be materially and
adversely affected by an economic downturn in any of these
countries.
Changes
in the economic and political environment in China and policies adopted by the
government to regulate its economy may have a material adverse effect on our
business, financial condition and results of operations.
The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in such respects
as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments
position. Prior to 1978, the Chinese economy was a planned economy. Since 1978,
increasing emphasis has been placed on the utilization of market forces in the
development of the Chinese economy. Annual and five year State Plans are adopted
by the Chinese government in connection with the development of the economy.
Although state-owned enterprises still account for a substantial portion of the
Chinese industrial output, in general, the Chinese government is reducing the
level of direct control that it exercises over the economy through State Plans
and other measures. There is an increasing level of freedom and autonomy in
areas such as allocation of resources, production, pricing and management and a
gradual shift in emphasis to a “market economy” and enterprise reform. Limited
price reforms were undertaken, with the result that prices for certain
commodities are principally determined by market forces. Many of the reforms are
unprecedented or experimental and may be subject to revision, change or
abolition based upon the outcome of such experiments. The Chinese government may
not continue to pursue a policy of economic reform. The level of imports to and
exports from China could be adversely affected by the nature of the economic
reforms pursued by the Chinese government, as well as by changes in political,
economic and social conditions or other relevant policies of the Chinese
government, such as changes in laws, regulations or export and import
restrictions, all of which could, adversely affect our business, operating
results and financial condition.
We
may become dependent on spot charters in the volatile shipping markets, which
may result in decreased revenues and/or profitability.
Although
most of our vessels are currently under time charters, in the future, we may
have more of these vessels and/or any newly acquired vessels on spot charters.
The spot market is highly competitive and rates within this market are subject
to volatile fluctuations, while time charters provide income at pre-determined
rates over more extended periods of time. If we decide to spot charter our
vessels, we may not be able to keep all our vessels fully employed in these
short-term markets or that future spot rates will be sufficient to enable our
vessels to be operated profitably. A significant decrease in charter rates could
affect the value of our fleet and could adversely affect our profitability and
cash flows with the result that our ability to pay debt service to our lenders
and dividends to our shareholders could be impaired.
An
over-supply of drybulk carrier and containership capacity may lead to reductions
in charter hire rates and profitability.
The
market supply of drybulk carriers and especially containerships has been
increasing, and the number of
both the
drybulk vessels and containerships on order have recently reached historic
highs. The containership newbuildings are expected to continue being delivered
in significant numbers over the next several years. The drybulk vessel
newbuildings are expected to continue being delivered in 2008 at the same rates
as in 2006 and 2007, but it is anticipated that in 2009, and particularly in
2010, that their delivery rate will start increasing. An over-supply of drybulk
carrier and containership capacity may result in a reduction of charter hire
rates. If such a reduction occurs upon the expiration or termination of our
drybulk carriers’ and containerships’ current charters, such as during 2008 or
2009, when the charters under which at least nine of our containerships are
currently deployed expire, we may only be able to recharter those drybulk
carriers and containerships at reduced or unprofitable rates or we may not be
able to charter these vessels at all.
We
are subject to regulation and liability under environmental laws that could
require significant expenditures and affect our cash flows and net
income.
Our
business and the operation of our vessels are materially affected by 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.
The
operation of our vessels is affected by the requirements set forth in the
International Maritime Organization’s (“IMO’s”) International Management Code
for the Safe Operation of Ships and Pollution Prevention (“ISM Code”). The ISM
Code requires shipowners and bareboat charterers to develop and maintain an
extensive “Safety Management System” 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
failure of a shipowner or bareboat charterer to comply with the ISM Code may
subject such party to increased liability, may decrease available insurance
coverage for the affected vessels, and/or may result in a denial of access to,
or detention in, certain ports. Currently, each of our vessels and Eurobulk
Ltd., or Eurobulk, our affiliated ship management company, are ISM
Code-certified, but we may not be able to maintain such certification
indefinitely.
Although
the United States of America is not a party, many countries have ratified and
follow the liability scheme adopted by the IMO and set out in the International
Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (the
“CLC”), and the Convention for the Establishment of an International Fund for
Oil Pollution of 1971, as amended and the Regulations for the Prevention of Air
Pollution from Ships to the International Convention for the Prevention of
Pollution from Ships (as modified in 1978 and 1997), including Annex VI thereto.
Under these conventions, a vessel’s registered owner is strictly liable for
pollution damage, including air pollution, caused on the territorial waters of a
contracting state by discharge of persistent oil, subject to certain complete
defenses. Many of the countries that have ratified the CLC have increased the
liability limits through a 1992 Protocol to the CLC. The right to limit
liability is also forfeited under the CLC where the spill is caused by the
owner’s actual fault or privity and, under the 1992 Protocol, where the spill is
caused by the owner’s intentional or reckless conduct. Vessels trading to
contracting states must provide evidence of insurance covering the limited
liability of the owner. In jurisdictions where the CLC has not been adopted,
various legislative schemes or common law govern, and liability is imposed
either on the basis of fault or in a manner similar to the CLC.
The
United States Oil Pollution Act of 1990 (“OPA”) established an extensive
regulatory and liability regime for the protection and clean-up of the
environment from oil spills. OPA affects all owners and operators whose vessels
trade in the United States of America or any of its territories and possessions
or whose vessels operate in waters of the United States of America, which
includes the territorial sea of the United States of America and its 200
nautical mile exclusive economic zone. OPA allows for potentially unlimited
liability without regard to fault of vessel owners, operators and bareboat
charterers for all containment and clean-up costs and other damages arising from
discharges or threatened discharges of oil from their vessels, including bunkers
(fuel), in the U.S. waters. OPA also expressly permits individual states to
impose their own liability regimes with regard to hazardous materials and oil
pollution materials occurring within their boundaries.
While we
do not carry oil as cargo, we do carry fuel oil (bunkers) in our drybulk
carriers. We currently maintain, for each of our vessels, pollution liability
coverage insurance of $1 billion per incident. If the damages from a
catastrophic spill exceeded our insurance coverage, that would have a material
adverse affect on our financial condition.
Capital
expenditures and other costs necessary to operate and maintain our vessels may
increase due to changes in governmental regulations, safety or other equipment
standards.
Changes
in governmental regulations, safety or other equipment standards, as well as
compliance with standards imposed by maritime self-regulatory organizations and
customer requirements or competition, may require us to make additional
expenditures. In order to satisfy these requirements, we may, from time to time,
be required to take our vessels out of service for extended periods of time,
with corresponding losses of revenues. In the future, market conditions may not
justify these expenditures or enable us to operate some or all of our vessels
profitably during the remainder of their economic lives.
Increased
inspection procedures and tighter import and export controls could increase
costs and disrupt our business.
International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination. Inspection procedures may
result in the seizure of contents of our vessels, delays in the loading,
offloading or delivery and the levying of customs duties, fines or 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 uneconomical or
impractical. Any such changes or developments may have a material adverse effect
on our business, financial condition and results of operations.
Rising
fuel prices may adversely affect our profits.
Fuel
(bunkers) is a significant, if not the largest, operating expense for many of
our shipping operations when our vessels are under voyage charter. When a vessel
is operating under a time charter, these costs are paid by the charterer.
However fuel costs are taken into account by the charterer in determining the
amount of time charter hire and therefore fuel costs also indirectly affect time
charters. The price and supply of fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments, supply and
demand for oil and gas, actions by OPEC and other oil and gas producers, war and
unrest in oil producing countries and regions, regional production patterns and
environmental concerns. Fuel prices have been at historically high levels
recently, but shipowners have not really felt the effect of these high prices
because the shipping markets have also been at high levels. Any increase in the
price of fuel may adversely affect our profitability especially if such increase
is combined with lower drybulk and containership rates.
If
our vessels fail to maintain their class certification and/or fail any annual
survey, intermediate survey, dry-docking or special survey, that vessel would be
unable to carry cargo, thereby reducing our revenues and profitability and
violating certain loan covenants of our third-party indebtedness.
The hull
and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and the Safety of
Life at Sea Convention (“SOLAS”). Our vessels are currently classed with Lloyd’s
Register of Shipping, Bureau Veritas and Nippon Kaiji Kyokai. ISM and
International Ship and Port Facilities Security (“ISPS”) certification have been
awarded by Bureau Veritas and the Panama Maritime Authority to our vessels and
Eurobulk.
A vessel
must undergo annual surveys, intermediate surveys, drydockings and special
surveys. In lieu of a special survey, a vessel’s machinery may be on a
continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. Every vessel is also required to be
drydocked every two to three years for inspection of the underwater parts of
such vessel.
If any
vessel does not maintain its class and/or fails any annual survey, intermediate
survey, drydocking or special survey, the vessel will be unable to carry cargo
between ports and will be unemployable and uninsurable which could cause us to
be in violation of certain covenants in our loan agreements. Any such inability
to carry cargo or be employed, or any such violation of covenants, could have a
material adverse impact on our financial condition and results of operations.
That status could cause us to be in violation of certain covenants in our loan
agreements.
Rising
crew costs may adversely affect our profits.
Crew
costs are a significant operating expense for many of our shipping operations.
Crewing costs have reached recent highs and may continue at such rates. The cost
of employing suitable crew is unpredictable and fluctuates based on events
outside our control, including supply and demand and the wages paid by other
shipping companies. Crew costs have been at high levels recently, but shipowners
have not really felt the effect of these high prices because the shipping
markets have also been at high levels. Any increase in crew costs may adversely
affect our profitability especially if such increase is combined with lower
drybulk and containership rates..
Maritime
claimants could arrest 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 that vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime
lienholder may enforce its lien by arresting a vessel through foreclosure
proceedings. The arresting or attachment of one or more of our vessels could
interrupt our cash flow and require us to pay large sums of funds to have the
arrest lifted which would have a material adverse effect on our financial
condition and results of operations.
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 try to assert “sister
ship” liability against one of our vessels for claims relating to another of our
vessels.
Governments
could requisition our vessels during a period of war or emergency, resulting in
loss of earnings.
A
government could requisition for title or seize our vessels. Requisition for
title occurs when a government takes control of a vessel and becomes the owner.
Also, a government could requisition our vessels for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes the
charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of one or more of our vessels
could have a material adverse effect on our financial condition and results of
operations.
World
events outside our control may negatively affect our ability to operate, thereby
reducing our revenues and net income or our ability to obtain additional
financing, thereby restricting the implementation of our business
strategy.
Terrorist
attacks such as the attacks on the United States of America on September 11,
2001, on London, England on July 7, 2005, and the response to these attacks, as
well as the threat of future terrorist attacks, continue to cause uncertainty in
the world financial markets and may affect our business, results of operations
and financial condition. The continuing conflict in Iraq 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 have a material adverse effect on our ability to obtain
additional financing on terms acceptable to us or at all. Terrorist attacks may
also negatively affect our operations and financial condition and directly
impact its vessels or its customers. Future terrorist attacks could result in
increased volatility of the financial markets in the United States of America
and globally and could result in an economic recession in the United States of
America or the world. Any of these occurrences could have a material adverse
impact on our financial condition and costs.
Company
Risk Factors
If
we do not use our cash on hand to acquire vessels and expand our fleet, we may
use it for general corporate purposes which may result in lower
earnings.
We intend
to use our cash on hand to acquire additional vessels and expand our fleet when
we believe market conditions are favorable for purchasing such vessels. Our
management will have the discretion to identify and acquire vessels. If our
management is unable to identify and acquire vessels on terms acceptable to us,
we may use our cash on hand for general corporate purposes. It may take a
substantial period of time before we can locate and purchase suitable vessels.
During this period, our cash on hand may be invested on a short-term basis and
therefore may not yield returns at rates comparable to what a vessel might have
earned.
We
depend entirely on Eurobulk to manage and charter our fleet, which may adversely
affect our operations if Eurobulk fails to perform its obligations.
We have
no employees and we currently contract the commercial and technical management
of our fleet, including crewing, maintenance and repair, to Eurobulk, our
affiliated ship management company. We may lose Eurobulk’s services or Eurobulk
may fail to perform its obligations to us which could have a material adverse
effect on our financial condition and results of our operations. Although we may
have rights against Eurobulk if it defaults on its obligations to us, you will
have no recourse against Eurobulk. Further, we expect that we will need to seek
approval from our lenders to change Eurobulk as our ship manager.
Because
Eurobulk is a privately held company, there is little or no publicly available
information about it and there may be very little advance warning of operational
or financial problems experienced by Eurobulk that may adversely affect
us.
The
ability of Eurobulk to continue providing services for our benefit will depend
in part on its own financial strength. Circumstances beyond our control could
impair Eurobulk’s financial strength, and because Eurobulk is privately held it
is unlikely that information about its financial strength would become public
unless Eurobulk began to default on its obligations. As a result, there may be
little advance warning of problems affecting Eurobulk, even though these
problems could have a material adverse effect on us.
As
of April 30, 2008, Friends Investment Company Inc. owns approximately 31.0% of
our outstanding shares of common stock, which may limit your ability to
influence our actions.
As of
April 30, 2008 Friends Investment Company Inc., or Friends, our largest
shareholder, owns approximately 31.0% of the outstanding shares of our common
stock. As a result of this share ownership and for so long as Friends owns a
significant percentage of our outstanding common stock, Friends will be able to
influence the outcome of any shareholder vote, including the election of
directors, the adoption or amendment of provisions in our articles of
incorporation or bylaws and possible mergers, corporate control contests and
other significant corporate transactions. This concentration of ownership may
have the effect of delaying, deferring or preventing a change in control,
merger, consolidation, takeover or other business combination involving us. This
concentration of ownership could also discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which
could in turn have an adverse effect on the market price of our common
stock.
Our
corporate governance practices are in compliance with, and are not prohibited
by, the laws of the Republic of the Marshall Islands, and as such we are
entitled to exemption from certain NASDAQ corporate governance standards. As a
result, you may not have the same protections afforded to stockholders of
companies that are subject to all of the NASDAQ corporate governance
requirements.
Our
Company’s corporate governance practices are in compliance with, and are not
prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we
are exempt from many of NASDAQ’s corporate governance practices other than the
requirements regarding the disclosure of a going concern audit opinion,
submission of a listing agreement, notification of material non-compliance with
NASDAQ corporate governance practices, and the
establishment
and composition of an audit committee and a formal written audit committee
charter. For a list of the practices followed by us in lieu of NASDAQ’s
corporate governance rules, we refer you to the section of this annual report
entitled “Board Practices—Corporate Governance” Under Item
6.
We
and our principal officers have affiliations with Eurobulk that could create
conflicts of interest detrimental to us.
Our
principal officers are also principals, officers and employees of Eurobulk,
which is our ship management company. These responsibilities and relationships
could create conflicts of interest between us and Eurobulk. Conflicts may also
arise in connection with the chartering, purchase, sale and operations of the
vessels in our fleet versus other vessels that are or may be managed in the
future by Eurobulk. Circumstances in any of these instances may make one
decision advantageous to us but detrimental to Eurobulk and vice versa. Eurobulk
is expected to manage at least one vessel other than those owned by Euroseas. In
the past, Eurobulk has managed other vessels where the Pittas family was a
minority shareholder but never any where there was no Pittas family
participation at all. However, it is possible that in the future Eurobulk may
manage additional vessels which will not belong to Euroseas and in which the
Pittas family may have controlling, little or even no power or participation and
where such conflicts may arise. Eurobulk may not be able to resolve all
conflicts of interest in a manner beneficial to us.
Companies
affiliated with Eurobulk or our officers and directors may acquire vessels that
compete with our fleet.
Companies
affiliated with Eurobulk or our officers and directors own drybulk carriers and
may acquire additional drybulk carriers, containerships or multipurpose vessels
in the future. These vessels could be in competition with our fleet and other
companies affiliated with Eurobulk might be faced with conflicts of interest
with respect to their own interests and their obligations to us. Eurobulk,
Friends and Aristides J. Pittas, our Chairman and Chief Executive Officer, have
granted us a right of first refusal to acquire any drybulk vessel or
containership which any of them may consider for acquisition in the future. In
addition, Mr. Pittas will use his best efforts to cause any entity with respect
to which he directly or indirectly controls to grant us this right of first
refusal. Were we, however, to decline any such opportunity offered to us or we
do not have the resources or desire to accept any such opportunity, Eurobulk,
Friends and Aristides J. Pittas, and any of their respective Affiliates, could
acquire such vessels.
Our
officers do not devote all of their time to our business.
Our
officers are involved in other business activities that may result in their
spending less time than is appropriate or necessary in order to manage our
business successfully. Our Chief Executive Officer, Chief Financial Officer,
Chief Administrative Officer, Internal Auditor and Secretary are not employed
directly by us, but rather their services are provided pursuant to our master
management agreement with Eurobulk. These officers may spend a material portion
of their time providing services to Eurobulk and its affiliates on matters
unrelated to us.
We
are a holding company, and we depend on the ability of our subsidiaries to
distribute funds to us in order to satisfy our financial obligations or 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. As a result, our ability to make dividend payments to you depends
on our subsidiaries and their ability to distribute funds to us. If we are
unable to obtain funds from our subsidiaries, we may be unable or our Board of
Directors may exercise its discretion not to pay dividends.
We
may not be able to pay dividends.
We
currently intend to pay minimum quarterly dividends of $0.30 per share for all
of 2008 to holders of our common stock, when, as and if declared by our Board of
Directors. However, we may not earn sufficient revenues or we may incur expenses
or liabilities that would reduce or eliminate the cash available for
distribution as dividends. Our loan agreements may also limit the amount of
dividends we can pay under some circumstances based on certain covenants
included in the loan agreements.
If in
addition, the declaration and payment of dividends will be subject at all times
to the discretion of our Board of Directors. The timing and amount of dividends
will depend on our earnings, financial condition, cash requirements and
availability, restrictions in our loan agreements, growth strategy, charter
rates in the drybulk and container shipping industry, the provisions of Marshall
Islands law affecting the payment of dividends and other factors. Marshall
Islands law 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), but if there is no surplus, dividends
may be declared out of the net profits (basically, the excess of our revenue
over our expenses) for the fiscal year in which the dividend is declared or the
preceding fiscal year. Marshall Islands law also prohibits the payment of
dividends while a company is insolvent or if it would be rendered insolvent upon
the payment of a dividend. As a result, we may not be able to pay
dividends.
If
we are unable to fund our capital expenditures, we may not be able to continue
to operate some of our vessels, which would have a material adverse effect on
our business and our ability to pay dividends.
In order
to fund our capital expenditures, we may be required to incur borrowings or
raise capital through the sale of debt or equity securities. Our ability to
access the capital markets through future offerings may be limited by our
financial condition at the time of any such offering as well as by adverse
market conditions resulting from, among other things, general economic
conditions and contingencies and uncertainties that are beyond our control. Our
failure to obtain the funds for necessary future capital expenditures would
limit our ability to continue to operate some of our vessels and could have a
material adverse effect on our business, results of operations and financial
condition and our ability to pay dividends. Even if we are successful in
obtaining such funds through financings, the terms of such financings could
further limit our ability to pay dividends.
If
we fail to manage our planned growth properly, we may not be able to
successfully expand our market share.
We intend
to continue to grow our fleet. Our growth will depend on:
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locating
and acquiring suitable vessels;
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identifying
and consummating acquisitions or joint
ventures;
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integrating
any acquired business successfully with our existing
operations;
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enhancing
our customer base;
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managing
our expansion; and
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obtaining
required financing on acceptable
terms.
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During
periods in which charter rates are high, vessel values generally are high as
well, and it may be difficult to consummate vessel acquisitions at favorable
prices. In addition, growing any business by acquisition presents numerous
risks, such as undisclosed liabilities and obligations and difficulty
experienced in (1) obtaining additional qualified personnel, (2) managing
relationships with customers and suppliers, and (3) integrating newly acquired
operations into existing infrastructures. We may not be successful in executing
our growth plans or that we will not incur significant expenses and losses in
connection with the execution of those growth plans.
A
decline in the market value of our vessels could lead to a default under our
loan agreements and the loss of our vessels.
We have
incurred secured debt under loan agreements for our vessels and currently expect
to incur additional secured debt in connection with our acquisition of other
vessels. If the market value of our fleet declines, we may not be in compliance
with certain provisions of our existing loan agreements and we may not be able
to refinance our debt or obtain additional financing. If we are unable to pledge
additional collateral, our lenders could accelerate our debt and foreclose on
our fleet.
Our
existing loan agreements contain restrictive covenants that may limit our
liquidity and corporate activities.
Our
existing loan agreements impose operating and financial restrictions on us.
These restrictions may limit our ability to:
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incur
additional indebtedness;
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create
liens on our assets;
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sell
capital stock of our subsidiaries;
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engage
in mergers or acquisitions;
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make
capital expenditures;
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change
the management of our vessels or terminate or materially amend the
management agreement relating to each vessel;
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Therefore,
we may need to seek permission from our lenders in order to engage in some
corporate actions. The lenders’ interests may be different from our interests,
and we may not be able to obtain the lenders’ permission when needed. This may
prevent us from taking actions that are in our best interest.
Servicing
future debt would limit funds available for other purposes.
To
finance our fleet, we have incurred secured debt under loan agreements for our
vessels. We also currently expect to incur additional secured debt to finance
the acquisition of additional vessels. We must dedicate a portion of our cash
flow from operations to pay the principal and interest on our debt. These
payments limit funds otherwise available for working capital expenditures and
other purposes. As of December 31, 2007, we had total bank debt of approximately
$81.6 million. As of March 31, 2008, we had repaid $5.9 million of our total
bank debt, leaving us with total bank debt of $75.7 million. Our debt repayment
schedule as of December 31, 2007 requires us to repay $38.0 million over the
next two years. If we were unable to service our debt, it could have a material
adverse effect on our financial condition and results of
operations.
A rise in
interest rates could cause an increase in our costs and have a material adverse
effect on our financial condition and results of operations. To finance vessel
purchases, we have borrowed, and may continue to borrow, under loan agreements
that provide for periodic interest rate adjustments based on indices that
fluctuate with changes in market interest rates. If interest rates increase
significantly, it would increase our costs of financing our acquisition of
vessels, which could have a material adverse effect on our financial condition
and results of operations. Any increase in debt service would also reduce the
funds available to us to purchase other vessels.
Our
ability to obtain additional debt financing may be dependent on the performance
of our then existing charters and the creditworthiness of our
charterers.
The
actual or perceived credit quality of our charterers, and any defaults by them,
may materially affect our ability to obtain the additional debt financing that
we will require to purchase additional vessels or may significantly increase our
costs of obtaining such financing. Our inability to obtain additional financing
at all or at a higher than
anticipated cost may materially
affect our results of operation and our ability to implement our business
strategy.
As
we expand our business, we may need to upgrade our operations and financial
systems, and add more staff and crew. If we cannot upgrade these systems or
recruit suitable employees, our performance may be adversely
affected.
Our
current operating and financial systems may not be adequate if we expand the
size of our fleet, and our attempts to improve those systems may be ineffective.
In addition, if we expand our fleet, we will have to rely on Eurobulk to recruit
suitable additional seafarers and shoreside administrative and management
personnel. Eurobulk may not be able to continue to hire suitable employees as we
expand our fleet. If Eurobulk’s unaffiliated crewing agent encounters business
or financial difficulties, we may not be able to adequately staff our vessels.
If we are unable to operate our financial and operations systems effectively or
to recruit suitable employees, our performance may be materially adversely
affected.
Because
we obtain some of our insurance through protection and indemnity associations,
we may also be subject to calls in amounts based not only on our own claim
records, but also the claim records of other members of the protection and
indemnity associations.
We may be
subject to calls in amounts based not only on our claim records but also the
claim records of other members of the protection and indemnity associations
through which we receive insurance coverage for tort liability, including
pollution-related liability. Our payment of these calls could result in
significant expense to us, which could have a material adverse effect on our
business, results of operations, cash flows, financial condition and ability to
pay dividends.
Labor
interruptions could disrupt our business.
Our
vessels are manned by masters, officers and crews that are employed by third
parties. If not resolved in a timely and cost-effective manner, industrial
action or other labor unrest could prevent or hinder our operations from being
carried out normally and could have a material adverse effect on our business,
results of operations, cash flows, financial condition and ability to pay
dividends.
In
the highly competitive international drybulk and container shipping industry, we
may not be able to compete for charters with new entrants or established
companies with greater resources.
We employ
our vessels in highly competitive markets that are capital intensive and highly
fragmented. Competition arises primarily from other vessel owners, some of whom
have substantially greater resources than us. Competition for the transportation
of drybulk and container cargoes can be intense and depends on price, location,
size, age, condition and the acceptability of the vessel and its managers to the
charterers. Due in part to the highly fragmented market, competitors with
greater resources could operate larger fleets through consolidations or
acquisitions that may be able to offer better prices and fleets.
We
will not be able to take advantage of favorable opportunities in the current
spot market with respect to vessels employed on time charters.
As of
April 30, 2008, 12 of the 15 vessels in our fleet are employed under time
charters with remaining terms ranging between four month and 47
months. The percentage of our fleet that is under time charter
contracts or short term spot contracts, or that is otherwise protected from
market fluctuations represents approximately 85% of our vessel capacity in 2008.
Although time charters provide relatively steady streams of revenue, vessels
committed to time charters may not be available for spot charters during periods
of increasing charter hire rates, when spot charters might be more profitable.
If we cannot re-charter these vessels on time charters or trade them in the spot
market profitably, our results of operations and operating cash flow may suffer.
We may not be able to secure charter hire rates in the future that will enable
us to operate our vessels profitably.
We
may be unable to attract and retain key management personnel and other employees
in the shipping industry, which may negatively affect the effectiveness of our
management and our results of operations.
Our
success depends to a significant extent upon the abilities and efforts of our
management team. Our success will depend upon our ability to hire additional
employees and to retain key members of our management team. The loss of any of
these individuals could adversely affect our business prospects and financial
condition. Difficulty in hiring and retaining personnel could adversely affect
our results of operations. We do not currently intend to maintain “key man” life
insurance on any of our officers.
Risks
involved with operating ocean-going vessels could affect our business and
reputation, which may reduce our revenues.
The
operation of an ocean-going vessel carries inherent risks. These risks include,
among others, the possibility of:
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environmental
accidents;
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grounding,
fire, explosions and collisions;
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cargo
and property losses or damage;
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business
interruptions caused by mechanical failure, human error, war, terrorism,
political action in various countries, labor strikes or adverse weather
conditions; and
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work
stoppages or other labor problems with crew members serving on our
vessels.
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Such
occurrences could result in death or injury to persons, loss 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. Any of these circumstances or events could
increase our costs or lower our revenues, which could result in reduction in the
market price of our shares of common stock. The involvement of our vessels in an
environmental disaster may harm our reputation as a safe and reliable vessel
owner and operator.
The
operation of drybulk carriers has certain unique operational risks.
The
operation of certain ship types, such as drybulk carriers, has certain unique
risks. With a drybulk carrier, the cargo itself and its interaction with the
ship can be a risk factor. By their nature, drybulk cargoes are often heavy,
dense, easily shifted, and react badly to water exposure. In addition, drybulk
carriers 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 may be more susceptible to breach to
the sea. Hull breaches in drybulk carriers may lead to the flooding of the
vessels holds. If a drybulk carrier suffers flooding in its forward holds, the
bulk cargo may become so dense and waterlogged that its pressure may buckle the
vessels bulkheads leading to the loss of a vessel. If we are unable to
adequately maintain our vessels we may be unable to prevent these events. Any of
these circumstances or events could negatively impact our business, financial
condition, results of operations and ability to pay dividends. In addition, the
loss of any of our vessels could harm our reputation as a safe and reliable
vessel owner and operator.
The
operation of containerships has certain unique operational risks.
The
operation of containerships has certain unique risks. Containerships operate at
high speeds in order to move cargoes around the world quickly and minimize
delivery delays. These high speeds can result in greater impact in
collisions
and groundings resulting in more damage to the vessel when compared to vessels
operating at lower speeds. In addition, due to the placement of the containers
on a containership, there is a greater risk that containers carried on deck will
be lost overboard if an accident does occur. Furthermore, with the highly varied
cargo that can be carried on a single containership, there can be additional
difficulties with any clean-up operation following an accident. Also, we may not
be able to correctly control the contents and condition of cargoes within the
containers which may give rise to events such as customer complaints, accidents
on-board the ships or problems with authorities due to carriage of illegal
cargoes. Any of these circumstances or events could negatively impact our
business, financial condition, results of operations and ability to pay
dividends. In addition, the loss of any of our vessels could harm our reputation
as a safe and reliable vessel owner and operator.
Our
vessels may suffer damage and it may face unexpected drydocking costs, which
could affect our cash flow and financial condition.
If our
vessels suffer damage, they may need to be repaired at a drydocking facility.
The costs of drydock repairs are unpredictable and may be substantial. We may
have to pay drydocking costs that our insurance does not cover. The loss of
earnings while these vessels are being repaired and reconditioned, as well as
the actual cost of these repairs, would decrease our earnings.
Purchasing
and operating previously owned, or secondhand, vessels may result in increased
operating costs and vessels off-hire, which could adversely affect our
earnings.
Although
we inspect the secondhand vessels prior to purchase, this inspection does not
provide us with the same knowledge about their condition and cost of any
required (or anticipated) repairs that it would have had if these vessels had
been built for and operated exclusively by us. Generally, we do not receive the
benefit of warranties on secondhand vessels.
In
general, the cost of maintaining a vessel in good operating condition increases
with the age of the vessel. As of April 30, 2008 the average age of our fleet
was approximately 18.5 years. As our fleet ages, we will incur increased costs.
Older vessels are typically less fuel efficient and more costly to maintain than
more recently constructed vessels. Cargo insurance rates also increase with the
age of a vessel, making older vessels less desirable to charterers. Governmental
regulations and safety or other equipment standards related to the age of a
vessel may also 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.
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 the 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. If we sell vessels, we are not certain that the price for which we
sell them will equal their carrying amount at that time.
We
may not have adequate insurance to compensate us adequately for damage to, or
loss of, our vessels.
We
procure hull and machinery insurance, protection and indemnity insurance, which
includes environmental damage and pollution insurance and war risk insurance and
freight, demurrage and defense insurance for our fleet. We do not maintain
insurance against loss of hire, which covers business interruptions that result
in the loss of use of a vessel. We may not be adequately insured against all
risks and we may not be able to obtain adequate insurance coverage for our fleet
in the future. The insurers may not pay particular claims. Our insurance
policies contain deductibles for which we will be responsible and limitations
and exclusions which may increase our costs. Moreover, the insurers may default
on any claims they are required to pay. If our insurance is not enough to cover
claims that may arise, it may have a material adverse effect on our financial
condition and results of operations.
Our
international operations expose us to risks of terrorism and piracy that may
interfere with the operation of our vessels.
We are an
international company and primarily conduct our operations outside the United
States of America.
Changing
economic, political and governmental conditions in the countries where we are
engaged in business or where our vessels are registered affect our operations.
In the past, political conflicts, particularly in the Arabian Gulf, resulted in
attacks on vessels, mining of waterways and other efforts to disrupt shipping in
the area. Acts of terrorism and piracy have also affected vessels trading in
regions such as the South China Sea. The likelihood of future acts of terrorism
may increase, and our vessels may face higher risks of being attacked. We are
not fully insured against any of these risks. In addition, future hostilities or
other political instability in regions where our vessels operate could have a
material adverse effect on our trade patterns and adversely affect our
operations and performance.
Obligations
associated with being a public company require significant company resources and
management attention.
We are
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and the other rules and regulations of the
Commission, including the Sarbanes-Oxley Act of 2002. Section 404 of the
Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of
our internal control over financial reporting.
We work
with our legal, accounting and financial advisors to identify any areas in which
changes should be made to our financial and management control systems to manage
our growth and our obligations as a public company. We evaluate areas such as
corporate governance, corporate control, internal audit, disclosure controls and
procedures and financial reporting and accounting systems. We will make changes
in any of these and other areas, including our internal control over financial
reporting, which we believe are necessary. However, these and other measures we
may take may not be sufficient to allow us to satisfy our obligations as a
public company on a timely and reliable basis. In addition, compliance with
reporting and other requirements applicable to public companies will create
additional costs for us and will require the time and attention of management.
Our limited management resources may exacerbate the difficulties in complying
with these reporting and other requirements while focusing on executing our
business strategy. We may not be able to predict or estimate the amount of the
additional costs we may incur, the timing of such costs or the degree of impact
that our management’s attention to these matters will have on our
business.
Our
historical financial and operating data may not be representative of our future
results because we are a company with a limited operating history as a
stand-alone entity and as a publicly traded company.
Our
historical financial and operating data may not be representative of our future
results because we are a company with a limited operating history as a
stand-alone entity and as a publicly traded company. Our consolidated financial
statements include the financial position, results of operations and cash flows
of shipowning companies managed by Eurobulk and majority owned by the Pittas
family prior to their contribution to us. Although our results of operations,
cash flows and financial condition reflected in the consolidated financial
statements include all expenses allocable to our business, due to factors such
as the additional administrative and financial obligations associated with
operating as a publicly traded company, they may not be indicative of the
results of operations that we would have achieved had we operated as a public
entity for all periods presented or of future results that we may achieve as a
publicly traded company with our current holding company structure.
Exposure
to currency exchange rate fluctuations will result in fluctuations in our cash
flows and operating results.
We
generate all our revenues in U.S. dollars, but our ship manager, Eurobulk,
incurs approximately 35% of vessel operating expenses and we incur management
fees and some general and administrative expenses in currencies other than the
U.S. dollar. This difference could lead to fluctuations in our operating
expenses, which would affect our financial results. Expenses incurred in foreign
currencies increase when the value of the U.S. dollar falls, which would reduce
our profitability.
U.S. tax authorities
could treat us as a “passive foreign investment company,” which could have
adverse U.S. federal income tax consequences to U.S.
holders.
A
foreign corporation will be treated as a “passive foreign investment company,”
or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its
gross income for any taxable year consists of certain types of “passive income”
or (2) 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, and gains from the
sale or exchange of investment property and rents and royalties other than rents
and royalties which 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.”
U.S. shareholders of a PFIC are subject to a disadvantageous U.S. 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.
Based on
our current method of operation, we do not believe that we have been, are or
will be a PFIC with respect to any taxable year. In this regard, we treat the
gross income we derive or are deemed to derive from our time chartering
activities as services income, rather than rental income. Accordingly, we
believe that our income from our time chartering activities does not constitute
“passive income,” and the assets that we own and operate in connection with the
production of that income do not constitute passive assets.
There is,
however, no direct legal authority under the PFIC rules addressing our method of
operation. Accordingly, the U.S. Internal Revenue Service, or IRS, or a court of
law may not accept our position, and there is a risk that the IRS or a court of
law could determine that we are a PFIC. Moreover, we may constitute a PFIC for
any future taxable year if there were to be changes in the nature and extent of
our operations.
If the
IRS were to find that we are or have been a PFIC for any taxable year, our U.S.
shareholders will face adverse U.S. tax consequences. Under the PFIC rules,
unless those shareholders make an election available under the United States
Internal Revenue Code of 1986 (the “Code”) (which election could itself have
adverse consequences for such shareholders, as discussed in Item 10 of this
annual report under “Taxation — United States Federal Income Taxation of U.S.
Holders”), such shareholders would be liable to pay U.S. federal income tax at
the then prevailing income tax rates on ordinary income plus interest upon
excess distributions and upon any gain from the disposition of our shares, as if
the excess distribution or gain had been recognized ratably over the
shareholder’s holding period of our shares. See “Taxation — United States
Federal Income Taxation of U.S. Holders” in this annual report under Item 10 for
a more comprehensive discussion of the U.S. federal income tax consequences to
U.S. shareholders if we are treated as a PFIC.
Legislation
has been proposed in the United States which would prevent dividends on our
shares from qualifying for certain preferential rates for U.S. federal income
tax purposes.
“Qualified
dividend income” derived by noncorporate U.S. shareholders that are subject to
U.S. federal income tax is currently through 2010 subject to U.S. federal income
taxation at reduced rates. We expect that under current law, so long as our
shares are traded on the NASDAQ Capital Market, the NASDAQ Global Select Market
or the NASDAQ Global Market and we do not and have not qualified as a “passive
foreign investment company” for U.S. federal income tax purposes, distributions
treated as dividends for U.S. tax purposes on our shares will potentially be
eligible (that is, eligible if certain conditions relating to the shareholder
are satisfied) for treatment as qualified dividend income. Proposed legislation
which has been introduced in the U.S. Congress would, however, if enacted, make
it unlikely that such distributions on our shares would be eligible for such
treatment.
Dividends
paid on the common stock to U.S. individuals, trusts and estates may be taxed as
ordinary income.
Our
common stock is listed on the NASDAQ Global Select Market and dividends on our
common stock are potentially eligible to be treated as “qualified dividend
income” which is taxed to U.S. individuals, trusts and estates at preferential
tax rates. If our common stock fails to maintain the requirements of the NASDAQ
Global Select Market or another established securities market in the United
States, our shares will trade over the counter and any dividends paid on the
shares will be treated for U.S. tax purposes as ordinary income rather than
“qualified dividend income” and lose eligibility for the preferential tax
treatment.
We
may have to pay tax on United States source income, which would reduce our
earnings.
Under the
Code, 50% of the gross shipping income of a vessel owning or chartering
corporation, such as ourselves and our subsidiaries, that is attributable to
transportation that begins or ends, but that does not both begin and end, in the
United States may be subject to a 4% United States federal income tax without
allowance for deduction, unless that corporation qualifies for exemption from
tax under section 883 of the Code and the applicable Treasury Regulations
promulgated thereunder.
We
believe that we and each of our subsidiaries qualify for this statutory tax
exemption and we have taken this position for United States federal income tax
return reporting purposes. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of this tax exemption and
thereby become subject to United States federal income tax on our United States
source income. Due to the factual nature of the issues involved, we may not be
able to maintain our tax-exempt status or that of any of our
subsidiaries.
If we or
our subsidiaries are not entitled to exemption under Section 883 for any taxable
year, we or our subsidiaries could be subject for those years to an effective 2%
United States federal income tax on the shipping income these companies derive
during the year that are attributable to the transport or cargoes to or from the
United States. The imposition of this taxation would have a negative effect on
our business and would result in decreased earnings available for distribution
to our shareholders.
It
may be difficult to enforce service of process and enforcement of judgments
against us and our officers and directors.
We are a
Marshall Islands corporation, and our executive offices are located outside of
the United States in Maroussi, Greece. A majority of our directors and officers
reside outside of the United States, and a substantial portion of our assets and
the assets of our officers and directors are located outside of the United
States. As a result, you may have difficulty serving legal process within the
United States upon us or any of these persons. You may also have difficulty
enforcing, both in and outside of the United States, judgments you may obtain in
the U.S. courts against us or these persons in any action, including actions
based upon the civil liability provisions of U.S. federal or state securities
laws.
There is
also substantial doubt that the courts of the Marshall Islands or Greece would
enter judgments in original actions brought in those courts predicated on U.S.
federal or state securities laws.
Risk
Factors Relating To Our Common Stock
The
trading volume for our common stock has been low, which may cause our common
stock to trade at lower prices and make it difficult to sell your common
stock.
Although
our shares of common stock have traded on the NASDAQ Global Market since January
31, 2007 and on the NASDAQ Global Select Market since January 1, 2008, recently
the trading volume has been lower. Our shares may not actively trade in the
public market and any such limited liquidity may cause our common stock to trade
at lower prices and make it difficult to sell your common stock
The
market price of our common stock has been and may in the future be subject to
significant fluctuations.
The
market price of our common stock has been and may in the future be subject to
significant fluctuations as a result of many factors, some of which are beyond
our control. Among the factors that have in the past and could in the future
affect our stock price are:
|
·
|
quarterly
variations in our results of
operations;
|
|
·
|
changes
in sales or earnings estimates or publication of research reports by
analysts;
|
|
·
|
speculation
in the press or investment community about our business or the shipping
industry;
|
|
·
|
changes
in market valuations of similar companies and stock market price and
volume fluctuations generally;
|
|
·
|
strategic
actions by us or our competitors such as acquisitions or
restructurings;
|
|
·
|
regulatory
developments;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
general
market conditions; and
|
|
·
|
domestic
and international economic, market and currency factors unrelated to our
performance.
|
The stock
markets in general, and the markets for drybulk shipping and shipping stocks in
general, have experienced extreme volatility that has sometimes been unrelated
to the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our common
stock.
The price
of our shares may be volatile and less than you originally paid for such
shares.
The price
of our shares may be volatile, and may fluctuate due to factors such
as:
|
·
|
actual
or anticipated fluctuations in quarterly and annual
results;
|
|
·
|
mergers
and strategic alliances in the shipping
industry;
|
|
·
|
market
conditions in the industry;
|
|
·
|
changes
in government regulation;
|
|
·
|
fluctuations
in our quarterly revenues and earnings and those of our publicly held
competitors;
|
|
·
|
shortfalls
in our operating results from levels forecasted by securities
analysts;
|
|
·
|
announcements
concerning us or our competitors;
and
|
|
·
|
the
general state of the securities
markets.
|
The
international drybulk and container shipping industry has been highly
unpredictable and volatile. The market for stock of companies in this industry
may be equally volatile. Our shares may trade at prices lower than you
originally paid for such shares.
Our
Articles of Incorporation and Bylaws contain anti-takeover provisions that may
discourage, delay or prevent (1) our merger or acquisition and/or (2) the
removal of incumbent directors and officers.
Our
current Articles of Incorporation and Bylaws contain certain anti-takeover
provisions. These provisions include blank check preferred stock, the
prohibition of cumulative voting in the election of directors, a classified
board of directors, advance written notice for shareholder nominations for
directors, removal of directors only for cause, advance written notice of
shareholder proposals for the removal of directors and limitations on action by
shareholders. These provisions, either individually or in the aggregate, may
discourage, delay or prevent (1) our merger or acquisition by means of a tender
offer, a proxy contest or otherwise, that a shareholder may consider in its best
interest and (2) the removal of incumbent directors and officers.
Future
sales of our stock could cause the market price of our common stock to
decline.
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.
In 2007,
we issued a total of 17,325,000 new shares as part of our three common stock
offerings. Additionally, 248,463 and 166,667 shares were issued upon the
exercise of our warrants in 2007, and, in the four month period ended on April
30, 2008, respectively; another 170,459 warrants remain
outstanding. Friends, our largest shareholder, has registered all of
its shares for re-sale under our registration statement that was declared
effective on May 16, 2007 which has resulted in these shares becoming freely
tradable without restriction under the Securities Act.
We may
issue additional shares of our stock in the future and our stockholders may
elect to sell large numbers of shares held by them from time to time. Our
amended and restated articles of incorporation authorize us to issue up to
100,000,000 shares of common stock and 20,000,000 shares of preferred
stock.
Sales of
a substantial number of any of the shares of common stock mentioned above may
cause the market price of our common stock to decline.
Because
the Republic of the Marshall Islands, where we are incorporated, does not have a
well-developed body of corporate law, shareholders may have fewer rights and
protections than under typical United States law, such as Delaware, and
shareholders may have difficulty in protecting their interest with regard to
actions taken by our Board of Directors.
Our corporate affairs are governed by
our Articles of Incorporation and Bylaws and by the Marshall Islands Business
Corporations Act (the “BCA”). The provisions of the BCA resemble provisions of
the corporation laws of a number of states in the United States. However, there
have been few judicial cases in the Republic of the Marshall Islands
interpreting the BCA. The rights and fiduciary responsibilities of directors
under the law of the Republic of the Marshall Islands are not as clearly
established as the rights and fiduciary responsibilities of directors under
statutes or judicial precedent in existence in certain U.S. jurisdictions.
Stockholder rights may differ as well. For example, under Marshall Islands law,
a copy of the notice of any meeting of the shareholders must be given not less
than 15 days before the meeting, whereas in Delaware such notice must be given
not less than 10 days before the meeting. Therefore, if immediate shareholder
action is required, a meeting may not be able to be convened as quickly as it
can be convened under Delaware law. Also, under Marshall Islands law, any action
required to be taken by a meeting of shareholders may only be taken without a
meeting if consent is in writing and is signed by all of the shareholders
entitled to vote, whereas under Delaware law action may be taken by consent if
approved by the number of shareholders that would be required to approve such
action at a meeting. Therefore, under Marshall Islands law, it may be more
difficult for a company to take certain actions without a meeting even if a
majority of the shareholders approve of such action. While the BCA does
specifically incorporate the non-statutory law, or judicial case law, of the
State of Delaware and other states with substantially similar legislative
provisions, public shareholders may have more difficulty in protecting their
interests in the face of actions by the management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a U.S.
jurisdiction.
Item 4.
|
Information
on the Company
|
A.
|
History
and development of the Company
|
We are
Euroseas Ltd., a Marshall Islands company incorporated in May 2005. We are a
provider of worldwide ocean-going transportation services. We own and operate
drybulk carriers that transport major bulks such as iron ore, coal and grains,
and minor bulks such as bauxite, phosphate and fertilizers. We also own and
operate containerships and multipurpose vessels that transport dry and
refrigerated containerized cargoes, mainly including manufactured products and
perishables. As of April 30, 2008, our fleet consisted of five drybulk carriers,
comprised of three Panamax drybulk carriers and two Handysize drybulk carriers,
nine containerships and one multipurpose vessel. The total cargo carrying
capacity of the four bulk carriers is 277,316 deadweight tons, or dwt, and of
the nine containerships is 239,010 dwt and 15,321 twenty-foot equivalent units,
or teu. Our multipurpose vessel can carry 22,568 dwt and/or 950 teu.
Four of our vessels were acquired before January 1, 2004 and were controlled by
the Pittas family interests. On June 29, 2005, the shareholders of the four
vessels (and of three additional vessels that have since been sold) transferred
their shares in each of the vessels to Euroseas in exchange for shares in
Friends, a 100% owner of Euroseas at that time. We have purchased
eleven additional vessels since June 2005.
On August
25, 2005, we raised approximately $17.5 million in net proceeds from the private
placement of our securities to a number of institutional and accredited
investors (the “Private Placement”). In the Private Placement, we issued
2,342,331 shares of common stock at a price of $9.00 per share (adjusted for the
1-for-3 reverse split of our common stock effected on October 6, 2006), as well
as warrants to purchase an additional 585,589 shares of common stock. The
warrants have a five year term and an exercise price of $10.80 per share
(adjusted for the 1-for-3 reverse split of our common stock).
On
February 5, 2007, we raised approximately $43.3 million in net proceeds from a
follow-on common stock offering. On July 5, 2007, we raised approximately $73.0
million in net proceeds from a follow-on common stock offering. On
November 9, 2007, we raised approximately $93.6 million in net proceeds from a
follow-on common stock offering.
Our
shares originally traded on the OTCBB under the symbol ESEAF.OB until October 5,
2006 and EUSEF.OB from October 6, 2006 to January 30, 2007. Our
shares have traded on the NASDAQ Global Select Market under the symbol ESEA
since January 31, 2007 and on the NASDAQ Global Select Market since January 1,
2008. Since January 1, 2008, our shares are traded on the NASDAQ
Global Select Market.
Our
executive offices are located at 40 Ag. Konstantinou Ave., 151 24, Maroussi,
Greece. Our telephone number is +30-211-1804005.
Our fleet
consists of: (i) drybulk carriers that transport iron ore, coal, grain and other
dry cargoes along worldwide shipping routes; (ii) containerships that transport
container boxes providing scheduled service between ports; and (iii)
multipurpose vessels that can carry either bulk cargoes or
containers. Please see information in the section "Our Fleet", below.
During 2003, 2004, 2005, 2006 and 2007 we had a fleet utilization of 99.3%,
99.5%, 98.5%, 98.9% and 99.7%, respectively, our vessels achieved daily time
charter equivalent rates of $8,965, $17,839, $17,485, $14,313 and $21,468,
respectively, and we generated revenues of $25.95 million, $45.72
million, $44.52 million, $42.14 million and $86.10 million,
respectively.
Our
business strategy is focused on providing consistent shareholder returns by
carefully selecting the timing and the structure of our investments in drybulk
and containership vessels and by reliably, safely and competitively operating
the vessels we own, through our affiliate, Eurobulk. Representing a continuous
shipowning and management history that dates back to the 19th century, we
believe that one of our advantages in the industry is our ability to select and
safely operate drybulk and containership vessels of any age. We continuously
evaluate sale and purchase opportunities, as well as long term employment
opportunities for our vessels.
Our
Fleet
As of
April 30, 2008, the profile and deployment of our fleet is the
following:
Name
|
Type
|
Dwt
|
TEU
|
Year
Built
|
Employment
|
TCE Rate
($/day)
|
Dry Bulk Vessels
|
|
|
|
|
|
|
IRINI
(*)
|
Panamax
|
69,734
|
|
1988
|
Baumarine
Spot Pool – ‘til end 2008
|
Spot
/ Partly fixed
|
ARISTIDES
N.P.
|
Panamax
|
69,268
|
|
1993
|
TC
‘til Mar-09
|
$52,000
|
IOANNA
P.
|
Panamax
|
64,873
|
|
1984
|
TC
‘til Aug-08
|
$35,500
|
NIKOLAOS
P.
|
Handysize
|
34,750
|
|
1984
|
Spot
|
$41,000
|
GREGOS
|
Handysize
|
38,691
|
|
1984
|
Spot
|
$44,750
|
Total
Dry Bulk Vessels
|
5
|
277,316
|
|
|
|
|
|
|
|
|
|
|
|
Multipurpose Dry Cargo
Vessels
|
|
|
|
|
|
|
TASMAN
TRADER
|
1
|
22,568
|
950
|
1990
|
TC
‘til Mar-12
|
$8,850
‘til Dec-08,
$9,500
‘til Dec-10,
$9,000
‘til Mar-12
|
Container Carriers
|
|
|
|
|
|
|
TIGER
BRIDGE
|
Intermediate
|
31,627
|
2,228
|
1990
|
TC
‘til Jul-09
|
$16,500
|
ARTEMIS
|
Intermediate
|
29,693
|
2,098
|
1987
|
TC
‘til Dec-08
|
$19,000
|
DESPINA
P
|
Handysize
|
33,667
|
1,932
|
1990
|
TC
‘til Feb-09
|
$15,250
|
OEL
INTEGRITY (ex-JONATHAN P)
|
Handysize
|
33,667
|
1,932
|
1990
|
TC
‘til Apr-09
|
$16,500
|
OEL
TRANSWORLD (ex-CLAN GLADIATOR)
|
Handysize
|
30,007
|
1,742
|
1992
|
TC
‘til Oct-09
|
$18,500
|
YM
XINGANG I
|
Handysize
|
23,596
|
1,599
|
1993
|
TC
‘til Jul-09
|
$26,650
|
MANOLIS
P
|
Handysize
|
20,346
|
1,452
|
1995
|
TC
‘til Oct-09
|
$15,800
|
NINOS
(ex-YM
QINGDAO I)
|
Feeder
|
18,253
|
1,169
|
1990
|
TC
‘til Apr-09
|
$13,175
|
KUO
HSIUNG
|
Feeder
|
18,154
|
1,169
|
1993
|
TC
‘til Feb-09
|
$15,800
|
Total
Container Carriers
|
9
|
239,010
|
15,321
|
|
|
|
Fleet
Grand Total
|
15
|
538,894
|
16,271
|
|
|
|
(*)
"IRINI" is employed in the Baumarine spot pool that is managed by Klaveness, a
major global charterer in the dry bulk area, and also participates in “short”
funds (contracts to carry cargo at agreed rates), reducing its exposure to the
spot market.
We plan
to expand our fleet by investing in vessels in the drybulk, containership and
multipurpose markets by targeting primarily mid-age vessels at the time of
purchase under favorable market conditions. We also intend to take advantage of
the cyclical nature of the market by buying and selling ships when we believe
favorable opportunities exist. We employ our vessels in the spot and
time charter market, through pool arrangements and under contracts of
affreightment. Presently, our nine containerships, our multipurpose vessel, one
of our panamax bulkers and two of our handysize bulkers are employed under time
charters. Our other panamax vessel, m/v
Irini
, is employed in the
Baumarine pool that is managed by Klaveness, a major global charterer in the
drybulk area, and also participates in “short” funds (contracts to carry cargo
at agreed rates), reducing its exposure to the spot market.
As of
April 30, 2008, approximately 80% of our ship capacity days in 2008 accounting
for fixed spot employment in the first and second quarter of the year, and
approximately 30% of our ship capacity days in 2009, are under time charter
contracts or protected from market fluctuations.
Management
of Our Fleet
The
operations of our vessels are managed by Eurobulk Ltd., or Eurobulk, an
affiliated company, under a master management agreement with us and separate
management agreements with each ship-owning company. Eurobulk was founded in
1994 by members of the Pittas family and is a reputable ship management company
with strong industry relationships and experience in managing vessels. Under our
master management agreement, Eurobulk is responsible for providing us with
executive services and commercial management services, which include obtaining
employment for our vessels and managing our relationships with charterers.
Eurobulk also performs technical management services, which include managing
day-to-day vessel operations, performing general vessel maintenance, ensuring
regulatory and classification society compliance, supervising the maintenance
and general efficiency of vessels, arranging our hire of qualified officers and
crew, arranging and supervising drydocking and repairs, arranging insurance for
vessels, purchasing stores, supplies, spares and new equipment for vessels,
appointing supervisors and technical consultants and providing technical support
and shoreside personnel who carry out the management functions described above
and certain accounting services.
Our
master management agreement with Eurobulk is effective as of January 1, 2008 and
has an initial term of 5 years until December 31, 2012. The master management
agreement cannot be terminated by Eurobulk without cause or under the other
limited circumstances, such as sale of the Company or Eurobulk or the bankruptcy
of either party. This master management agreement will automatically be extended
after the initial period for an additional five year period unless terminated on
or before the 90th day preceding the initial termination date. Pursuant to the
master management agreement, each new vessel we acquire in the future will enter
into a separate five year management agreement with Eurobulk. In addition, upon
expiration of the current ship management agreements between Eurobulk and each
vessel-owing subsidiary, such subsidiaries will enter into new ship management
agreements with Eurobulk that terminate contemporaneously with the master
management agreement.
In
exchange for providing us with the services described above, we pay Eurobulk 630
euros per vessel per day adjusted annually for inflation.
|
Our
Competitive Strengths
|
We
believe that we possess the following competitive strengths:
|
·
|
Experienced Management
Team
. Our management team has significant experience in all aspects
of commercial, technical, operational and financial areas of our business.
Aristides J. Pittas, our Chairman and Chief Executive Officer, holds a
dual graduate degree in Naval Architecture and Marine Engineering and
Ocean Systems Management from the Massachusetts Institute of Technology.
He has worked in various technical, shipyard and ship management
capacities and since 1991 has focused on the ownership and operation of
vessels carrying dry cargoes. Dr. Anastasios Aslidis, our Chief
Financial Officer, holds a Ph.D. in Ocean Systems Management also from
Massachusetts Institute of Technology and has over 20 years of experience,
primarily as a partner at a Boston based international consulting firm
focusing on investment and risk management in the maritime
industry.
|
|
·
|
Cost Effective Vessel
Operations
. We believe that because of the efficiencies afforded to
us through Eurobulk, the strength of our management team and the quality
of our fleet, we are, and will continue to be, a reliable, low cost vessel
operator, without compromising our high standards of performance,
reliability and safety. Despite the average age of our fleet being
approximately 18 years during 2007, our total vessel operating expenses,
including management fees and general and administrative expenses were
$5,624 per day for the year ended December 31, 2007. We consider this
amount to be among the lowest of the publicly listed drybulk shipping
companies in the U.S. Our technical and operating expertise allows us to
efficiently manage and transport a wide range of cargoes with a flexible
trade route profile, which helps reduce ballast time between voyages and
minimize off-hire days. Our professional, well-trained masters, officers
and on board crews further help us to control costs and ensure consistent
vessel operating
performance.
We actively manage our fleet and strive to maximize utilization and
minimize maintenance expenditures. For the year ended December 31, 2007,
our fleet utilization was 99.7% and since 2003 our utilization rate has
averaged in excess of 99.0%.
|
|
·
|
Strong Relationships with
Customers and Financial Institutions
. We believe Eurobulk and the
Pittas family have developed strong industry relationships and have gained
acceptance with charterers, lenders and insurers because of their
long-standing reputation for safe and reliable service and financial
responsibility through various shipping cycles. Through Eurobulk, we offer
reliable service and cargo carrying flexibility that enables us to attract
customers and obtain repeat business. We also believe that the established
customer base and reputation of Eurobulk and the Pittas family helps us to
secure favorable employment for our vessels with well known
charterers.
|
Our
business strategy is focused on providing consistent shareholder returns by
carefully timing and structuring acquisitions of drybulk carriers and
containerships and by reliably, safely and competitively operating our vessels
through Eurobulk. We continuously evaluate purchase and sale opportunities, as
well as long term employment opportunities for our vessels.
|
·
|
Renew and Expand our
Fleet
. We expect to grow our fleet in a disciplined manner through
timely and selective acquisitions of quality vessels. We perform in-depth
technical review and financial analysis of each potential acquisition and
only purchase vessels as market conditions and developments present
themselves. We continue to be focused on purchasing well-maintained,
secondhand vessels, which should provide a significant value proposition
given the strong charter rates that exist currently. However, we will also
consider purchasing younger vessels or newbuildings if the value
proposition exists at the time. Furthermore, as part of our fleet renewal,
we will continue to sell certain vessels when we believe it is in the best
interests of the Company and our
shareholders.
|
|
·
|
Maintain Balanced
Employment
. We intend to strategically employ our fleet between
period and spot charters. We actively pursue period charters to obtain
adequate cash flow to cover our fleet’s fixed costs, consisting of vessel
operating expenses, management fees, general and administrative expenses,
interest expense and drydocking costs for the upcoming 12-month period. We
look to deploy the remainder of our fleet through period charters, spot
charters, shipping pools or contracts of affreightment depending on our
view of the direction of the markets and other tactical or strategic
considerations. We believe this balanced employment strategy will provide
us with more predictable operating cash flows and sufficient downside
protection, while allowing us to participate in the potential upside of
the spot market during periods of rising charter rates. On the basis of
our fixed spot and existing period contracts, approximately 80% of our
vessel capacity in 2008 and approximately 30% in 2009 are fixed, which
will help protect us from market fluctuations, enable us to make
significant principal and interest payments on our debt and pay dividends
to our shareholders.
|
|
·
|
Operate a Fleet in Two
Sectors
. While remaining focused on the dry cargo segment of the
shipping industry, we intend to continue to develop a diversified fleet of
drybulk carriers and containerships of up to Panamax size. A diversified
drybulk fleet profile will allow us to better serve our customers in both
major and minor bulk trades, as well as to reduce any dependency on any
one cargo, trade route or customer. We will remain focused on the smaller
size ship segment of the container market, which has not experienced the
same level of expansion in vessel supply that has occurred with larger
containerships. A diversified fleet, in addition to enhancing the
stability of our cash flows, will also help us to reduce our exposure to
unfavorable developments in any one shipping sector and to benefit from
upswings in any one shipping sector experiencing rising charter
rates.
|
|
·
|
Optimize Use of Financial
Leverage
. We will use bank debt to partly fund our vessel
acquisitions and increase financial returns for our shareholders. We
actively assess the level of debt we incur in light of our ability to
repay that debt based on the level of cash flow generated from our
balanced chartering strategy and efficient operating cost structure. Our
debt repayment schedule as of December 31, 2007 calls for a reduction of
more than 46% of our then outstanding debt by the end of 2009. We expect
this will increase our ability to borrow funds to make additional vessel
acquisitions in order to grow our fleet and pay consistent and possibly
higher dividends to our
shareholders.
|
Our major
charterer customers during the last three years include Klaveness (Bulkhandling
and Baumarine shipping pools), Cheng Lie, Swiss Marine, Hamburg Bulk Carriers,
Phoenix, Yang Ming Lines and Italia Maritima. We are a relationship driven
company, and our top five customers in 2006 include three of our top five
customers from 2005 (Cheng Lie, Yang Ming Lines and Klaveness). Our top five
customers accounted for approximately 53% of our total revenues
in 2007, 60% of our total revenues in 2006 and 72% of our total
revenues in 2005. In 2007, our largest five customers, Klaveness, Yang Ming
Lines, Sinochart, Italia Maritima and Cheng Lie,, accounted for
15.1%, 12.5%, 12.1%, 7.6% and 5.2% of our total revenues, respectively.
|
|
|
Year
ended December 31,
|
|
Charterer
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
|
5.50
|
%
|
|
|
15.06
|
%
|
|
|
15.07
|
%
|
|
B
|
|
|
|
9.60
|
%
|
|
|
10.40
|
%
|
|
|
12.53
|
%
|
|
C
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12.10
|
%
|
|
D
|
|
|
|
-
|
|
|
|
16.63
|
%
|
|
|
7.60
|
%
|
|
E
|
|
|
|
17.48
|
%
|
|
|
12.67
|
%
|
|
|
5.19
|
%
|
|
F
|
|
|
|
26.85
|
%
|
|
|
-
|
|
|
|
-
|
|
|
G
|
|
|
|
12.32
|
%
|
|
|
-
|
|
|
|
-
|
|
|
H
|
|
|
|
-
|
|
|
|
5.32
|
%
|
|
|
-
|
|
The
Dry Cargo and Containership Industries
Dry cargo shipping refers to the
transport of certain commodities by sea between various ports in bulk or
containerized form.
The drybulk commodities are often
divided into two categories — major bulks and minor bulks. Major bulks include
items such as coal, iron ore and grains, while minor bulks include items such as
aluminum, phosphate rock, fertilizer raw materials, agricultural and mineral
cargo, cement, forest products and some steel products, including
scrap.
There are four main classes of bulk
carriers — Handysize, Handymax, Panamax and Capesize. These classes represent
the sizes of the vessel carrying the cargo in terms of deadweight ton (“dwt”)
capacity, which is defined as the total weight including cargo that the vessel
can carry when loaded to a defined load line on the vessel. Handysize vessels
are the smallest of the four categories and include those vessels weighing up to
40,000 dwt. Handymax carriers are those vessels that weigh between 40,000 and
60,000 dwt, while Panamax vessels are those ranging from 60,000 dwt to 80,000
dwt. Vessels over 80,000 dwt are called Capesize vessels.
Drybulk carriers are ordinarily
chartered either through a voyage charter or a time charter, under a longer term
contract of affreightment or in pools. Under a voyage charter, the owner agrees
to provide a vessel for the transport of cargo between specific ports in return
for the payment of an agreed freight rate per ton of cargo or an agreed dollar
lump sum amount. Voyage costs, such as canal and port charges and bunker
expenses, are the responsibility of the owner. Under a time charter, the ship
owner places the vessel at the disposal of a charterer for a given period of
time in return for a specified rate (either hire per day or a specified rate per
dwt capacity per month) with the voyage costs being the responsibility of the
charterer. In both voyage charters and time charters, operating costs (such as
repairs and maintenance, crew wages and insurance premiums), as well as
drydockings and special surveys, are the responsibility of the ship owner. The
duration of time charters varies, depending on the evaluation of market trends
by the ship owner and by charterers. Occasionally, drybulk vessels are chartered
on a bareboat basis. Under a bareboat charter, operations of the vessels and all
operating costs are the responsibility of the charterer, while the owner only
pays the financing costs of the vessel.
A contract of affreightment (“COA”) is another type of charter
relationship where a charterer and a ship owner enter into a written agreement
pursuant to which identified cargo will be carried over a specified period of
time. COA’s benefit charterers by providing them with fixed transport costs for
a commodity over an identified period of
time.
COA’s benefit ship owners by offering ascertainable revenue over that same
period of time and eliminating the uncertainty that would otherwise be caused by
the volatility of the charter market. A shipping pool is a collection of similar
vessel types under various ownerships, placed under the care of a single
commercial manager. The manager markets the vessels as a single fleet and
collects the earnings which are distributed to individual owners under a
pre-arranged weighing system by which each entered vessel receives its share.
Pools have the size and scope to combine voyage charters, time charters and
contracts of affreightment with freight forward agreements for hedging purposes,
to perform more efficient vessel scheduling thereby increasing fleet
utilization.
Containership shipping refers to the
transport of containerized trade which encompasses mainly the carriage of
finished goods, but an increasing number of other cargoes in container boxes.
Containerized trade is the fastest growing sector of seaborne trade.
Containerships are further categorized by their size measured in twenty-foot
equivalent units (teu) and whether they have their own gearing. The different
categories of containerships are as follows. Post-panamax vessels are vessels
with carrying capacity of more than 4,000 teu. Panamax vessels are vessels with
carrying capacity from 3,000 to 4,000 teu. Intermediate containerships are
vessels with carrying capacity from 2,000 to 3,000 teu. Handysize containerships
are vessels with carrying capacity from 1,300 to 2,000 teu and are sometimes
equipped with cargo loading and unloading gear. Finally, Feeder containerships
are vessels with carrying capacity from 500 to 1,300 teu and are usually
equipped with cargo loading and unloading gear. Containerships are primarily
employed in time charter contracts with liner companies, which in turn employ
them as part of the scheduled liner operations. Feeder containership are put in
liner schedules feeding containers to and from central regional ports (hubs)
where larger containerships provide cross ocean or longer haul service. The
length of the time charter contract can range from several months to
years.
Our
Competitors
We
operate in markets that are highly competitive and based primarily on supply and
demand. We compete for charters on the basis of price, vessel location, size,
age and condition of the vessel, as well as on our reputation. Eurobulk arranges
our charters (whether spot charters, time charters or shipping pools) through
the use of Eurochart, an affiliated brokering company who negotiates the terms
of the charters based on market conditions. We compete primarily with other
shipowners of drybulk carriers in the Handysize, Handymax and Panamax drybulk
carrier sectors and the containership sector. Ownership of drybulk carriers and
containerships is highly fragmented and is divided among state controlled and
independent shipowners. Some of our publicly listed competitors include Diana
Shipping Inc. (NYSE: DSX), DryShips Inc. (NASDAQ: DRYS), Excel Maritime Carriers
Ltd. (NYSE: EXM), Eagle Bulk Shipping Inc. (NASDAQ: EGLE), Genco Shipping and
Trading Limited (NASDAQ: GSTL), Navios Maritime Holdings Inc. (NASDAQ: BULK),
Danaos Corporation (NYSE: DAC) and Goldenport Holdings Inc. (LSE:
GPRT).
Seasonality
Coal, iron ore and grains, which are
the major bulks of the drybulk shipping industry, are somewhat seasonal in
nature. The energy markets primarily affect the demand for coal, with increases
during hot summer periods when air conditioning and refrigeration require more
electricity and towards the end of the calendar year in anticipation of the
forthcoming winter period. The demand for iron ore tends to decline in the
summer months because many of the major steel users, such as automobile makers,
reduce their level of production significantly during the summer holidays.
Grains are completely seasonal as they are driven by the harvest within a
climate zone. Because three of the five largest grain producers (the United
States of America, Canada and the European Union) are located in the northern
hemisphere and the other two (Argentina and Australia) are located in the
southern hemisphere, harvests occur throughout the year and grains require
drybulk shipping accordingly.
The containership industry seasonal
trends are driven by the import patterns of manufactured goods and refrigerated
cargoes by the major importers, such as the United States, Europe, Japan and
others. The volume of containerized trade is usually higher in the fall in
preparation for the holiday season. During this period of time, container
shipping rates are higher and, as a result, the charter rates for containerships
are higher. However, fluctuations due to seasonality in the container shipping
industry are much less pronounced than in the drybulk shipping
industry.
Environmental
and Other Regulations
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 the countries in which our vessels may operate
or are registered.
A variety
of governmental and private entities subject our vessels to both scheduled and
unscheduled inspections. These entities include the local port authorities (U.S.
Coast Guard, harbor master or equivalent), classification societies, flag state
administration (country of registry) and charterers. Certain of these entities
require us to obtain permits, licenses and certificates for the operation of our
vessels. Failure to maintain necessary permits or approvals could require us to
incur substantial costs or temporarily suspend 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 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 will emphasize operational safety, quality maintenance,
continuous training of our officers and crews and compliance with U.S. and
international regulations. We believe that the operation of our vessels is in
substantial compliance with applicable environmental laws and regulations;
however, because such laws and regulations are frequently changed and may impose
increasingly stricter requirements, such future requirements may 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.
Environmental
Regulation – International Maritime Organization (“IMO”)
The IMO
has negotiated international conventions that impose liability for oil pollution
in international waters and a signatory’s territorial waters. In September 1997,
the IMO adopted Annex VI to the International Convention for the Prevention of
Pollution from Ships to address air pollution from ships. Annex VI was ratified
in May 2004, and became effective in May 2005. Annex VI sets limits on sulfur
oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate
emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI
also includes a global cap on the sulfur content of fuel oil and allows for
special areas to be established with more stringent controls on sulfur
emissions. Our vessel manager has informed us that a plan to confirm with the
Annex VI regulations is in place and we believe we are in substantial compliance
with Annex VI. Additional or new conventions, laws and regulations
may be adopted that could adversely affect our ability to operate our
ships.
The
operation of our vessels is also affected by the requirements set forth in the
ISM Code. The ISM Code requires shipowners and bareboat charterers to develop
and maintain an extensive “Safety Management System” 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 failure of a shipowner or management company to comply with the
ISM Code may subject such party to increased liability, may decrease available
insurance coverage for the affected vessels, and may result in a denial of
access to, or detention in, certain ports. Currently, each of our vessels is ISM
Code-certified. However, we may not be able to maintain such certification
indefinitely.
Environmental
Regulations – The United States of America Oil Pollution Act of 1990
(“OPA”)
OPA
established an extensive regulatory and liability regime for the protection and
cleanup of the environment from oil spills. OPA affects all shipowners and
operators whose vessels trade in the United States of America, its territories
and possessions or whose vessels operate in waters of the United States of
America, which includes the United States’ territorial sea of the United States
of America and its 200 nautical mile exclusive economic zone.
Under
OPA, vessel owners, operators, charterers and management companies are
“responsible parties” and are jointly, severally and strictly liable (unless the
spill results solely from the act or omission of a third party, an act of God or
an act of war) for all containment and clean-up costs and other damages arising
from discharges or threatened discharges of oil from their vessels, including
bunkers (fuel).
OPA was
amended in 2006 to increase the limits of the liability of responsible parties
for non-tank vessels to the greater of $950 per gross ton or $800,000 (subject
to possible adjustment for inflation). These limits of liability do not apply if
an incident was directly caused by violation of applicable United States federal
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.
We
currently maintain for each of our vessels pollution liability coverage
insurance in the amount of $1 billion per incident. If the damages from a
catastrophic pollution liability incident exceed our insurance coverage, the
payment of those damages may materially decrease our net income.
OPA
requires shipowners and operators of vessels to establish and maintain with the
United States Coast Guard evidence of financial responsibility sufficient to
meet their potential liabilities under OPA. In December 1994, the Coast Guard
implemented regulations requiring evidence of financial responsibility for
non-tank vessels in the amount of $900 per gross ton, which includes the OPA
limitation on liability of $600 per gross ton and the U.S. Comprehensive
Environmental Response, Compensation, and Liability Act liability limit of $300
per gross ton. We expect that the Coast Guard will increase the amount of
financial responsibility to reflect the 2006 increase in liability under OPA.
Under the regulations, vessel owners and operators may evidence their financial
responsibility by showing proof of insurance, surety bond, self-insurance, or
guaranty.
OPA
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for oil
spills. In some cases, states, which have enacted such legislation, have not yet
issued implementing regulations defining vessels owners’ responsibilities under
these laws. We currently comply, and intend to comply in the future, with all
applicable state regulations in the ports where our vessels call.
Environmental
Regulation – The United States of America Clean Water Act
The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances
in navigable waters and imposes strict liability in the form of penalties for
any unauthorized discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages and compliments the remedies available
under OPA and CERCLA.
Currently,
under U.S. Environmental Protection Agency, or EPA, regulations that have been
in place since 1978, vessels are exempt from the requirement to obtain CWA
permits for the discharge in U.S. ports of ballast water and other substances
incidental to the normal operation of vessels. However, on March 30, 2005, the
United States District Court for the Northern District of California ruled in
Northwest Environmental Advocate v. EPA, 2005 U.S. Dist. LEXIS 5373, that EPA
exceeded its authority in creating an exemption for ballast water. On September
18, 2006, the court issued an order granting permanent injunctive relief to the
plaintiffs, invalidating the blanket exemption in EPA’s regulations for all
discharges incidental to the normal operation of a vessel as of September 30,
2008, and directing EPA to develop a system for regulating all discharges from
vessels by that date. Under the Court’s ruling, shipowners and operators of
vessels visiting U.S. ports would be required to comply with the CWA permitting
program to be developed by EPA or face penalties. EPA has appealed this decision
to the Ninth Circuit Court of Appeals, but, if the lower court’s order is
ultimately upheld, we will incur certain costs to obtain CWA permits for our
vessels.
Environmental
Regulation – Other Environmental Initiatives
The
European Union is considering legislation that will affect the operation of
vessels and the liability of shipowners for oil pollution. It is difficult to
predict what legislation, if any, may be promulgated by the European Union or
any other country or authority.
The U.S.
National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships 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 ship, or by using
environmentally sound alternative ballast water management methods approved by
the U.S. Coast Guard. (However, mid-ocean
ballast exchange is mandatory
for ships heading to the Great Lakes or Hudson Bay, or vessels engaged in the
foreign export of Alaskan North Slope crude oil.) Mid-ocean ballast exchange is
the primary method for compliance with the Coast Guard regulations, since
holding ballast water can prevent ships from performing cargo operations upon
arrival in the United States, and alternative methods are still under
development. Vessels that are unable to conduct mid-ocean ballast exchange due
to voyage or safety concerns may discharge minimum amounts of ballast water (in
areas other than the Great Lakes and the Hudson River), provided that they
comply with recordkeeping requirements and document the reasons they could not
follow the required ballast water management requirements. The Coast Guard is
developing a proposal to establish ballast water discharge standards, which
could set maximum acceptable discharge limits for various invasive species,
and/or lead to requirements for active treatment of ballast water.
At the
international level, the IMO adopted an International Convention for the control
and Management of Ships’ Ballast Water and Sediments in February 2004 (the “BWM
Convention”). The Convention’s implementing regulations call for a phased
introduction of mandatory ballast water exchange requirements (beginning in
2009), to be replaced in time with mandatory concentration limits. The BWM
Convention will not enter into force until
12 months
after it has been adopted by 30 states, the combined merchant fleets of which
represent not less than 35% of the gross tonnage of the world’s merchant
shipping. As of May 31, 2007, the BWM Convention has been adopted by 10 states,
representing 3.42% of the gross tonnage of the world’s merchant
shipping.
Vessel
Security Regulations
Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the
Maritime Transportation Security Act of 2002 (“MTSA”), came into effect. To
implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard
issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United
States of America. Similarly, in December 2002, amendments to the International
Convention for the Safety of Life at Sea (“SOLAS”) created a new chapter of the
convention dealing specifically with maritime security. The new chapter went
into effect in July 2004, and imposes various detailed security obligations on
vessels and port authorities, most of which are contained in the newly created
ISPS Code. Among the various requirements are:
|
·
|
on-board
installation of automatic information systems (“AIS”), 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, by July 1, 2004, a valid International Ship Security
Certificate (“ISSC”) that attests to the vessel’s compliance with SOLAS security
requirements and the ISPS Code. Our vessels are in compliance with the various
security measures addressed by the MTSA, SOLAS and the ISPS Code. We do not
believe these additional requirements will have a material financial impact on
our operations.
Inspection
by Classification Societies
The hull
and machinery of every commercial vessel must be classed by a classification
society authorized by its country of registry. The classification society
certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and SOLAS. Our
vessels are currently classed with Lloyd’s Register of Shipping, Bureau Veritas
and Nippon Kaiji Kyokai. ISM and International Ship and Port Facilities Security
(“ISPS”) certification have been awarded by Bureau Veritas and the Panama
Maritime Authority to our vessels and Eurobulk, our ship management
company.
A vessel
must undergo annual surveys, intermediate surveys, drydockings and special
surveys. In lieu of a special survey, a vessel’s machinery may be on a
continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. Every vessel is also required to be
drydocked every two to three years for inspection of the underwater parts of
such vessel. If any vessel does not maintain its class and/or fails any annual
survey, intermediate survey, drydocking or special survey, the vessel will be
unable to carry cargo between ports and will be unemployable and uninsurable
which could cause us to be in violation of certain covenants in our loan
agreements. Any such inability to carry cargo or be employed, or any such
violation of covenants, could have a material adverse impact on our financial
condition and results of operations.
The
following table lists the next drydocking and special survey for the vessels in
our current fleet.
Vessel
|
|
Next
|
|
Type
|
|
|
|
|
|
TASMAN
TRADER
|
|
June
2010
|
|
Special
Survey
|
NINOS
|
|
July
2010
|
|
Special
Survey
|
ARTEMIS
|
|
April
2010
|
|
Drydocking
|
YM
XINGANG I
|
|
February
2011
|
|
Drydocking
|
ARISTIDES
N.P.
|
|
February
2011
|
|
Drydocking
|
KUO
HSIUNG
|
|
April
2011
|
|
Drydocking
|
IRINI
|
|
June
2008
|
|
Special
Survey
|
NIKOLAOS
P
|
|
March
2009
|
|
Special
Survey
|
GREGOS
|
|
July
2009
|
|
Special
Survey
|
MANOLIS
P
|
|
April
2010
|
|
Special
Survey
|
OEL
TRANSWORLD
|
|
April
2010
|
|
Drydocking
|
DESPINA
P
|
|
January
2011
|
|
Special
Survey
|
OEL
INTEGRITY
|
|
December
2010
|
|
Special
Survey
|
TIGER
BRIDGE
|
|
October
2008
|
|
Drydocking
|
IOANNA
P
|
|
March
2009
|
|
Special
Survey
|
——————
Risk
of Loss and Liability Insurance
General
The
operation of any cargo vessel includes risks such as mechanical failure,
physical damage, collision, property loss, cargo loss or damage and business
interruption due to political circumstances in foreign countries, hostilities
and labor strikes. In addition, there is always an inherent possibility of
marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
OPA, which imposes virtually unlimited liability upon shipowners, operators and
bareboat charterers of any vessel trading in the exclusive economic zone of the
United States of America for certain oil pollution accidents in the United
States of America, has made liability insurance more expensive for shipowners
and operators trading in the United States of America market. While we believe
that our present 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.
Hull
and Machinery Insurance
We
procure hull and machinery insurance, protection and indemnity insurance, which
includes environmental damage and pollution insurance and war risk insurance and
FD&D insurance for our fleet. We do not maintain insurance against loss of
hire, which covers business interruptions that result in the loss of use of a
vessel.
Protection
and Indemnity Insurance
Protection
and indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Associations, which 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, 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. Protection and indemnity insurance is a form of mutual indemnity
insurance, extended by protection and indemnity mutual associations, or
“clubs.”
Our
current protection and indemnity insurance coverage for pollution is $1 billion
per vessel per incident. The 14 P&I Associations that comprise the
International Group insure approximately 90% of the world’s commercial tonnage
and have entered into a pooling agreement to reinsure each association’s
liabilities. Our vessels are members of the UK Club. Each P&I Association
has capped its exposure to this pooling agreement at $4.5 billion. As a member
of a P&I Association, which is a member of the International Group, we are
subject to calls payable to the associations based on our claim records as well
as the claim records of all other members of the individual associations and
members of the shipping pool of P&I Associations comprising the
International Group.
Euroseas
is the sole owner of all outstanding shares of the subsidiaries listed in Note 1
of our consolidated financial statements under Item 18 and in Exhibit 8.1 to
this annual report.
D.
|
Property,
plants and equipment
|
We do not
own any real property. As part of the management services provided by
Eurobulk during the period in which we conducted business to date, we have
shared, at no additional cost, offices with Eurobulk. We do not have
current plans to lease or purchase office space, although we may do so in the
future.
Our
interests in our vessels are owned through our wholly-owned vessel owning
subsidiaries and these are our only material properties. Our vessels are subject
to mortgages. Specifically:
·
|
Searoute
Maritime Ltd. incorporated in Cyprus on May 20, 1992, owner of the Cyprus
flag 33,712 dwt bulk carrier motor vessel
Ariel
, which was built
in 1977 and acquired on March 5, 1993.
Ariel
was sold on
February 22, 2007.
|
·
|
Oceanopera
Shipping Ltd. incorporated in Cyprus on June 26, 1995, owner of the Cyprus
flag 34,750 dwt bulk carrier motor vessel
Nikolaos P
, which was
built in 1984 and acquired on July 22,
1996.
|
·
|
Oceanpride
Shipping Ltd. incorporated in Cyprus on March 7, 1998, owner of the Cyprus
flag 26,354 dwt bulk carrier motor vessel
John P
, which was built
in 1981 and acquired on March 7, 1998.
John P
was sold on July
5, 2006.
|
·
|
Alcinoe
Shipping Ltd. incorporated in Cyprus on March 20, 1997, owner of the
Cyprus flag 26,354 dwt bulk carrier motor vessel
Pantelis P
, which was
built in 1981 and acquired on June 4, 1997.
Pantelis P
was sold on
May 31, 2006. On February 22, 2007, Alcinoe Shipping Ltd.
acquired the 38,691 dwt Cyprus flag drybulk moter vessel
Gregos
, which was built
in 1984. On June 13, 2007, M/V Gregos was transferred to Gregos
Shipping Limited incorporated in the Marshall Islands and its flag was
changed to the flag of the Marshall
Islands.
|
·
|
Alterwall
Business Inc. incorporated in Panama on January 15, 2001, owner of the
Panama flag 18,253 dwt container carrier motor vessel
Ninos
(ex
YM Qingdao 1
), which
was built in 1990 and acquired on February 16,
2001.
|
·
|
Allendale
Investment S.A. incorporated in Panama on January 22, 2002, owner of the
Panama flag 18,154 dwt container carrier motor vessel
Kuo Hsiung
, which was
built in 1993 and acquired on May 13,
2002.
|
·
|
Diana
Trading Ltd. incorporated in the Marshall Islands on September 25, 2002,
owner of the Marshall Islands flag 69,734 dwt bulk carrier motor vessel
Irini
, which was
built in 1988 and acquired on October 15,
2002.
|
·
|
Salina
Shipholding Corp., incorporated in the Marshall Islands on October 20,
2005, owner of the Marshall Islands flag 29,693 dwt container carrier
motor vessel
Artemis
, which was
built in 1987 and acquired on
November
25, 2005.
|
·
|
Xenia
International Corp., incorporated in the Marshall Islands on April 6,
2006, owner of the Marshall Islands flag 22,568 dwt / 950 teu multipurpose
motor vessel m/v
Tasman
Trader
, which was built in 1990 and acquired on April 27,
2006.
|
·
|
Prospero
Maritime Inc., incorporated in the Marshall Islands on July 21, 2006,
owner of the Marshall Islands flag 69,268 dwt dry bulk motor vessel
Aristides N.P
”, which
was built in 1993 and acquired on September 4,
2006.
|
·
|
Xingang
Shipping Ltd., incorporated in Liberia on October 16, 2006, owner of the
Liberian flag 23,596 dwt container carrier
YM Xingang I
, which was
built in February 1993 and acquired on November 15,
2006.
|
·
|
Manolis Shipping
Ltd., incorporated in Marshall Islands on March 16, 2007, owner of the
Marshall Islands flag 20,346 dwt container carrier motor vessel
Manolis P
, which was
built in 1995 and acquired on April 12,
2007.
|
·
|
Eternity
Shipping Company, incorporated in the Marshall Islands on May 17, 2007,
owner of the Marshall Islands flag 30,007 dwt / 1,742 teu container
carrier motor vessel
OEL
Transworld
(ex
Clan Gladiator)
, which
was built in 1992 and acquired on June 13,
2007.
|
·
|
Emmentaly
Business Inc., incorporated in Panama on July 4, 2007, owner of the
Panamanian flag 33,667 dwt / 1,932 teu container carrier motor vessel
OEL Integrity
(ex
Jonathan P), which was built in 1990 and acquired on August 7,
2007.
|
·
|
Pilory
Associates Corp., incorporated in Panama on July 4, 2007, owner of the
Panamanian flag 33,667 dwt / 1,932 teu container carrier motor vessel
Despina P
, which
was built in 1990 and acquired on August 13,
2007.
|
·
|
Tiger
Navigation Corp., incorporated in Marshall Islands on August 29, 2007,
owner of the Marshall Islands flag 31,627 dwt / 2,228 teu container
carrier motor vessel
Tiger Bridge
, which was
built in 1990 and acquired on October 4,
2007.
|
·
|
Trust
Navigation Corp., incorporated in Liberia on October 1, 2007, owner of the
Liberian flag 64,873 dwt bulk carrier motor vessel
Ioanna P
, which was
built in 1984 and acquired on November 1,
2007.
|
As of
December 31, 2007, our vessel m/v
Nikolaos P
, was collateral to
a loan with an outstanding balance of $2,600,000. Our vessels, m/v
Ninos
(ex
YM Quingdao 1
) and m/v
Kuo Hsiung,
were collateral
to a loan with an outstanding balance of $7,950,000; our vessel m/v
Irini
was collateral to two
loans with an aggregate balance of $2,100,000. Our vessel, m/v
Artemis
, was collateral to a
loan with an outstanding amount of $8,500,000. Our vessel, m/v
Tasman Trader
, was collateral
to a loan with an outstanding balance of $6,660,000. Our vessel, m/v
Aristides N.P., was collateral to a loan with an outstanding balance of
$13,100,000. Our vessels, m/v
YM Xingang I
and m/v
Gregos
, were collateral to a
loan with an outstanding balance of $16,000,000. Our vessel, m/v
Manolis P,
was collateral to
a loan with an outstanding amount of $9,680,000. Our vessel, m/v
Ioanna P,
was collateral to a
loan with an outstanding amount of $15,000,000.
Item
4A
|
Unresolved
Staff Comments
|
None.
Item 5.
|
Operating
and Financial Review and Prospects
|
The
following discussion should be read in conjunction with our financial statements
and footnotes thereto contained in this annual report. This discussion contains
forward-looking statements, which are based on our assumptions about the future
of our business. Our actual results may differ materially from those contained
in the forward-looking statements. Please read “Forward-Looking Statements” for
additional information regarding forward-looking statements used in this annual
report. Reference in the following discussion to “our” and “us” refer to
Euroseas, our subsidiaries and the predecessor operations of Euroseas, except
where the context otherwise indicates or requires.
We are a
Marshall Islands company incorporated in May 2005. We are a provider of
worldwide ocean-going transportation services. We own and operate drybulk
carriers that transport major bulks such as iron ore, coal and grains, and minor
bulks such as bauxite, phosphate and fertilizers. We also own and operate
containerships and multipurpose vessels that transport dry and refrigerated
containerized cargoes, mainly including manufactured products and perishables.
As of April 30, 2008, our fleet consisted of five drybulk carriers, comprised of
three Panamax drybulk carriers and two Handysize drybulk carriers, nine
containerships and one multipurpose vessel. The total cargo carrying capacity of
the four bulk carriers is 277,316 deadweight tons, or dwt, and of the nine
containerships is 239,010 dwt and 15,321 twenty-foot equivalent units, or
teu. Our multipurpose vessel can carry 22,568 dwt and/or 950
teu.
We
actively manage the deployment of our fleet between spot market voyage charters,
which generally last from several days to several weeks, and time charters,
which can last up to several years. Some of our vessels may
participate in shipping pools, or, in some cases participate in contracts of
affreightment (please refer to the section “The Dry Cargo and Containership
Industries” under Item 4B for a description of the above mentioned types of
vessel employment). As of April 30, 2008, one of our vessels
participated in a shipping pool.
Vessels
operating on time charters provide more predictable cash flows but can yield
lower profit margins than vessels operating in the spot market during periods
characterized by favorable market conditions. Vessels operating in the spot
market generate revenues that are less predictable but may enable us to achieve
increased profit margins during periods of high vessel rates although we are
exposed to the risk of declining vessel rates, which may have a materially
adverse impact on our financial performance. Vessels operating in
pools benefit from better scheduling, and thus increased utilization, and better
access to contracts of affreightment due to the larger commercial operation. We
are constantly evaluating opportunities to increase the number of our vessels
deployed on time charters or to participate in shipping pools (if available for
our vessels), however we only expect to enter into additional time charters or
shipping pools if we can obtain contract terms that satisfy our
criteria. Containerships are employed almost exclusively on time
charter contracts. We carefully evaluate the length and the rate of
the time charter contract at the time of fixing or renewing a contract
considering market conditions, trends and expectations.
We
constantly evaluate secondhand vessel purchase opportunities to expand our fleet
accretive to our earnings and cash flow, as well as, sale opportunities of
certain of our vessels.
Factors
Affecting Our Results of Operations
We
believe that the important measures for analyzing trends in the results of our
operations consist of the following:
Calendar days
. We define
calendar days as the total number of days in a period during which each vessel
in our fleet was in our possession including off-hire days associated with major
repairs, drydockings or special or intermediate surveys. Calendar 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 that
period.
Available days.
We define
available 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 repairs, drydockings or special or intermediate surveys. The shipping
industry uses available days to measure the number of days in a period during
which vessels were available to generate revenues.
Voyage days.
We define 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 and
unscheduled repairs, drydockings or special or intermediate surveys or days
waiting to find employment. The shipping industry uses voyage days to measure
the number of days in a period during which vessels actually generate
revenues.
Fleet utilization
. We
calculate fleet utilization by dividing the number of our voyage days during a
period by the number of our available days during that period. The shipping
industry uses fleet utilization to measure a company’s efficiency in finding
suitable employment for its vessels and minimizing the amount of days that its
vessels are off-hire for reasons such as unscheduled repairs or days waiting to
find employment.
Spot Charter Rates
. Spot
charter rates are volatile and fluctuate on a seasonal and year to year basis.
The fluctuations are caused by imbalances in the availability of cargoes for
shipment and the number of vessels available at any given time to transport
these cargoes.
Time Charter Equivalent
(“TCE”).
A standard maritime industry performance measure used to
evaluate performance is the daily time charter equivalent, or daily TCE. Daily
TCE revenues are voyage revenues minus voyage expenses divided by the number of
voyage days during the relevant time period. Voyage expenses primarily consist
of port, canal and fuel costs that are unique to a particular voyage, which
would otherwise be paid by a charterer under a time charter. We believe that the
daily TCE neutralizes the variability created by unique costs associated with
particular voyages or the employment of drybulk carriers on time charter or on
the spot market (containership are chartered on a time charter basis) and
presents a more accurate representation of the revenues generated by our
vessels.
Basis
of Presentation and General Information
We use
the following measures to describe our financial performances:
Voyage revenues.
Our voyage
revenues are driven primarily by the number of vessels in our fleet, the number
of voyage days during which our vessels generate revenues and the amount of
daily charter hire that our vessels earn under charters, which, in turn, are
affected by a number of factors, including our decisions relating to vessel
acquisitions and disposals, the amount of time that we spend positioning our
vessels, the amount of time that our vessels spend in drydock undergoing
repairs, maintenance and upgrade work, the age, condition and specifications of
our vessels, levels of supply and demand in the transportation market and other
factors affecting spot market charter rates in both the drybulk carrier and
containership markets.
Commissions.
We pay
commissions on all chartering arrangements of 1.25% to Eurochart, one of our
affiliates, plus additional commission of usually up to 5% to other brokers
involved in the transaction. These additional commissions, as well as changes to
charter rates will cause our commission expenses to fluctuate from period to
period. Eurochart also receives a fee equal to 1% calculated as stated in the
relevant memorandum of agreement for any vessel bought or sold by them on our
behalf.
Voyage expenses.
Voyage
expenses primarily consist of port, canal and fuel costs that are unique to a
particular voyage which would otherwise be paid by the charterer under a time
charter contract, as well as commissions. Under time charters, the charterer
pays voyage expenses whereas under spot market voyage charters, we pay such
expenses. The amounts of such voyage expenses are driven by the mix of charters
undertaken during the period.
Vessel operating expenses.
Vessel operating expenses include crew wages and related costs, the cost of
insurance, expenses relating to repairs and maintenance, the costs of spares and
consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel
operating expenses, which generally represent fixed costs, have historically
changed in line with the size of our fleet. Other factors beyond our control,
some of which may affect the shipping industry in general (including, for
instance, developments relating to market prices for insurance or inflationary
increases) may also cause these expenses to increase.
Management fees.
These are the
fees that we pay to Eurobulk, our ship manager and an affiliate, under our
management agreement with Eurobulk for the technical and commercial management
that Eurobulk performs on our behalf. The fee, as of April 30, 2008, is 630
Euros per vessel per day and is payable monthly in advance adjusted annually for
inflation on January 1
st
.
Vessel depreciation
. We
depreciate our vessels on a straight-line basis with reference to the cost of
the vessel, age and scrap value as estimated at the date of acquisition.
Depreciation is calculated over the remaining useful life of the vessel, which
is estimated to range from 25 to 30 years from the date of original
construction. Remaining useful lives of property are periodically reviewed and
revised to recognize changes in conditions, new regulations or other reasons.
Revisions of estimated lives are recognized over current and future
periods.
Amortization of deferred drydocking
and special survey expense.
Our vessels are required to be drydocked
approximately every 30 to 60 months for major repairs and maintenance that
cannot be performed while the vessels are trading. We capitalize the costs
associated with drydockings as they occur and amortize these costs on a
straight-line basis over the period between drydockings. Costs capitalized as
part of the drydocking include actual costs incurred at the drydock yard; cost
of travel, lodging and subsistence of our personnel sent to the drydocking site
to supervise; and the cost of hiring a third party to oversee a drydocking. We
believe that these criteria are consistent with industry practice and that our
policy of capitalization reflects the economics and market values of the
vessels. Commencing January 1, 2006, we revised our policy to exclude the cost
of hiring riding crews and the cost of parts used by riding crews from amounts
capitalized as drydocking cost. We have not restated any historical financial
statements because we determined that the impact of such a revision is not
material to our operating income and net income for any periods
presented.
Interest expense.
We
traditionally finance vessel acquisitions partly with debt on which we incur
interest expense. The interest rate we pay is generally linked to the 3-month
LIBOR rate, although from time to time we utilize fixed rate loans or could use
interest rate swaps to eliminate our interest rate exposure. Interest due is
expensed in the period is accrued. Loan cost are amortized over the period of
the loan; the un-amortized portion is written-off if the loan is prepaid
early.
Other general and administrative
expenses.
We incur expenses consisting mainly of executive compensation,
professional fees, directors liability insurance and reimbursement of our
directors’ and officers’ travel-related expenses. General and administrative
expenses increased once we became a public company due to the duties typically
associated with public companies. We acquire executive services, our Chief
Executive Officer, Chief Financial Officer, Chief Administrative Officer,
Internal Auditor and Secretary, through Eurobulk as part of our master
management agreement.
In
evaluating our financial condition, we focus on the above measures to assess our
historical operating performance and we use future estimates of the same
measures to assess our future financial performance. In addition, we
use the amount of cash at our disposal and our total indebtedness to assess our
short term liquidity needs and our ability to finance additional acquisitions
with available resources (see also discussion under “Capital Expenditures”
below). In assessing the future performance of our present fleet, the
greatest uncertainty relates to the spot market performance which affects those
of our vessels that are not employed under fixed time charter
contracts. Decisions about the acquisition of additional vessels or
possible sales of existing vessels are based on financial and operational
evaluation of such action and depend on the overall state of the drybulk,
containership and multipurpose vessel market, the availability of purchase
candidates, available employment and our general assessment of economic
prospects for the sectors in which we operate.
Results
from Operations
Year
ended December 31, 2007 compared year ended December 31, 2006.
Voyage revenues
. Voyage
revenues for the period were $86.10 million, up 104.3% compared to the same
period in 2006 during which voyage revenues amounted to $42.14 million. This
increase was primarily due to the significantly higher charter rates our vessels
achieved in 2007 as compared to 2006, especially in the drybulk market, and to
the larger fleet we operated. In 2007, we operated an average of 11.48 vessels,
a 41.9% increase over the average of 8.09 vessels we operated during 2006. Our
fleet of 11.48 vessels had throughout the period 11 unscheduled off-hire days
and 210 days of scheduled off-hire for the drydocking of seven vessels,
generating an average TCE rate per vessel of $21,468 per day compared
to $14,313 per day per vessel for the same period in 2006. The
average TCE rate our vessels achieve is a combination of the time charter rate
earned by our vessels under time charter contracts, which is not influenced by
market developments, and the TCE rate earned by our vessels employed in the spot
market which is influenced by market developments. Shipping markets
in 2007 were on average stronger compared to 2006, especially in the second half
of 2007 when the drybulk market reached all time high levels. The higher average
market rates during 2007 positively influenced the earnings of our vessels
employed in the spot market.
Commissions
. Commissions for
the period were $4.02 million. At 4.67% of voyage revenues, commissions were
slightly higher than in the same period in 2006; for the year ended
December 31, 2006, commissions amounted to $1.83 million, or 4.34% of voyage
revenues. The higher level of commissions in 2007 is partly due to
the fact that more vessels operated in the spot market and the higher level of
commissions of certain time charters related to the vessels acquired in
2007.
Voyage expenses
. Voyage
expenses for the year were $0.90 million related to expenses for certain voyage
charters. For the year ended December 31, 2006, voyage expenses amounted to
$1.15 million. Because our vessels are generally chartered under time charter
contracts, voyage expenses represent a small fraction (1.0% and 2.7% in 2007 and
2006, respectively) of voyage revenues; in 2006, we had more voyage charters
than in 2007 which resulted in higher voyage expenses.
Vessel operating expenses
.
Vessel operating expenses were $17.24 million for the period compared to $10.37
million for the same period in 2006. This difference was due to the
higher average number of vessels we operated in 2007, specifically an average of
11.48 vessels in 2007 compared to 8.09 vessels in 2006. Daily vessel operating
expenses per vessel increased between the two periods to $4,115 per day in 2007
compared to $3,524 per day in 2006, a 16.8% increase, reflecting primarily
higher crew and lubricant costs and higher exchange rate of the euro and other
currencies with respect to the U.S. dollar.
Management fees
. These are
part of the fees we pay to Eurobulk under our master management agreement. As of
December 31, 2007, Eurobulk charged us 630 Euros per day per vessel totalling
$3.67 million for the period, or $875 per day per vessel. For the same period in
2006, management fees amounted to $2.27 million, or $770 per day per vessel
based on the daily rate per vessel of 608.33 Euros. The Euro exchange
rate has been on average about 10% higher in 2007 as compared to
2006. The increase in the management fees paid in 2007 also resulted
from an increase in the average number of vessels we owned during the period; in
2007, we owned 11.48 vessels compared to an average of 8.09 vessels we owned
during 2006.
Other general and administrative
expenses
. These are expenses we pay as part of our operation as a public
company and include the fixed portion of our management agreement fees, legal
and auditing fees, directors’ and officers’ liability insurance and other
miscellaneous corporate expenses. In 2007, we had a total of $2.66 million of
general and administrative expenses as compared to $1.08 million in
2006. The increase is mainly due to higher audit fees of
approximately $0.25 million in 2007 inclusive of the audit of our internal
controls over financial reporting, the cost required for us to implement
internal controls for financial reporting to comply with Section 404 of the
Sarbanes-Oxley Act of approximately $0.23 million as well as higher management
fees we paid to Eurobulk for executive services of approximately $0.10 million
in 2007, and $0.82 million for the cost of non-cash compensation of stock
incentives awards given to certain officers, directors and other key
persons.
Amortization of drydocking and
special survey expense and vessel depreciation
. Amortization and
depreciation for the period was $17.96 million. This consists of $16.42 million
of depreciation and $1.54 million of amortization of deferred drydocking
expenditures. Comparatively, depreciation and amortization for the same period
in 2006 amounted to $6.28 million and $1.01 million, respectively, for a total
of $7.29 million. Depreciation in 2007 was higher than in 2006 because
of the higher average number of vessels and also because the
depreciation associated with vessels bought in 2007 (the one vessel sold in 2007
was fully depreciated). Amortization in 2007 is also higher than the same period
in 2006 due to seven vessels that underwent drydocking or special survey during
2007 plus the full effect of the amortization of the two vessels that underwent
drydocking or special survey in 2006.
Net gain or Loss from vessel
sales
. There was one vessel sold in 2007 for a gain of $3.41 million
compared to two vessel sales in 2006 for a gain of $4.45 million.
Interest and other financing costs,
net.
Interest and other financing costs, net for the period were $2.49
million. Of this amount, $4.85 million relates to interest incurred, loan fees
and expenses paid and deferred loan fees written-off during the period, offset
by $2.36 million of interest income during the period. Comparatively, during the
same period in 2006, net interest and finance costs amounted to $2.53 million,
comprised of $3.40 million of interest incurred and loan fees and offset by
$0.87 million of interest income. Interest incurred and loan fees were higher in
2007 due to the higher loan amount outstanding as a result of the new loans
undertaken in June 2007 and November 2007. Interest income was higher
in 2007 due the proceeds from three follow-on common stock offerings. As of
December 31, 2007, the net proceeds of the last offering, amounting to
approximately $93.6 million, were not invested.
Trading Securities and Foreign
Exchange Gains or Losses.
In 2007, we had a $7,824 foreign exchange loss
compared to a $1,598 foreign exchange loss in 2006. In 2007, we had unrealized
gain from investments in trading securities of $98,744. We had no such gain in
2006.
Net income.
As a result
of the above, net income for the year ended on December 31, 2007 was $40.66
million compared to $20.07 million for the same period in 2006, representing an
increase of 102.6%.
Year
ended December 31, 2006 compared year ended December 31, 2005.
Voyage revenues
. Voyage
revenues for the period were $42.14 million, down 5.3% compared to the same
period in 2005 during which voyage revenues amounted to $44.52 million. The
decrease was primarily due to the lower charter rates our vessels achieved in
2006 as compared to 2005. Our fleet of 8.09 vessels had throughout the period 31
unscheduled off-hire days, primarily due to an unscheduled repair for m/v
Ariel
and 47 days of
scheduled off-hire for the drydocking of m/v
Nikolaos P
and m/v
Kuo Hsiung
, generating an
average TCE rate per vessel of $14,313 per day compared to $17,485 per day per
vessel for the same period in 2005. The average TCE rate our vessels
achieve is a combination of the time charter rate earned by our vessels under
time charter contracts, which is not influenced by market developments, and the
TCE rate earned by our vessels employed in the spot market which is influenced
by market developments. Shipping markets in 2006 were on average
weaker compared to 2005, although in the second half of 2006 the drybulk market
recovered significantly. The lower average market rates during 2006 influenced
the earnings of our vessels employed in the spot market.
Commissions
. Commissions for
the period were $1.83 million. At 4.34% of voyage revenues, commissions were
lower than in the same period in 2005. For the year ended December 31, 2005,
commissions amounted to $2.39 million, or 5.36% of voyage revenues. The lower
level of commissions in 2006 is partly due to the fact that more
vessels operated in pools (where commissions are paid by the pool thus reducing
the commissions paid by us) and the lower level of commissions of certain time
charters (for example, m/v
Tasman Trader’s
charter had
commissions of 2.25%).
Voyage expenses
. Voyage
expenses for the year were $1.15 million related to expenses for certain voyage
charters. For the year ended December 31, 2005, voyage expenses amounted to
$0.67 million. Because our vessels are generally chartered under time charter
contracts, voyage expenses represent a small fraction (1.5% and 2.7% in 2005 and
2006, respectively) of voyage revenues; in 2006, we had more voyage charters
than in 2005 which resulted in higher voyage expenses.
Vessel operating expenses
.
Vessel operating expenses were $10.37 million for the period compared to $8.61
million for the same period in 2005. This difference was due to the
higher average number of vessels we operated in 2006, specifically an average of
8.09 vessels in 2006 compared to 7.10 vessels in 2005. Daily vessel operating
expenses per vessel increased modestly between the two periods to $3,524 per day
in 2006 compared to $3,323 per day in 2005, a 6.1% increase, reflecting
primarily higher crew and lubricant costs.
Management fees
. These are
part of the fees we pay to Eurobulk under our master management agreement. As of
December 31, 2006, Eurobulk charged us 610 Euros per day per vessel totalling
$2.27 million for the period, or $770 per day per vessel. For the same period in
2005, management fees amounted to $1.91 million, or $738 per day per vessel
based on the daily rate per vessel of 590 Euros. The Euro exchange
rate has been on average about 1% higher in 2006 as compared to
2005. The increase in the management fees paid in 2006 also resulted
from an increase in the average number of vessels we owned during the period; in
2006, we owned 8.09 vessels compared to an average of 7.10 vessels we owned
during 2005.
Other general and administrative
expenses
. These are expenses we pay as part of our operation as a public
company and include the fixed portion of our management agreement fees, legal
and auditing fees, directors’ and officers’ liability insurance and other
miscellaneous corporate expenses. In 2006, we had a total of $1.1 million of
general and administrative expenses as compared to $0.4 million in
2005. We started incurring these expenses in the second half of 2005
and mainly after the completion of our private placement in August
2005. Our 2006 level of general and administrative expenses reflect a
full year of incurring them compared to less than half a year in
2005.
Amortization of drydocking and
special survey expense and vessel depreciation
. Amortization and
depreciation for the period was $7.29 million. This consists of $6.28 million of
depreciation and $1.01 million of amortization of deferred drydocking
expenditures. Comparatively, depreciation and amortization for the same period
in 2005 amounted to $2.66 million and $1.55 million, respectively, for a total
of $4.21 million. Depreciation in 2006 was higher than in 2005 because
of the higher average number of vessels and also because the
depreciation associated with vessels bought in 2006 was higher than the
corresponding depreciation of the vessels sold during 2006. Amortization in 2006
is lower than the same period in 2005 due to the sale of m/v
Pantelis P
and m/v
John P
in the middle of 2006,
while the 3 vessels bought during 2006 did not have any amortization during the
year.
Net gain or Loss from vessel
sales
. There were two vessels sold in 2006 for a gain of $4.45
million. There were no vessel sales in the year ended December 31,
2005.
Interest and other financing costs,
net.
Interest and other financing costs, net for the period were $2.53
million. Of this amount, $3.40 million relates to interest incurred, loan fees
and expenses paid and deferred loan fees written-off during the period, offset
by $0.87 million of interest income during the period. Comparatively, during the
same period in 2005, net interest and finance costs amounted to $1.04 million,
comprised of $1.50 million of interest incurred and loan fees and offset by
$0.46 million of interest income. Interest incurred and loan fees are higher in
2006 due to the higher loan amount outstanding as a result of the new loans
undertaken in June 2006, August 2006 and November 2006.
Derivative and Foreign Exchange
Gains or Losses.
In 2006, we had a $1,598 foreign exchange loss and no
derivative gains or losses. In 2005, we had a derivative loss of $0.10 million
due to an interest rate swap on a notional amount of $5 million, and foreign
exchange gains of less than $0.01 million.
Net income.
As a result of
the above, net income for the year ended on December 31, 2006 was $20.07 million
compared to $25.18 million for the same period in 2005, representing a decrease
of 20.3%.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America, or U.S. GAAP. The preparation of those financial statements requires us
to make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or
conditions.
Critical
accounting policies are those that reflect significant judgments or
uncertainties, and potentially result in materially different results under
different assumptions and conditions. We have described below what we believe
are our most critical accounting policies that involve a high degree of judgment
and the methods of their application.
Depreciation
We record
the value of our vessels at their cost (which includes acquisition costs
directly attributable to the vessel and expenditures made to prepare the vessel
for its initial voyage) less accumulated depreciation. We depreciate our vessels
on a straight-line basis over their estimated useful lives, estimated to range
from 25 to 30 years from date of initial delivery from the shipyard. We believe
that the 25 to 30 year range of depreciable life is consistent with that of
other ship owners. As of December 31, 2006, one of our vessels had already
reached an age of 29 years and continued to be employed (this vessel, m/v
Ariel
, was sold for further
trading in February 2007). Depreciation is based on cost less the estimated
residual scrap value. In 2004, the estimated scrap value of the vessels was
increased from $170 to $300 per LWT to better reflect market price developments
in the scrap metal market (see Item 3A Selected Consolidated Financial Data). An
increase in the useful life of the vessel or in the residual value would have
the effect of decreasing the annual depreciation charge and extending it into
later periods. A decrease in the useful life of the vessel or in the residual
value would have the effect of increasing the annual depreciation
charge.
Revenue
and expense recognition
Revenues
are generated from voyage and time charter agreements. If a charter
agreement exists, the price is fixed, service is provided and the collection of
the related revenue is reasonably assured, revenues are recorded over the term
of the charter as service is provided and recognized on a pro-rata basis over
the duration of the voyage or time charter adjusted for the off-hire days that a
vessel spends undergoing repairs, maintenance or upgrade work. A voyage is
deemed to commence upon the later of the completion of discharge of the vessel’s
previous cargo or the time it receives a contract that is not cancelable and is
deemed to end upon the completion of discharge of the current
cargo. A time charter contract is deemed to commence from the time of
the delivery of the vessel to an agreed port and is deemed to end upon the
re-delivery of the vessel at an agreed port. We generally enter into a charter
agreement for the vessel’s next voyage or time charter prior to the time of
discharge of the previous cargo or completion of previous time charter. We do
not begin recognizing voyage or time charter revenue until a charter contract
has been agreed to both by us and the customer, even if the vessel has
discharged its cargo or completed the previous time charter and it is
sailing to the anticipated load port for its next voyage or to the port it will
be delivered to the next charterer. Demurrage income, which is included in
voyage revenues, represents payments received from the charterer when loading or
discharging time exceeded the stipulated time in the voyage charter and is
recognized when earned. Probable losses on voyages are provided for in full at
the time such losses can be estimated.
For the
Company’s vessels operating in chartering pools, revenues and voyage expenses
are pooled and allocated to each pool’s participants on a time charter
equivalent basis in accordance with an agreed-upon formula. For vessels that
simultaneously participate in spot chartering pools and cargo pools (pools of
contracts of affreightment, also called, short funds; in the Company’s case,
participation in cargo pools requires participation in spot chartering pools), a
combined time charter equivalent revenue is provided by the operator of the
vessel and cargo pools. Revenues and voyage expenses are recognized during the
period services were performed, the collectability has been reasonably assured,
an agreement with the pool exists and price is determinable.
Charter
fees received in advance are recorded as a liability (deferred revenue) until
charter services are rendered.
Vessels
operating expenses comprise all expenses relating to the operation of the
vessels, including crewing, insurance, repairs and maintenance, stores,
lubricants, spares and consumables, professional and legal fees and
miscellaneous expenses. Vessel operating expenses are incurred when the vessel
is chartered under a voyage charter and are recognized as incurred; payments in
advance of services or use are recorded as prepaid expenses. Voyage expenses
comprise all expenses relating to particular voyages, including bunkers, port
charges, canal tolls, and agency fees. Voyage expenses are recognized on a
pro-rata basis over the estimated length of the each voyage. The impact of
recognizing voyage expenses on a pro-rata basis over the length of the each
voyage is not materially different on a quarterly and annually basis from a
method of recognizing such expenses as incurred.
Deferred
drydock costs
Our
vessels are required to be drydocked approximately every 30 to 60 months for
major repairs and maintenance that cannot be performed while the vessels are
trading. We capitalize the costs associated with drydockings as they occur and
amortize these costs on a straight-line basis over the period between
drydockings. Costs capitalized as part of the drydocking include actual costs
incurred at the drydock yard, cost of travel, lodging and subsistence of our
personnel sent to the drydocking site to supervise and the cost of hiring a
third party to oversee a drydocking. We believe that these criteria are
consistent with industry practice and that our policy of capitalization reflects
the economics and market values of the vessels. Commencing January 1, 2006, we
revised our policy to exclude the cost of hiring riding crews and the cost of
parts used by riding crews from amounts capitalized as drydocking cost. We have
not restated any historical financial statements because we determined that the
impact of such a revision is not material to our operating income and net income
for any periods presented.
Fair
value of time charter acquired
We record
all identified tangible and intangible assets or any liabilities associated with
the acquisition of a vessel at fair value. Where vessels are acquired with
existing time charters, the Company determines the present value of the
difference between: (i) the contractual charter rate and (ii) the prevailing
market rate for a charter of equivalent duration. In discounting the charter
rate differences in future periods, the Company uses its Weighted Average Cost
of Capital (WACC) adjusted to account for the credit quality of the
charterer. The capitalized above-market (assets) and below-market
(liabilities) charters are amortized as a reduction and increase, respectively,
to voyage revenues over the remaining term of the charter.
Impairment
of long-lived assets
We
evaluate the carrying amounts and periods over which long-lived assets are
depreciated to determine if events have occurred which would require
modification to their carrying values or useful lives. In evaluating useful
lives and carrying values of long-lived assets, we review certain indicators of
potential impairment, such as undiscounted projected operating cash flows,
vessel sales and purchases, business plans and overall market conditions. We
determine undiscounted projected net operating cash flows for each vessel and
compare it to the vessel carrying value. In the event that impairment occurred,
we would determine the fair value of the related asset and we record a charge to
operations calculated by comparing the asset’s carrying value to the estimated
fair market value. We estimate fair market value primarily through the use of
third party valuations performed on an individual vessel basis. To
date, no impairment loss indicators have arisen.
Stock
incentive plan awards
We
include share-based compensation in “Other general and administrative expenses”
in the consolidated statements of income. Share-based compensation represents
vested and nonvested restricted shares granted to employees and to non-employee
directors, for their services as directors, as well as to non-employees. These
shares are measured at their fair value equal to the market value of the
Company's common stock on the grant date. The shares that do not contain any
future service vesting conditions are considered vested shares and a total fair
value of such shares is expensed on the grant date. The shares that contain a
time-based service vesting condition are considered nonvested shares on the
grant date and a total fair value of such shares recognized on a straight-line
basis over the requisite service period . In addition, nonvested awards granted
to non-employees are measured at its then-current fair value as of the financial
reporting dates until non-employees complete the service.
Investments
We
classify unrestricted publicly traded investments as trading securities and
record them at fair value. For trading securities, the Company records
unrealized gains or losses resulting from changes in fair value between
measurement dates as a component of “Gain (loss) on trading securities”.
Purchases of, or proceeds from, the sale of trading securities are classified as
cash flows from operating activities. Upon adoption of Statement of Financial
Accounting Standards No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS No. 159”), the classification of purchases of, or
proceeds from, the sale of trading securities will be classified to cash flows
from operating activities or cash flows from investing activities based upon the
Company’s intent with respect to these securities.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure about fair value measurements. SFAS
No. 157 is effective for financial assets and liabilities in fiscal years
beginning after November 15, 2007 and for non-financial assets and liabilities
in fiscal years beginning after March 15, 2008. The Company does not expect the
adoption of SFAS No. 157 to have a material impact on Company’s consolidated
financial statements.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities Including an amendment of FASB Statement No.
115” (SFAS No. 159”) which provides the option to report certain financial
assets and liabilities at fair value, with the intent to mitigate volatility in
financial reporting that can occur when related assets and liabilities are
recorded on different bases. SFAS No. 159 amends FASB Statement No. 95,
“Statement of Cash Flows” (“SFAS No. 95”) and FASB Statement No. 115,
“Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No.
115”). SFAS No. 159 specifies that cash flows from trading securities, including
securities for which an entity has elected the fair value option, should be
classified in the statement of cash flows based on the nature of and purpose for
which the securities were acquired. Before this amendment, SFAS No. 95 and SFAS
No. 115 specified that cash flows from trading securities must be classified as
cash flows from operating activities. This statement is effective for the
Company beginning January 1, 2008. Upon adoption, the Company will be
classifying proceeds from sales of trading securities within the statement of
cash flows as an investing activity based on the intention for which any
securities are acquired. The Company does not expect any of the other provisions
of SFAS No. 159 to have a material impact on our consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree and the goodwill
acquired. SFAS No. 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for fiscal years beginning
after December 15, 2008, and will be adopted by the Company in the first quarter
of fiscal 2009. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS No. 141(R) on the Company's consolidated
results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS No. 160”).” SFAS No. 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent’s ownership
interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008, and will be adopted by the Company in the first quarter of
fiscal 2009. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS No. 160 on the Company's consolidated
results of operations and financial condition.
In March
2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities” (“SFAS No. 161”). The new standard is intended to
improve financial reporting about derivative instruments and heding activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The
Company is currently evaluating the potential impact, if any, of the adoption of
SFAS No. 161 on the Company's consolidated results of operations, cash flows and
financial condition.
B.
|
Liquidity
and Capital Resources
|
Historically, our sources of funds have
been equity provided by our shareholders, operating cash flows and long-term
borrowings. Our principal use of funds has been capital expenditures to
establish and expand our fleet, maintain the quality of our drybulk carriers,
comply with international shipping standards and environmental laws and
regulations, fund working capital requirements, make principal repayments on
outstanding loan facilities, and pay dividends. We expect to rely upon funds
raised from our follow-on common stock offering in November 2007, operating cash
flows, long term borrowings, as well as future offerings to implement our growth
plan and meet our liquidity needs going forward. In our opinion our
working capital is sufficient for our present requirements.
Cash
Flows
As of
December 31, 2007, we had a cash balance of $104.14 million, funds due from
related companies of $5.29 million and $6.24 million cash in restricted
retention accounts. Amounts due from related party represent net disbursements
and collections made by our fleet manager, Eurobulk, on behalf of the
ship-owning companies during the normal course of operations for which they have
the right of offset. Amounts due from related parties mainly consist of advances
to our fleet manager of funds to pay for all anticipated vessel
expenses. The amount of $5.29 million due from related parties as of
December 31, 2007 therefore consists entirely of such deposits. Interest earned
on funds deposited in related party accounts is credited to the account of the
ship-owning companies or Euroseas. Working capital is current assets minus
current liabilities, including the current portion of long term debt. We have a
working capital surplus of $83.12 million including the current portion of long
term debt which was $25.58 million as of December 31, 2007. All of the $20.28
million dividend declared was paid as of December 31, 2007. We consider our
liquidity sufficient for our operations. We expect to finance all our
working capital requirements from cash generated from operations and proceeds
from our November 2007 follow-on common stock offering.
Net
cash from operating activities.
Our net
cash from operating activities for 2007 was $48.96 million. This represents the
net amount of cash, after expenses, generated by chartering our vessels.
Eurobulk and another related party, on our behalf, collect our chartering
revenues and pay our chartering expenses. Net income for the period was $40.66
million, which was reduced by a gain of $3.41 million from the sale of m/v
Ariel
and increased by $18.03
million of depreciation and amortization amongst other adjustments. In 2006, net
cash flow from operating activities was $20.97 million based on a contribution
of net income of $20.07 million reduced by a gain of $4.45 million from the sale
of two vessels and increased by $7.37 million of depreciation and amortization
amongst other adjustments.
Net
cash from investing activities.
In 2007, we purchased seven vessels
for a total cash outflow of $149.50 million, we received proceeds of $5.22
million from the sale of m/v
Ariel
, and, we had to put in
retention accounts and increase restricted cash by $2.39 million to satisfy
requirements of our new loan facilities for a total of funds used in investment
activities of $146.67 million. In 2006, we purchased three vessels
for a total of $61.75 million, we received proceeds from the sale of m/v
Pantelis P
and m/v
John P
totaling $9.15
million, and, we had to put in retention accounts and increase restricted cash
by $2.77 million to satisfy requirements of our new loan facilities for a total
of funds used in investment activities of $55.37 million. It is our strategy to
expand and renew our fleet by pursuing selective acquisitions. At the
same time, we sell vessels in order to renew our fleet or take advantage of
opportune market conditions.
Net
cash used in financing activities.
In 2007,
net cash provided by financing activities amounted to $199.06 million. This is
accounted by the $214.22 million raised in three follow-on common stock
offerings (after underwriter discounts) and via outstanding warrants exercised.
This amount was reduced by $20.28 million of dividends, $1.41 million of
offering expenses and $0.11 million of loan arrangement fees paid and further
increased by net borrowings of $6.64 million. In 2006, net cash provided by
financing activities amounted to $16.74 million. This is mainly accounted by net
proceeds from long term debt of $26.39 offset by $9.47 million of dividends and
$0.15 million in loan arrangement fees paid.
Debt
Financing
We
operate in a capital intensive industry which requires significant amounts of
investment, and we fund a major portion of this investment through long term
debt. We maintain debt levels we consider prudent based on our market
expectations, cash flow, interest coverage and percentage of debt to capital.
During 2007, we drew down on two loans to partly finance the acquisition of two
of the vessels we acquired totaling $25.00 million.
As of
December 31, 2007, after considering the loan repayments and new loans discussed
in the preceding paragraph, we had ten outstanding loans with a combined
outstanding balance of $81.59 million. These loans have maturity dates between
2008 and 2015. Our long-term debt as of December 31, 2007 comprises bank loans
granted to our vessel-owning subsidiaries. A description of our loans
as of December 31, 2007 is provided in Note 9 of our attached financial
statements. In 2008, we plan to repay approximately $25.58 million of our long
term debt.
Our loans
have various covenants which include restrictions to changes in management and
ownership of the vessels, additional indebtedness and mortgaging of vessels
without lenders’ consent, the sale of vessels, as well as minimum requirements
regarding the hull cover ratio and corporate liquidity. We have no
restrictions in the distribution of dividends or any other distribution of
profits or assets from our shipowning subsidiaries to us if the loan covenants
are satisfied. If we are found to be in default of any covenants we
might be required to provide supplemental collateral to the lenders, usually in
the form of restricted cash. Increases in restricted cash required to
satisfy loan covenants, would reduce funds available for investment or working
capital and could have a negative impact on our operations. If we
cannot correct any violated covenants, we might be required to repay all or part
of our loans, which, in turn, might require us to sell one or more of our
vessels under distressed conditions. We are not in default of any credit
facility covenant as of December 31, 2007.
Capital
Expenditures
We make
capital expenditures from time to time in connection with our vessel
acquisitions. Our two most recent vessel acquisitions consist of one
containership, m/v
Tiger
Bridge
, which was delivered to us in October 2007, and one drybulk
carrier, m/v
Ioanna P
,
which was delivered to us in November 2007. We financed m/v
Tiger Bridge
with 100%
equity. We financed m/v
Ioanna P
with equity and a
$10.00 million loan. Of our seven acquisitions during 2007, four were
financed with 100% equity, m/v
OEL Transworld
, m/v
Despina P
, m/v
OEL Interity
and m/v
Tiger Bridge
, while the
remaining three were financed with equity and debt. In addition to m/v
Ioanna P
, we
financed m/v
Manolis P
with $15.00 loan in addition to equity and we added m/v
Gregos
as an additional
collateral (along with m/v
YM
Xingang I
) to a loan we had drawn in 2006.
Seven of
our vessels in our operating fleet underwent scheduled drydocking or special
survey in 2007, three vessels underwent special survey or drydocking in 2008 and
two additional vessels are scheduled to undergo a special survey or drydocking
in 2008. This process of recertification may require us to reposition these
vessels from a discharge port to shipyard facilities, which will reduce our
operating days during the period. The loss of earnings associated with the
decrease in operating days, together with the capital needs for repairs and
upgrades, is expected to result in increased cash flow needs. We expect to fund
these expenditures with cash on hand.
Dividends
On March
8, 2008, the Company announced the declaration of its eleventh consecutive
dividend since its Private Placement in August 2005. This dividend of
$0.31 per common share will be paid on or about June 18, 2008 to all
shareholders of record as of June 6, 2008. This follows the Company’s
prior dividend declarations of $0.30 per common share, on February 7, 2008,
$0.29 per common share on October 16, 2007, $0.25 per common share on July 17,
2007, $0.24 per common share on May 8, 2007, $0.22 per common share on January
8, 2007, $0.21 per common share on November 9, 2006, $0.18 per common share on
August 7, 2006, $0.18 per common share on May 9, 2006, $0.18 per common share on
February 7, 2006 and of $0.21 per share on November 2, 2005. The
aggregate amount of all such dividends paid was $41,522,174; an additional
$9,128,334 is scheduled to be paid on or about June 18, 2008, and, an additional
$130,500 will be paid if and when unvested restricted incentive stock awards
vest.
C.
|
Research
and development, patents and licenses,
etc.
|
Not
applicable.
Our
results of operations depend primarily on the charter hire rates that we are
able to realize. Charter hire rates paid for drybulk, containership and
multipurpose carriers are primarily a function of the underlying balance between
vessel supply and demand.
The
demand for drybulk carrier, containership and multipurpose vessel capacity is
determined by the underlying demand for commodities transported in these
vessels, which in turn is influenced by trends in the global economy. One of the
main reasons for the resurgence in drybulk and containerized trade has been the
growth in imports by China of iron ore, coal and steel products during the last
five years and exports of finished goods. Demand for drybulk carrier and
containership capacity is also affected by the operating efficiency of the
global fleet, with port congestion, which has been a feature of the market in
2004, the first half of 2005 and again in late 2006 and 2007, absorbing
additional tonnage especially in the drybulk market.
The
supply of drybulk carriers, containerships and multipurpose vessels is dependent
on the delivery of new vessels and the removal of vessels from the global fleet,
either through scrapping or loss. As of April 1, 2008, the global
drybulk carrier orderbook amounted to approximately 236.1 million dwt, or about
59.5% of the existing fleet, with more than half of the vessels on the orderbook
expected to be delivered within 30 months. Containership orderbook
(including multipurpose vessels) amounted to approximately 6.8 million teu, or
about 55.5% of the existing fleet with most vessels, again, expected to be
delivered within 30 months. The level of scrapping activity is
generally a function of scrapping prices in relation to current and prospective
charter market conditions, as well as operating, repair and survey costs. The
average age at which a vessel is scrapped over the last ten years has been
between 26 and 27 years, with smaller vessels scrapped at later age. However,
due to recent strength in the drybulk and container shipping industry, the
average age at which the vessels are scrapped has increased; during 2004, 2005,
2006 and 2007, the majority of the handysize and handymax bulkers and
feedership, handysize and intermediate size containerships that were scrapped
were in excess of 30 years of age. Panamax drybulk carriers were
scrapped at an average age of 29 years over 2004, 2005, 2006 and
2007.
E.
|
Off-balance
Sheet Arrangements
|
As of
December 31, 2007 we did not have any off-balance sheet
arrangements.
F.
|
Tabular
Disclosure of Contractual
Obligations
|
|
Contractual
Obligations and Commitments
|
Contractual
obligations are set forth in the following table as of December 31,
2007:
In
U.S. dollars
|
|
Total
|
|
|
Less Than One Year
|
|
|
One to
Three Years
|
|
|
Three to
Five Years
|
|
|
More
Than
Five
Years
|
|
Bank
debt
|
|
$
|
81,590,000
|
|
|
$
|
25,575,000
|
|
|
$
|
26,900,000
|
|
|
$
|
11,960,000
|
|
|
$
|
17,155,000
|
|
Interest
Payment (1)
|
|
$
|
12,575,594
|
|
|
$
|
3,920,299
|
|
|
$
|
4,956,358
|
|
|
$
|
2,464,925
|
|
|
$
|
1,234,013
|
|
Vessel
Management fees (2)
|
|
$
|
29,224,447
|
|
|
$
|
5,449,815
|
|
|
$
|
11,478,537
|
|
|
$
|
12,096,295
|
|
|
|
—
|
|
Other
Management fees (3)
|
|
$
|
5,898,712
|
|
|
$
|
1,100,000
|
|
|
$
|
2,316,848
|
|
|
$
|
2,481,865
|
|
|
|
—
|
|
(1) Assuming
the amortization of the loan described above and an estimated average effective
interest rate of about 5.45%, 5.42%, 5.37% and 5.31% for the four periods,
respectively, based on an underlying assumption for LIBOR of 4.50%.
(2) Refers
to our obligation for management fees of 630 Euros per day per vessel
(approximately $995) for the fifteen vessels owned by Euroseas at December 31,
2007 under our five-year management contract under our Master Management
Agreement, which expires on December 31, 2012. For years two to five
we have assumed no changes in the number of vessels, an inflation rate of 3.5%
per year and no changes in this US Dollar to Euro exchange rate (assumed
approximately at 1.58 USD/Euro).
(3) Refers
to our obligation for management fees of $1,100,000 per year under our Master
Management Agreement with Eurobulk for the cost of providing management services
to Euroseas as a public company. This fee is adjusted for inflation in Greece
during the previous calendar year every January 1
st
. From
January 1
st
, 2009
on, we have assumed an inflation rate of 3.5% per year.
G. Safe
Harbor
See
section “Forward-Looking Statements” at the beginning of this annual
report.
|
Directors,
Senior Management and Employees
|
A.
|
Directors and Senior
Management
|
The
following sets forth the name and position of each of our directors and
executive officers.
Name
|
Age
|
Position
|
Aristides
J. Pittas
Dr.
Anastasios Aslidis
Aristides
P. Pittas
Stephania
Karmiri
Panagiotis
Kyriakopoulos
George
Skarvelis
George
Taniskidis
Gerald
Turner
|
49
48
56
40
47
47
47
60
|
Chairman,
President and CEO; Class A Director
CFO
and Treasurer; Class A Director
Vice
Chairman; Class A Director
Secretary
Class
B Director
Class
B Director
Class
C Director
Class
C Director
|
Aristides J. Pittas
has been
a member of our Board of Directors and our Chairman and Chief Executive Officer
since our inception on May 5, 2005. Since 1997, Mr. Pittas has also been
the President of Eurochart S.A., our affiliate. Eurochart is a shipbroking
company specializing in chartering and selling and purchasing ships. Since 1997,
Mr. Pittas has also been the President of Eurotrade, a ship operating
company and our affiliate. Since January 1995, Mr. Pittas has been the
President and Managing Director of Eurobulk, our affiliate. He resigned as
Managing Director of Eurobulk in June 2005. Eurobulk is a ship management
company that provides ocean transportation services. From September 1991 to
December 1994, Mr. Pittas was the Vice President of Oceanbulk Maritime SA,
a ship management company. From March 1990 to August 1991, Mr. Pittas
served both as the Assistant to the General Manager and the Head of the Planning
Department of Varnima International SA, a shipping company operating tanker
vessels. From June 1987 until February 1990, Mr. Pittas was the head of the
Central Planning department of Eleusis Shipyards S.A. From January 1987 to June
1987, Mr. Pittas served as Assistant to the General Manager of Chios
Navigation Shipping Company in London, a company that provides ship management
services. From December 1985 to January 1987, Mr. Pittas worked in the
design department of Eleusis Shipyards S.A. where he focused on shipbuilding and
ship repair. Mr. Pittas has a B.Sc. in Marine Engineering from University
of Newcastle - Upon-Tyne and a MSc in both Ocean Systems Management and Naval
Architecture and Marine Engineering from the Massachusetts Institute of
Technology.
Dr. Anastasios Aslidis
has been our Chief Financial Officer and Treasurer and member of our Board of
Directors since September 2005. Prior to joining Euroseas, Dr. Aslidis was
a partner at Marsoft, an international consulting firm focusing on investment
and risk management in the maritime industry. Dr. Aslidis has more than
19 years
of experience in the maritime industry. Between 2003 and 2005, he worked on
financial risk management methods for shipowners and banks lending to the
maritime industry, especially as pertaining to compliance to the Basel II
Capital Accords. He also served as consultant to the Boards of Directors of
shipping companies (public and private) advising in strategy development, asset
selection and investment timing. Between 1993 and 2003, as part of his tenure at
Marsoft, he worked on various projects including development of portfolio and
risk management methods for shipowners, establishment of investments funds and
structuring private equity in the maritime industry and business development for
Marsoft’s services. Between 1989 and 1993, Dr. Aslidis worked on economic
modeling of the offshore drilling industry and on the development of a trading
support system for the drybulk shipping industry on behalf of a major European
shipowner. Dr. Aslidis holds a diploma in Naval Architecture and Marine
Engineering from the National Technical University of Athens (1983), M.S. in
Ocean Systems Management (1984) and Operations Research (1987) from the
Massachusetts Institute of Technology, and a Ph.D. in Ocean Systems Management
(1989) also from Massachusetts Institute of Technology.
Aristides P. Pittas
has been
a member of our Board of Directors since our inception on May 5, 2005 and our
Vice Chairman since September 1, 2005. Mr. Pittas has been a shareholder in
over 70 oceangoing vessels during the last 20 years. Since February 1989,
Mr. Pittas has been the Vice President of Oceanbulk Maritime SA, a ship
management company. From November 1987 to February 1989, Mr. Pittas was
employed in the supply department of Drytank SA, a shipping company. From
November 1981 to June 1985, Mr. Pittas was employed at Trust Marine
Enterprises, a brokerage house as a sale and purchase broker. From September
1979 to November 1981, Mr. Pittas worked at Gourdomichalis Maritime SA in
the operation and Freight Collection department. Mr. Pittas has a B.Sc in
Economics from Athens School of Economics.
Stephania Karmiri
has been
our Secretary since our inception on May 5, 2005. Since July 1995,
Mrs. Karmiri has been executive secretary to Eurobulk, our affiliate.
Eurobulk is a ship management company that provides ocean transportation
services. At Eurobulk, Mrs. Karmiri has been responsible for dealing with
sale and purchase transactions, vessel registrations/deletions, bank loans,
supervision of office administration and office/vessel telecommunication. From
May 1992 to June 1995, she was secretary to the technical department of
Oceanbulk Maritime SA, a ship management company. From 1988 to 1992,
Mrs. Karmiri served as assistant to brokers for Allied Shipbrokers, a
company that provides shipbroking services to sale and purchase transactions.
Mrs. Karmiri has taken assistant accountant and secretarial courses from
Didacta college.
Panagiotis Kyriakopoulos
has
been a member of our Board of Directors since our inception on May 5, 2005.
Since July 2002, he has been the Chief Executive Officer of New Television S.A.,
one of the leading Mass Media Companies in Greece, running television and radio
stations. From July 1997 to July 2002 he was the C.E.O. of the Hellenic Post
Group, the Universal Postal Service Provider, having the largest retail network
in Greece for postal and financial services products. From March 1996 until July
1997, Mr. Kyriakopoulos was the General Manager of ATEMKE SA, one of the
leading construction companies in Greece listed on the Athens Stock Exchange.
From December 1986 to March 1996, he was the Managing Director of Globe Group of
Companies, a group active in the areas of shipowning and management, textiles
and food and distribution. The company was listed on the Athens Stock Exchange.
From June 1983 to December 1986, Mr. Kyriakopoulos was an assistant to the
Managing Director of Armada Marine S.A., a company active in international
trading and shipping, owning and managing a fleet of
12
vessels. Presently he is a member of the Board of Directors of the Hellenic Post
and General Secretary of the Hellenic Private Television Owners Union. He has
also been an investor in the shipping industry for more than
20 years.
Mr. Kyriakopoulos has a B.Sc. degree in Marine Engineering from the
University of Newcastle upon Tyne and a MSc. degree in Naval Architecture and
Marine Engineering with specialization in Management from the Massachusetts
Institute of Technology.
George Skarvelis
has been a
member of our Board of Directors since our inception on May 5, 2005. He has been
active in shipping since 1982. In 1992, he founded Marine Spirit S.A., a ship
management company. Between 1999 and 2003, Marine Spirit acted as one of the
crewing managers for Eurobulk. From 1986 until 1992, Mr. Skarvelis was
operations director at Markos S. Shipping Ltd. From 1982 until 1986, he worked
with Glysca Compania Naviera, a management company of five vessels. Over the
years Mr. Skarvelis has been a shareholder in numerous shipping companies.
He has a B.Sc. in economics from the Athens University Law School.
George Taniskidis
has been a
member of our Board of Directors since our inception on May 5, 2005. He is the
Chairman and Managing Director of Millennium Bank and a member of the Board of
Directors of BankEuropa (subsidiary bank of Millennium Bank in Turkey). He is a
member of the Executive Committee of the Hellenic Banks Association. From 2003
until 2005, he was a member of the Board of Directors of Visa International
Europe, elected by the Visa issuing banks of Cyprus, Malta, Portugal, Israel and
Greece. From 1990 to 1998, Mr. Taniskidis worked at XIOSBANK (until its
acquisition by Piraeus Bank in 1998) in various positions, with responsibility
for the bank’s credit strategy and network. Mr. Taniskidis studied Law in
the National University of Athens and in the University of Pennsylvania Law
School, where he received a LL.M. After law school, he joined the law firm of
Rogers & Wells in New York, where he worked until 1989 and was also a member
of the New York State Bar Association. He is also a member of the Young
Presidents Organization.
Gerald Turner
has been a
member of our Board of Directors since our inception on May 5, 2005. Since 1999,
he has been the Chairman and Managing Director of AON Turner Reinsurance
Services. From 1987 to 1999, he was the Chairman and sole owner of Turner
Reinsurance services. From 1977 to 1987, he was the Managing Director of E.W.
Payne Hellas (member of the Sedgwik group).
Family
Relationships
Aristides
P. Pittas is the cousin of Aristides J. Pittas, our CEO.
Executive
Compensation
We have
no direct employees. The services of our Chief Executive Officer, Chief
Financial Officer, Chief Administrative Officer, Internal Auditor and Secretary
are provided by Eurobulk. In July 2005 we entered into a written services
agreement with Eurobulk where we pay $500,000 per year, before bonuses, adjusted
annually for Greek inflation to account for the increased management cost
associated with us being a public company. As of October 1, 2006, these services
are now provided to us under our master management agreement with Eurobulk.
Under this master management agreement, as amended in July 2007 and February
2008, that includes the provision of the services of our executives, Mr.
Aristides J. Pittas, Dr. Anastasios Aslidis, Mr. Symeon Pariaros and Mrs.
Stephania Karmiri, and, our internal auditor, we pay Eurobulk $1,100,000 per
year starting January 1, 2008, before bonuses, for the provision of these
services, adjusted annually every January 1
st
for
Greek inflation. In 2005, 2006 and 2007 we paid $250,000, $508,750 and $608,750,
respectively.
Director
Compensation
Our
directors who are also our employees or have executive positions or beneficially
own greater than 10% of the outstanding common stock will receive no
compensation for serving on our Board or its committees.
Directors
who are not our employees, do not have any executive position and do not
beneficially own greater than 10% of the outstanding common stock will receive
the following compensation: an annual retainer of $10,000, plus $2,500 for
attending the quarterly meeting of the Board of Directors, plus an additional
retainer of $5,000, if serving as Chairman of the Audit Committee.
All
directors are reimbursed reasonable out-of-pocket expenses incurred in attending
meetings of our Board of Directors or any committee of our Board of
Directors.
Equity
Incentive Plan
In August
2006, we adopted an equity incentive plan which entitles our Board of Directors
to grant to our directors, officers and key employees awards in the form of (i)
incentive stock options, (ii) non-qualified stock options, (iii) stock
appreciation rights, (iv) dividend equivalent rights, (v) restricted stock, (vi)
unrestricted stock, (vii) restricted stock units and (viii) performance shares.
The aggregate number of shares of common stock with respect to which options or
restricted shares may at any time be granted under the plan are 600,000 shares
of Common Stock. The plan is administered by our Board of Directors. The plan
does not have any set term. However, the Board of Directors may not grant any
incentive stock options after the tenth anniversary of the adoption of the
Plan. This plan was terminated and replaced by a substantially
similar plan in October 2007 that entitles our Board of Directors to grant
awards under the plan to directors, officers and key employees of the Company
and its affiliates.
On
December 18, 2007, the Board of Directors awarded 135,000 shares of restricted
stock to the directors, officers and key employees of our manager, Eurobulk
Ltd., 50% of which vested on December 20, 2007 and the remainder will vest on
December 15, 2008. On February 7, 2008, the Board of Directors
awarded 150,000 shares of restricted stock to the directors, officers and key
employees of our manager, Eurobulk Ltd., 50% of which will vest of August 7,
2008 and the remainder on August 7, 2009. Vesting of the awards is conditioned
on continuous employment throughout the period to the vesting date.
The term
of our Class A directors expires in 2008. The term of our Class B directors
expires in 2009 and the term of our Class C directors expires in
2010.
Audit
Committee
We
currently have an audit committee comprised of three independent members of our
Board of Directors. The Audit Committee is responsible for reviewing the
Company’s accounting controls and the appointment of the
Company’s
outside auditors. The members of the Audit Committee are Mr. Panos
Kyriakopoulos (Chairman and audit committee “financial expert” as such term is
defined under SEC regulations), Mr. Gerald Turner and Mr. George
Taniskidis. Our Board of Directors does not have separate compensation or
nominations committees, and instead, the entire Board of Directors performs
those responsibilities.
Code
of Ethics
We have
adopted a code of ethics that complies with the applicable guidelines issued by
the SEC. Our code of ethics is posted on our website: http://www.euroseas.gr
under “Corporate Governance.”
Corporate
Governance
Our
Company’s corporate governance practices are in compliance with, and are not
prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we
are exempt from many of NASDAQ’s corporate governance practices other than the
requirements regarding the disclosure of a going concern audit opinion,
submission of a listing agreement, notification of material non-compliance with
NASDAQ corporate governance practices, and the establishment and composition of
an audit committee and a formal written audit committee charter. The practices
followed by us in lieu of NASDAQ’s corporate governance rules are described
below.
|
·
|
We
are not required under Marshall Islands law to maintain a board of
directors with a majority of independent directors, and we cannot
guarantee that we will always in the future maintain a board of directors
with a majority of independent
directors.
|
|
·
|
In
lieu of a compensation committee comprised of independent directors, our
Board of Directors will be responsible for establishing the executive
officers’ compensation and benefits. Under Marshall Islands law,
compensation of the executive officers is not required to be determined by
an independent committee.
|
|
·
|
In
lieu of a nomination committee comprised of independent directors, our
Board of Directors will be responsible for identifying and recommending
potential candidates to become board members and recommending directors
for appointment to board committees. Shareholders may also identify and
recommend potential candidates to become candidates to become board
members in writing. No formal written charter has been prepared or adopted
because this process is outlined in our
bylaws.
|
|
·
|
In
lieu of obtaining an independent review of related party transactions for
conflicts of interests, consistent with Marshall Islands law requirements,
a related party transaction will be permitted if: (i) the material facts
as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors and the
Board of Directors in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, or, if
the votes of the disinterested directors are insufficient to constitute an
act of the Board of Directors as defined in Section 55 of the Marshall
Islands Business Corporations Act, by unanimous vote of the disinterested
directors; or (ii) the material facts as to his relationship or interest
are disclosed and the shareholders are entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by a simple
majority vote of the shareholders; or (iii) the contract or transaction is
fair as to the Company as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the
shareholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or
transaction.
|
|
·
|
As
a foreign private issuer, we are not required to solicit proxies or
provide proxy statements to NASDAQ pursuant to NASDAQ corporate governance
rules or Marshall Islands law. Consistent with Marshall Islands law, we
will notify our shareholders of meetings between 15 and 60 days before the
meeting. This notification will contain, among other things, information
regarding business to be transacted at the meeting. In addition, our
bylaws provide that shareholders must give us advance notice to properly
introduce any business at a meeting of the shareholders. Our bylaws also
provide that shareholders may designate in writing a proxy to act on their
behalf.
|
|
·
|
In
lieu of holding regular meetings at which only independent directors are
present, our entire board of directors, a majority of whom are
independent, will hold regular meetings as is consistent with the laws of
the Republic of the Marshall
Islands.
|
|
·
|
The
Board of Directors adopted a new equity incentive plan which replaced the
existing equity incentive plan. Shareholder approval was not necessary to
terminate the original equity incentive plan or to establish a new equity
incentive plan since Marshall Islands law permits the Board of Directors
to take these actions. The Company has filed the appropriate documentation
with the Nasdaq Global Market reflecting this
event.
|
Other
than as noted above, we are in full compliance with all other applicable NASDAQ
corporate governance standards.
We have no salaried employees,
although we reimburse our fleet manager, Eurobulk, for the salaries of our CEO,
CFO, CAO, internal auditor and Secretary. Eurobulk also ensures that
all seamen have the qualifications and licenses required to comply with
international regulations and shipping conventions, and that all our vessels
employ experienced and competent personnel. As of December 31, 2007,
approximately 135 officers and 225 crew members served on board the vessels in
our fleet.
The
following table sets forth certain information the ownership of our common stock
by each of our directors and executive officers, and all of our directors and
executive officers as a group as of April 30, 2008.
Name
of Beneficial Owner(1)
|
|
Number
of Shares
of
Voting Stock
Beneficially
Owned
|
|
|
Percent
of
Voting
Stock
|
|
|
|
|
|
|
|
|
Friends
Investment Company Inc.(2)
|
|
|
9,418,056
|
|
|
|
31.1
|
%
|
Aristides
J. Pittas(3)
|
|
|
70,000
|
|
|
|
*
|
|
George
Skarvelis(4)
|
|
|
10,000
|
|
|
|
*
|
|
George
Taniskidis(5)
|
|
|
10,000
|
|
|
|
*
|
|
Gerald
Turner(6)
|
|
|
10,000
|
|
|
|
*
|
|
Panagiotis
Kyriakopoulos(7)
|
|
|
10,000
|
|
|
|
*
|
|
Aristides
P. Pittas(8)
|
|
|
20,000
|
|
|
|
*
|
|
Anastasios
Aslidis(9)
|
|
|
45,000
|
|
|
|
*
|
|
Stephania
Karmiri(10)
|
|
|
—
|
|
|
|
*
|
|
All
directors and officers and 5% owners as a group
|
|
|
9,593,056
|
|
|
|
31.3
|
%
|
——————
*
|
Indicates
less than 1.0%.
|
(1)
|
Beneficial
ownership is determined in accordance with the Rule 13d-3(a) of the
Securities Exchange Act of 1934, as amended, and generally includes voting
or investment power with respect to securities. Except as subject to
community property laws, where applicable, the person named above has sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by
him/her.
|
(2)
|
Includes
9,418,056 shares of common stock held of record by Friends. A majority of
the shareholders of Friends are members of the Pittas family. Investment
power and voting control by Friends resides in its Board of Directors
which consists of five directors, a majority of whom are members of the
Pittas family. Actions by Friends may be taken by a majority of the
members on its Board of Directors.
|
(3)
|
Does
not include 1,130,167 shares of common stock held of record by Friends, by
virtue of Mr. Pittas’ ownership interest in Friends. Also does not
include 50,000 shares of common stock held of record by Eurobulk Marine
Holdings, Inc. (“Eurobulk Marine”), by virtue of Mr. Pittas’
ownership interest in Eurobulk Marine. Eurobulk Marine was an investor in
our
Private Placement in August 2005. Friends and Eurobulk Marine are each
controlled by members of the Pittas family. Mr. Pittas disclaims
beneficial ownership except to the extent of his pecuniary interest.
Includes 20,000 shares vesting on August 11, 2008, 15,000 shares vesting
on December 15, 2008 and 20,000 shares vesting on August 11,
2009.
|
(4)
|
Does
not include 499,156 shares of common stock held of record by Friends, by
virtue of Mr. Skarvelis’ ownership interest in Friends. Also does not
include 22,084 shares of common stock held of record by Eurobulk Marine,
by virtue of Mr. Skarvelis’ ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Skarvelis disclaims beneficial ownership except to the
extent of his pecuniary interest. Includes 2,500 shares vesting on August
11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500 shares
vesting on August 11, 2009.
|
(5)
|
Does
not include 9,418 shares of common stock held of record by Friends, by
virtue of Mr. Taniskidis’ ownership in Friends. Also does not include
416 shares of common stock held of record by Eurobulk Marine, by virtue of
Mr. Taniskidis’ ownership interest in Eurobulk Marine. Eurobulk
Marine was an investor in our Private Placement in August 2005. Friends
and Eurobulk Marine are each controlled by members of the Pittas family.
Mr. Taniskidis disclaims beneficial ownership except to the extent of
his pecuniary interest. Includes 2,500 shares vesting on August 11, 2008,
2,500 shares vesting on December 15, 2008 and 2,500 shares vesting on
August 11, 2009.
|
(6)
|
Does
not include 133,737 shares of common stock held of record by Friends, by
virtue of Mr. Turner’s ownership interest in Friends. Also does not
include 5,916 shares of common stock held of record by Eurobulk Marine, by
virtue of Mr. Turner’s ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Turner disclaims beneficial ownership except to the
extent of his pecuniary interest. Includes 2,500 shares vesting on August
11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500 shares
vesting on August 11, 2009.
|
(7)
|
Does
not include 56,508 shares of common stock held of record by Friends, by
virtue of Mr. Kyriakopoulos’ ownership in Friends. Also does not
include 2,500 shares of common stock held of record by Eurobulk Marine, by
virtue of Mr. Kyriakopoulos’ ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Kyriakopoulos disclaims beneficial ownership except to
the extent of his pecuniary interest. Includes 2,500 shares vesting on
August 11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500
shares vesting on August 11, 2009.
|
(8)
|
Does
not include 772,281 shares of common stock held of record by Friends, by
virtue of Mr. Pittas’ ownership interest in Friends. Also does not
include 34,166 shares of common stock held of record by Eurobulk Marine,
by virtue of Mr. Pittas’ ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Pittas disclaims beneficial ownership except to the
extent of his pecuniary interest. Includes 5,000 shares vesting on August
11, 2008, 5,000 shares vesting on December 15, 2008 and 5,000 shares
vesting on August 11, 2009.
|
(9)
|
Includes
12,500 shares vesting on August 11, 2008, 10,000 shares vesting on
December 15, 2008 and 12,500 shares vesting on August 11,
2009.
|
(10)
|
Does
not include 1,884 shares of common stock held of records by Friends, by
virtue of Mrs. Karmiri’s ownership in Friends. Also does not include
83 shares of common stock held of record by Eurobulk Marine, by virtue of
Mrs. Karmiri’s ownership interest in Eurobulk Marine. Eurobulk Marine
was an investor in our Private Placement in August 2005. Friends and
Eurobulk Marine are each controlled by members of the Pittas family.
Mrs. Karmiri disclaims beneficial ownership except to the extent of
her pecuniary interest.
|
All of
the shares of our common stock have the same voting rights and are entitled to
one vote per share.
Equity
Incentive Plan
See
section 6(B) of this annual report, “Directors, Senior Management and
Employees—Compensation.”
Options
No
options were granted during the fiscal year ended December 31, 2007. There are
currently no options outstanding to acquire any of our shares.
Warrants
In
connection with our Private Placement in August 2005, we issued warrants to
purchase 585,589 shares of our common stock. The warrants have a five year term
and an exercise price of $10.80 per share.
During
2007, 248,463 of the above warrants were exercised; an additional 166,667
warrants were exercised in February 2008. As of April 30, 2008, there are
170,459 warrants outstanding. We do not currently have any other outstanding
warrants.
|
Major
Shareholders and Related Party Transactions
|
The
following table sets forth certain information regarding the beneficial
ownership of our voting stock as of April 30, 2008 by each person or entity
known by us to be the beneficial owner of more than 5% of the outstanding shares
of our voting stock, each of our directors and executive officers, and all of
our directors and executive officers as a group. All of our shareholders,
including the shareholders listed in this table, are entitled to one vote for
each share of stock held.
Name
of Beneficial Owner(1)
|
|
Number
of Shares
of
Voting Stock
Beneficially
Owned
|
|
|
Percent
of
Voting
Stock
|
|
|
|
|
|
|
|
|
Friends
Investment Company Inc.(2)
|
|
|
9,418,056
|
|
|
|
31.1
|
%
|
Aristides
J. Pittas(3)
|
|
|
70,000
|
|
|
|
*
|
|
George
Skarvelis(4)
|
|
|
10,000
|
|
|
|
*
|
|
George
Taniskidis(5)
|
|
|
10,000
|
|
|
|
*
|
|
Gerald
Turner(6)
|
|
|
10,000
|
|
|
|
*
|
|
Panagiotis
Kyriakopoulos(7)
|
|
|
10,000
|
|
|
|
*
|
|
Aristides
P. Pittas(8)
|
|
|
20,000
|
|
|
|
*
|
|
Anastasios
Aslidis(9)
|
|
|
45,000
|
|
|
|
*
|
|
Stephania
Karmiri(10)
|
|
|
—
|
|
|
|
*
|
|
All
directors and officers and 5% owners as a group
|
|
|
9,593,056
|
|
|
|
31.3
|
%
|
——————
*
|
Indicates
less than 1.0%.
|
(1)
|
Beneficial
ownership is determined in accordance with the Rule 13d-3(a) of the
Securities Exchange Act of 1934, as amended, and generally includes voting
or investment power with respect to securities. Except as subject to
community property laws, where applicable, the person named above has sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by
him/her.
|
(2)
|
Includes
9,418,056 shares of common stock held of record by Friends. A majority of
the shareholders of Friends are members of the Pittas family. Investment
power and voting control by Friends resides in its Board of Directors
which consists of five directors, a majority of whom are members of the
Pittas family. Actions by Friends may be taken by a majority of the
members on its Board of Directors.
|
(3)
|
Does
not include 1,130,167 shares of common stock held of record by Friends, by
virtue of Mr. Pittas’ ownership interest in Friends. Also does not
include 50,000 shares of common stock held of record by Eurobulk Marine
Holdings, Inc. (“Eurobulk Marine”), by virtue of Mr. Pittas’
ownership interest in Eurobulk Marine. Eurobulk Marine was an investor in
our Private Placement in August 2005. Friends and Eurobulk Marine are each
controlled by members of the Pittas family. Mr. Pittas disclaims
beneficial ownership except to the extent of his pecuniary interest.
Includes 20,000 shares vesting on August 11, 2008, 15,000 shares vesting
on December 15, 2008 and 20,000 shares vesting on August 11,
2009.
|
(4)
|
Does
not include 499,156 shares of common stock held of record by Friends, by
virtue of Mr. Skarvelis’ ownership interest in Friends. Also does not
include 22,084 shares of common stock held of record by Eurobulk Marine,
by virtue of Mr. Skarvelis’ ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Skarvelis disclaims beneficial ownership except to the
extent of his pecuniary interest. Includes 2,500 shares vesting on August
11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500 shares
vesting on August 11, 2009.
|
(5)
|
Does
not include 9,418 shares of common stock held of record by Friends, by
virtue of Mr. Taniskidis’ ownership in Friends. Also does not include
416 shares of common stock held of record by Eurobulk Marine, by virtue of
Mr. Taniskidis’ ownership interest in Eurobulk Marine. Eurobulk
Marine was an investor in our Private Placement in August 2005. Friends
and Eurobulk Marine are each controlled by members of the Pittas family.
Mr. Taniskidis disclaims beneficial ownership
except
to the extent of his pecuniary interest. Includes 2,500 shares vesting on
August 11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500
shares vesting on August 11,
2009.
|
(6)
|
Does
not include 133,737 shares of common stock held of record by Friends, by
virtue of Mr. Turner’s ownership interest in Friends. Also does not
include 5,916 shares of common stock held of record by Eurobulk Marine, by
virtue of Mr. Turner’s ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Turner disclaims beneficial ownership except to the
extent of his pecuniary interest. Includes 2,500 shares vesting on August
11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500 shares
vesting on August 11, 2009.
|
(7)
|
Does
not include 56,508 shares of common stock held of record by Friends, by
virtue of Mr. Kyriakopoulos’ ownership in Friends. Also does not
include 2,500 shares of common stock held of record by Eurobulk Marine, by
virtue of Mr. Kyriakopoulos’ ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Kyriakopoulos disclaims beneficial ownership except to
the extent of his pecuniary interest. Includes 2,500 shares vesting on
August 11, 2008, 2,500 shares vesting on December 15, 2008 and 2,500
shares vesting on August 11, 2009.
|
(8)
|
Does
not include 772,281 shares of common stock held of record by Friends, by
virtue of Mr. Pittas’ ownership interest in Friends. Also does not
include 34,166 shares of common stock held of record by Eurobulk Marine,
by virtue of Mr. Pittas’ ownership interest in Eurobulk Marine.
Eurobulk Marine was an investor in our Private Placement in August 2005.
Friends and Eurobulk Marine are each controlled by members of the Pittas
family. Mr. Pittas disclaims beneficial ownership except to the
extent of his pecuniary interest. Includes 5,000 shares vesting on August
11, 2008, 5,000 shares vesting on December 15, 2008 and 5,000 shares
vesting on August 11, 2009.
|
(9)
|
Includes
12,500 shares vesting on August 11, 2008, 10,000 shares vesting on
December 15, 2008 and 12,500 shares vesting on August 11,
2009.
|
(10)
|
Does
not include 1,884 shares of common stock held of records by Friends, by
virtue of Mrs. Karmiri’s ownership in Friends. Also does not include
83 shares of common stock held of record by Eurobulk Marine, by virtue of
Mrs. Karmiri’s ownership interest in Eurobulk Marine. Eurobulk Marine
was an investor in our Private Placement in August 2005. Friends and
Eurobulk Marine are each controlled by members of the Pittas family.
Mrs. Karmiri disclaims beneficial ownership except to the extent of
her pecuniary interest.
|
|
Related
Party Transactions
|
The
operations of our vessels are managed by Eurobulk, an affiliated ship management
company, under a master management agreement with us and separate management
agreements with each shipowning company. Under this agreement, Eurobulk is
responsible for all aspects of management and compliance for the Company,
including the provision of the services of our Chief Executive Officer, Chief
Financial Officer and Secretary. Eurobulk is also responsible for all commercial
management services, which include obtaining employment for our vessels and
managing our relationships with charterers. Eurobulk also performs technical
management services, which include managing day-to-day vessel operations,
performing general vessel maintenance, ensuring regulatory and classification
society compliance, supervising the maintenance and general efficiency of
vessels, arranging our hire of qualified officers and crew, arranging and
supervising dry docking and repairs, arranging insurance for vessels, purchasing
stores, supplies, spares and new equipment for vessels, appointing supervisors
and technical consultants and providing technical support and shoreside
personnel who carry out the management functions described above and certain
accounting services. Eurobulk also currently manages one other vessel not owned
by us.
Our
master management agreement with Eurobulk is effective as of January 1, 2008 and
has an initial term of 5 years until December 31, 2012. The master management
agreement cannot be terminated by Eurobulk without cause or under the other
limited circumstances, such as sale of the Company or Eurobulk or the bankruptcy
of either party. This master management agreement will automatically be extended
after the initial period for an additional five year period unless terminated on
or before the 90th day preceding the initial termination date. Pursuant to the
master management agreement, each new vessel we acquire in the future will enter
into a separate management agreement with Eurobulk. In addition, upon expiration
of the current ship management agreements between Eurobulk and each vessel-owing
subsidiary, such subsidiaries will enter into new ship management agreements
with Eurobulk that terminate contemporaneously with the master management
agreement. Under the master management agreement we pay Eurobulk a fixed cost of
$1,100,000 annually, adjusted for Greek inflation every January 1
st
, and a
per ship per day cost of €630 as of April 30, 2008 (or $995.40 based on
$1.58/euro exchange rate) adjusted annually for inflation (every January 1
st
).
Eurobulk has received fees for management and executive compensation expenses of
$1,722,800, $1,972,252, $2,161,856, $2,775,339 and $4,277,887 for
years ended December 31, 2003, 2004, 2005, 2006 and 2007,
respectively.
We
receive chartering and sale and purchase services from Eurochart, an affiliate,
and pay a commission of 1.25% on charter revenue and 1% on vessel purchase or
sale price. We will pay additional commissions to major charterers and their
brokers as well that usually range from 3.75% to 5.00%. Eurochart has received
chartering and vessel sale commissions of $286,605, $604,717, $536,180, $588,149
and $1,177,916 for years ended December 31, 2003, 2004, 2005, 2006 and 2007,
respectively. Eurochart also received 1% commission for vessel
acquisitions from the sellers of the vessels that we acquired.
More
Maritime Agencies Inc. are crewing agents and Sentinel Marine Services Inc. are
insurance brokering companies and affiliates to whom we will pay a fee of $50
per crew member per month and a commission on premium not exceeding 5%,
respectively.
Aristides
J. Pittas, Euroseas’ President, Chief Executive Officer and Chairman, has
provided personal guarantees for some of Euroseas’ debts. Eurobulk has provided
corporate guarantees for all debts. Additionally, Aristides J. Pittas is
currently the Chairman of each of Eurochart and Eurobulk, both of which are our
affiliates.
We have
entered into a registration rights agreement with Friends, our largest
shareholder, pursuant to which we granted Friends the right, under certain
circumstances and subject to certain restrictions, to require us to register
under the Securities Act shares of our common stock held by Friends. Under the
registration rights agreement, Friends has the right to request us to register
the sale of shares held by it on its 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, Friends has the ability to
exercise certain piggyback registration rights in connection with registered
offerings initiated by us.
Eurobulk,
Friends Investment Company Inc. and Aristides J. Pittas, our Chairman and Chief
Executive Officer, have granted us a right of first refusal to acquire any
drybulk vessel or containership which any of them may consider for acquisition
in the future. In addition, Mr. Pittas has granted us a right of first refusal
to accept any chartering out opportunity for a drybulk vessel or containership
which may be suitable for any of our vessels, provided that we have a suitable
vessel, properly situated and available, to take advantage of the chartering out
opportunity. Mr. Pittas use his best efforts to cause that any entity with
respect to which he directly or indirectly controls to grant us this right of
first refusal.
C.
|
Interests
of Experts and Counsel
|
Not
Applicable.
Item 8.
|
Financial
information
|
A.
|
Consolidated
Statements and Other Financial
Information
|
Legal
Proceedings
To our
knowledge, there are no material legal proceedings to which we are a party or to
which any of our properties are subject, other than routine litigation
incidental to our business. In our opinion, the disposition of these lawsuits
should not have a material impact on our consolidated results of operations,
financial position and cash flows.
Dividend
Policy
Our
policy is to declare regular quarterly dividends to shareholders from our net
profits each February, May, August and November in amounts the Board of
Directors may from time to time determine are appropriate. Our intention is to
pay a minimum quarterly dividend of $0.30 per common share for 2008. The exact
timing and amount of dividend payments will be determined by our Board of
Directors and will be dependent upon our earnings,
financial
condition, cash requirement and availability, restrictions in its loan
agreements, growth strategy, the provisions of Marshall Islands law affecting
the payment of distributions to shareholders and other factors, such as the
acquisition of additional vessels. However, we do not believe that the
acquisition of vessels to our fleet will impact our dividend policy of paying
quarterly dividends to our shareholders out of our net profits. We believe that
the addition of vessels to our fleet in the future should enable us to pay a
higher dividend per share than we would otherwise be able to pay without
additional vessels since such additional vessels should increase our earnings.
However, we cannot give any current estimate of what dividends may be in the
future since any such dividend amounts will depend upon the amount of revenues
those vessels are able to generate and the costs incurred in operating such
vessels.
The
payment of dividends is not guaranteed or assured, and may be discontinued at
any time at the discretion of our Board of Directors. Because we are a holding
company with no material assets other than the stock of its subsidiaries, our
ability to pay dividends will depend on the earnings and cash flow of its
subsidiaries and their ability to pay dividends to us. If there is a substantial
decline in the drybulk, containership or multipurpose charter market, our
earnings would be negatively affected, thus limiting its ability to pay
dividends. Marshall Islands law generally prohibits the payment of dividends
other than from surplus or while a company is insolvent or would be rendered
insolvent upon the payment of such dividends. Dividends may be declared in
conformity with applicable law by, and at the discretion of, our Board of
Directors at any regular or special meeting. Dividends may be declared and paid
in cash, stock or other property of Euroseas.
Euroseas
paid $1,200,000, $26,962,500, $46,875,223 (consisting of $30,175,223 of
dividends and $16,700,000 as return of capital), $9,465,082 and $20,278,538 in
2003, 2004, 2005, 2006 and 2007, respectively. While Euroseas has paid dividends
on an annual basis during the time it has been a private company, it has paid
dividends on a quarterly basis since it has become a public company. Since our
Private Placement in August 2005, we declared and paid dividends of $2,650,223
for the third quarter of 2005, $2,271,620 for each of the fourth quarter of
2005, first quarter of 2006 and second quarter of 2006, $2,650,223 for the third
quarter of 2006, $2,776,433 for the fourth quarter of 2006, $4,409,321 for the
first quarter of 2007, $6,052,064 for the second quarter of 2007, $7,040,717 for
the third quarter of 2007 and $9, 128,334 for the fourth quarter of 2007 (an
additional $65,250 dividend for the fourth quarter of 2007 will be paid if and
when unvested incentive stock awards vest).. The most recent dividend was
declared and paid in 2008. A dividend declared for the first quarter
of 2008 is scheduled to be paid in June 2008 (see Item 8.B(d)
below).
After
December 31, 2007, the following significant events occurred:
a) On
February 7, 2008, the Board of Directors declared a cash dividend of $0.30 per
Euroseas Ltd. common share. Such cash dividend was paid on or about
March 14, 2008 to the holders of record of Euroseas Ltd. common shares as of
March 4, 2008.
b) On
February 7, 2008, the Board of Directors granted a stock incentive award of
150,000 shares to directors, officers and key persons, 50% of which will vest on
August 7, 2008 and the remaining 50% on August 7, 2009.
c) On
February 7, 2008, the Board of Directors approved the Amended Master Management
Agreement with Eurobulk Ltd. under which the annual part of the management fee
to Eurobulk Ltd. is increased to $1.1 million as of January 1, 2008 while the
daily management fee per vessel will remain at Euro 630 for 2008 as Eurobulk
Ltd. agreed to forgo the scheduled - as of February 1, 2008 - inflation
increase. Both components of the management fee are scheduled to be adjusted for
inflation on January 1 of each year.
d) On
May 8, 2008, the Board of Directors declared a cash dividend of $0.31 per share
of Euroseas Ltd. common stock. Such cash dividend will be paid on or
about June 18, 2008 to the holders of record of Euroseas Ltd. common stock as of
June 6, 2008.
Item 9. The
Offer and Listing
|
A.
|
Offer
and Listing Details
|
The trading market for shares of our
common stock is the NASDAQ Global Select Market, on which our shares trade under
the symbol "ESEA". The following table sets forth the high and low closing
prices for shares of our common stock since our listing originally in the OTCBB
(under symbols ESEAF.OB and EUSEF.OB), since January 31, 2007 on the NASDAQ
Global Market and since January 1, 2008 on the NASDAQ Global Select
Market. The prices below have been adjusted for the reverse 1-for-3
common stock split that was effected on October 6, 2006.
Period
|
|
Low
|
|
|
High
|
|
2006
|
|
|
6.70
|
|
|
|
18.93
|
|
2
nd
quarter 2006
|
|
|
8.82
|
|
|
|
18.93
|
|
3
rd
quarter 2006
|
|
|
8.55
|
|
|
|
9.15
|
|
4
th
quarter 2006
|
|
|
6.70
|
|
|
|
9.00
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
7.00
|
|
|
|
20.79
|
|
1
st
quarter 2007
|
|
|
7.00
|
|
|
|
10.00
|
|
2
nd
quarter 2007
|
|
|
10.35
|
|
|
|
15.75
|
|
3
rd
quarter 2007
|
|
|
11.80
|
|
|
|
16.91
|
|
4
th
quarter 2007
|
|
|
11.75
|
|
|
|
20.79
|
|
November
2007
|
|
|
13.30
|
|
|
|
18.89
|
|
December
2007
|
|
|
11.75
|
|
|
|
14.63
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
9.60
|
|
|
|
14.79
|
|
1
st
quarter 2008
|
|
|
9.60
|
|
|
|
14.08
|
|
January
2008
|
|
|
9.60
|
|
|
|
12.37
|
|
February
2008
|
|
|
10.98
|
|
|
|
14.02
|
|
March
2008
|
|
|
11.12
|
|
|
|
14.08
|
|
April
2008
|
|
|
12.32
|
|
|
|
14.79
|
|
May
2008*
|
|
|
13.83
|
|
|
|
14.73
|
|
* Through
May 9, 2008
Not Applicable.
The trading market for shares of our
common stock is the NASDAQ Global Select Market, on which our shares trade under
the symbol "ESEA". Our shares began trading on the NASDAQ Global
Market on January 31, 2007 and on the NASDAQ Global Select Market on January 1,
2008. Prior to such date, our shares traded on the OTCBB under the
symbol “ESEAF.OB” until October 5, 2006 and then under the symbol “EUSEF.OB”
until January 30, 2007.
Not Applicable.
Not Applicable.
Item 10.
|
Additional
Information
|
Not Applicable.
B.
|
Articles
of Incorporation, as amended, and
Bylaws
|
We refer you to the Section of our
F-1 Registration Statement (File No. 333-129145) entitled “Description of
Euroseas Securities” and Exhibits 3.1 (Articles of Incorporation) and 3.2
(Bylaws) thereto as filed on October 20, 2005 with the SEC and to the Section of
our F-1 Registration Statement (File No. 333-138780) entitled “Description of
Capital Stock” and Exhibit 3.3 (Amendment to Articles of Incorporation) thereto
as filed on November 16, 2006 with the SEC, incorporated by reference
herein.
We have
no material contracts, other than contracts entered into in the ordinary course
of business, to which the Company or any member of the group is a
party.
Under
Marshall Islands law, there are currently no restrictions on the export or
import of capital, including foreign exchange controls or restrictions that
affect the remittance of dividends, interest or other payments to non-resident
holders of our shares.
The
following is a discussion of the material Marshall Islands and United States
federal income tax considerations applicable to us and U.S. Holders and Non-U.S.
Holders, each as discussed below, of our common stock. The following
discussion is based upon the provisions of the United States Internal Revenue
Code of 1986, as amended, or the Code, existing and proposed United States
Treasury Department regulations, administrative rulings, pronouncements and
judicial decisions, all as of the date of this Annual Report.
Marshall
Islands Tax Considerations
We are
incorporated in the Marshall Islands. Under current Marshall Islands law, we are
not subject to tax on income or capital gains, and no Marshall Islands
withholding tax will be imposed upon payments of dividends by us to our
stockholders.
United
States Federal Income Tax
The
following are the material United States federal income tax consequences to us
of our activities and to U.S. Holders and Non-U.S. Holders, each as defined
below, of our common stock. The following discussion of United States federal
income tax matters is based on the United States Internal Revenue Code of 1986,
or the Code, judicial decisions, administrative pronouncements, and existing and
proposed regulations issued by the United States Department of the Treasury, all
of which are subject to change, possibly with retroactive effect. This
discussion is based in part upon Treasury Regulations promulgated under Section
883 of the Code. The discussion below is based, in part, on the description of
our business as described in “Business” above and assumes that we conduct our
business as described in that section. References in the following discussion to
“we” and “us” are to Euroseas and its subsidiaries on a consolidated
basis.
United
States Federal Income Taxation of Our Company
Taxation
of Operating Income: In General
Unless
exempt from United States federal income taxation under the rules discussed
below, a foreign corporation is subject to United States federal income taxation
in respect of any income that is derived from the use of vessels, from the
hiring or leasing of vessels for use on a time, voyage or bareboat charter
basis, from the participation in a pool, partnership, strategic alliance, joint
operating agreement, code sharing arrangements or other joint venture it
directly or indirectly owns or participates in that generates such income, or
from the performance of services directly related to those uses, which we refer
to as “shipping income,” to the extent that the shipping income is derived from
sources within the United States. For these purposes, 50% of shipping income
that is attributable to transportation that begins or ends, but that does not
both begin and end, in the United States constitutes income from sources within
the United States, which we refer to as “U.S.-source shipping
income.”
Shipping
income attributable to transportation that both begins and ends in the United
States is considered to be 100% from sources within the United States. We are
not permitted by law to engage in transportation that produces income which is
considered to be 100% from sources within the United States.
Shipping
income attributable to transportation exclusively between non-U.S. ports will be
considered to be 100% derived from sources outside the United States. Shipping
income derived from sources outside the United States will not be subject to any
United States federal income tax.
In the
absence of exemption from tax under Section 883, our gross U.S.-source shipping
income would be subject to a 4% tax imposed without allowance for deductions as
described below.
Exemption
of Operating Income from United States Federal Income Taxation
Under
Section 883 of the Code, we will be exempt from United States federal income
taxation on our U.S.-source shipping income if:
|
·
|
we
are organized in a foreign country (our “country of organization”) that
grants an “equivalent exemption” to corporations organized in the United
States; and
|
either
|
·
|
more
than 50% of the value of our stock is owned, directly or indirectly, by
“qualified stockholders,” individuals who are “residents” of our country
of organization or of another foreign country that grants an “equivalent
exemption” to corporations organized in the United States, which we refer
to as the “50% Ownership Test,” or
|
|
·
|
our
stock is “primarily and regularly traded on an established securities
market” in our country of organization, in another country that grants an
“equivalent exemption” to United States corporations, or in the United
States, which we refer to as the “Publicly-Traded
Test.”
|
The
Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are
incorporated, grants an “equivalent exemption” to United States corporations.
Therefore, we will be exempt from United States federal income taxation with
respect to our U.S.-source shipping income if we satisfy either the 50%
Ownership Test or the Publicly-Traded Test.
We
believe that we satisfied the 50% Ownership Test for our 2007 taxable year and
we intend to take this position on our United States federal income tax return.
For the 2008 taxable year and each taxable year thereafter, we anticipate that
we will satisfy the Publicly-Traded Test.
Taxation
in Absence of Exemption
To the
extent the benefits of Section 883 are unavailable, our U.S. source shipping
income, to the extent not considered to be “effectively connected” with the
conduct of a U.S. trade or business, as described below, would be subject to a
4% tax imposed by Section 887 of the Code on a gross basis, without the benefit
of deductions. Since under the sourcing rules described above, no more than 50%
of our shipping income would be treated as being derived from U.S. sources, the
maximum effective rate of U.S. federal income tax on our shipping income would
never exceed 2% under the 4% gross basis tax regime.
To the
extent the benefits of the Section 883 exemption are unavailable and our
U.S.-source shipping income is considered to be “effectively connected” with the
conduct of a U.S. trade or business, as described below, any such “effectively
connected” U.S.-source shipping income, net of applicable deductions, would be
subject to the U.S. federal corporate income tax currently imposed at rates of
up to 35%. In addition, we may be subject to the 30% “branch profits” taxes on
earnings effectively connected with the conduct of such trade or business, as
determined after allowance for certain adjustments, and on certain interest paid
or deemed paid attributable to the conduct of its U.S. trade or
business.
Our
U.S.-source shipping income would be considered “effectively connected” with the
conduct of a U.S. trade or business only if:
|
·
|
We
have, or are considered to have, a fixed place of business in the United
States involved in the earning of shipping income;
and
|
|
·
|
substantially
all of our U.S.-source shipping income is attributable to regularly
scheduled transportation, such as the operation of a vessel that follows a
published schedule with repeated sailings at regular intervals between the
same points for voyages that begin or end in the United
States.
|
We do not
intend to have, or permit circumstances that would result in having any vessel
operating to the United States on a regularly scheduled basis. Based on the
foregoing and on the expected mode of our shipping operations and other
activities, we believe that none of our U.S.-source shipping income are or will
be “effectively connected” with the conduct of a U.S. trade or
business.
United
States Taxation of Gain on Sale of Vessels
Regardless
of whether we qualify for exemption under Section 883, we will not be subject to
United States federal income taxation with respect to gain realized on a sale of
a vessel, provided the sale is considered to occur outside of the United States
under United States federal income tax principles. In general, a sale of a
vessel will be considered to occur outside of the United States for this purpose
if title to the vessel, and risk of loss with respect to the vessel, pass to the
buyer outside of the United States. It is expected that any sale of a vessel by
us will be considered to occur outside of the United States.
United
States Federal Income Taxation of U.S. Holders
As used
herein, the term “U.S. Holder” means a beneficial owner of common stock that is
a United States citizen or resident, United States corporation or other United
States entity taxable as a corporation, an estate the income of which is subject
to United States federal income taxation regardless of its source, or a trust if
a court within the United States is able to exercise primary jurisdiction over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
This
discussion does not purport to deal with the tax consequences of owning common
stock to all categories of investors, some of which, such as dealers in
securities, investors whose functional currency is not the United States dollar
and investors that own, actually or under applicable constructive ownership
rules, 10% or more of our common stock, may be subject to special rules. This
discussion deals only with holders who hold the common stock as a capital asset.
You are encouraged to consult your own tax advisors concerning the overall tax
consequences arising in your own particular situation under United States
federal, state, local or foreign law of the ownership of common
stock.
If a
partnership holds our common stock, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common stock, you
are encouraged to consult your tax advisor.
Distributions
Subject
to the discussion of passive foreign investment companies below, any
distributions made by us with respect to our common stock to a U.S. Holder will
generally constitute dividends, which may be taxable as ordinary
income or
“qualified dividend income” as described in more detail below, to the extent of
our current or accumulated earnings and profits, as determined under United
States federal income tax principles. Distributions in excess of our earnings
and profits will be treated first as a nontaxable return of capital to the
extent of the U.S. Holder’s tax basis in his common stock on a dollar-for-dollar
basis and thereafter as capital gain. Because we are not a United States
corporation, U.S. Holders that are corporations will not be entitled to claim a
dividends received deduction with respect to any distributions they receive from
us. Dividends paid with respect to our common stock will generally be treated as
“passive category income” or, in the case of certain types of U.S. Holders,
“general category income” for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.
Dividends
paid on our common stock to a U.S. Holder who is an individual, trust or estate
(a “U.S. Individual Holder”) will generally be treated as “qualified dividend
income” that is taxable to such U.S. Individual Holders at preferential tax
rates (through 2010) provided that (1) we are not a passive foreign investment
company for the taxable year during which the dividend is paid or the
immediately preceding taxable year (which we do not believe we are, have been or
will be), (2) our common stock is readily tradable on an established securities
market in the United States (such as the NASDAQ Global Select Market, on which
our common stock is listed), and (3) the U.S. Individual Holder has owned the
common stock for more than 60 days in the 121-day period beginning 60 days
before the date on which the common stock becomes ex-dividend. There is no
assurance that any dividends paid on our common stock will be eligible for these
preferential rates in the hands of a U.S. Individual Holder. Dividends paid on
our stock prior to the date on which our stock became listed on the NASDAQ
Global Select Market were not eligible for these preferential
rates. Legislation has been recently introduced in the U.S. Congress
which, if enacted in its present form, would preclude our dividends from
qualifying for such preferential rates prospectively from the date of the
enactment. Any dividends paid by us which are not eligible for these
preferential rates will be taxed as ordinary income to a U.S. Individual
Holder.
Special
rules may apply to any “extraordinary dividend” generally, a dividend in an
amount which is equal to or in excess of ten percent of a stockholder’s adjusted
basis (or fair market value in certain circumstances) in a share of common stock
paid by us. If we pay an “extraordinary dividend” on our common stock that is
treated as “qualified dividend income,” then any loss derived by a U.S.
Individual Holder from the sale or exchange of such common stock will be treated
as long-term capital loss to the extent of such dividend.
Sale,
Exchange or other Disposition of Common Stock
Assuming
we do not constitute a passive foreign investment company for any taxable year,
a U.S. Holder generally will recognize taxable gain or loss upon a sale,
exchange or other disposition of our common stock in an amount equal to the
difference between the amount realized by the U.S. Holder from such sale,
exchange or other disposition and the U.S. Holder’s tax basis in such stock.
Such gain or loss will be treated as long-term capital gain or loss if the U.S.
Holder’s holding period is greater than one year at the time of the sale,
exchange or other disposition. Such capital gain or loss will generally be
treated as U.S.- source income or loss, as applicable, for U.S. foreign tax
credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to
certain limitations.
Passive
Foreign Investment Company Status and Significant Tax Consequences
Special
United States federal income tax rules apply to a U.S. Holder that holds stock
in a foreign corporation classified as a passive foreign investment company for
United States federal income tax purposes. In general, we will be treated as a
passive foreign investment company with respect to a U.S. Holder if, for any
taxable year in which such holder held our common stock, either:
|
·
|
at
least 75% of our gross income for such taxable year consists of passive
income (e.g., dividends, interest, capital gains and rents derived other
than in the active conduct of a rental business);
or
|
|
·
|
at
least 50% of the average value of the assets held by the corporation
during such taxable year produce, or are held for the production of,
passive income.
|
For
purposes of determining whether we are a passive foreign investment company, we
will be treated as earning and owning our proportionate share of the income and
assets, respectively, of any of our subsidiary corporations in which we own at
least 25 percent of the value of the subsidiary’s stock. Income earned, or
deemed earned, by us in connection with the performance of services would not
constitute passive income. By contrast, rental income would generally constitute
“passive income” unless we were treated under specific rules as deriving our
rental income in the active conduct of a trade or business.
Based on
our current operations and future projections, we do not believe that we are,
nor do we expect to become, a passive foreign investment company with respect to
any taxable year. Although there is no legal authority directly on point, and we
are not relying upon an opinion of counsel on this issue, our belief is based
principally on the position that, for purposes of determining whether we are a
passive foreign investment company, the gross income we derive or are deemed to
derive from the time chartering and voyage chartering activities of our
wholly-owned subsidiaries should constitute services income, rather than rental
income. Correspondingly, such income should not constitute passive income, and
the assets that we or our wholly-owned subsidiaries own and operate in
connection with the production of such income, in particular, the vessels,
should not constitute passive assets for purposes of determining whether we are
a passive foreign investment company. We believe there is substantial legal
authority supporting our position consisting of case law and Internal Revenue
Service pronouncements concerning the characterization of income derived from
time charters and voyage charters as services income for other tax purposes.
However, in the absence of any legal authority specifically relating to the
statutory provisions governing passive foreign investment companies, the
Internal Revenue Service or a court could disagree with our position. In
addition, although we intend to conduct our affairs in a manner to avoid being
classified as a passive foreign investment company with respect to any taxable
year, we cannot assure you that the nature of our operations will not change in
the future.
If we
were to be classified as a PFIC in any taxable year, a U.S. Holder (i) would
generally be required to treat any gain on sales of our shares held by him as
ordinary income and pay an interest charge on the value of the deferral of their
U.S. federal income tax attributable to such gain and (ii) could also be subject
to an interest charge on distributions paid by us.
The above
results may be eliminated if a “mark-to-market” election or “qualified electing
fund” election is available and a U.S. validly makes such an
election. If a U.S. Holder makes a “qualified electing fund”
election, then generally, in lieu of the foregoing treatment, our earnings would
be currently included in the U.S. Holder’s gross income. If a
“mark-to-market” election is made, such holder generally will be required to
take into account the difference, if any, between the fair market value and its
adjusted tax basis in shares at the end of each taxable year as ordinary income
or ordinary loss (to the extent of any net mark-to-market gain previously
included in income). In addition, any gain from a sale or other disposition of
shares will be treated as ordinary income, and any loss will be treated as
ordinary loss (to the extent of any net mark-to-market gain previously included
in income.
United States Federal
Income Taxation of “Non-U.S. Holders”
A
beneficial owner of common stock that is not a U.S. Holder is referred to herein
as a “Non-U.S. Holder.”
Dividends
on Common Stock
Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on dividends received from us with respect to our common stock,
unless that income is effectively connected with the Non-U.S. Holder’s conduct
of a trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of a United States income tax treaty with respect to those
dividends, that income is taxable only if it is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United
States.
Sale,
Exchange or Other Disposition of Common Stock
Non-U.S.
Holders generally will not be subject to United States federal income tax or
withholding tax on any gain realized upon the sale, exchange or other
disposition of our common stock, unless:
|
·
|
the
gain is effectively connected with the Non-U.S. Holder’s conduct of a
trade or business in the United States. If the Non-U.S. Holder is entitled
to the benefits of an income tax treaty with respect to that gain, that
gain is taxable only if it is attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States;
or
|
|
·
|
the
Non-U.S. Holder is an individual who is present in the United States for
183 days or more during the taxable year of disposition and other
conditions are met.
|
If the
Non-U.S. Holder is engaged in a United States trade or business for United
States federal income tax purposes, the income from the common stock, including
dividends and the gain from the sale, exchange or other disposition of the stock
that is effectively connected with the conduct of that trade or business will
generally be subject to regular United States federal income tax in the same
manner as discussed in the previous section relating to the taxation of U.S.
Holders. In addition, if you are a corporate Non-U.S. Holder, your earnings and
profits that are attributable to the effectively connected income, which are
subject to certain adjustments, may be subject to an additional branch profits
tax at a rate of 30%, or at a lower rate as may be specified by an applicable
income tax treaty.
Backup
Withholding and Information Reporting
In
general, dividend payments, or other taxable distributions, made within the
United States to you will be subject to information reporting requirements. Such
payments will also be subject to backup withholding tax if you are a
non-corporate U.S. Holder and you:
|
·
|
fail
to provide an accurate taxpayer identification
number;
|
|
·
|
are
notified by the Internal Revenue Service that you have failed to report
all interest or dividends required to be shown on your federal income tax
returns; or
|
|
·
|
in
certain circumstances, fail to comply with applicable certification
requirements.
|
Non-U.S.
Holders may be required to establish their exemption from information reporting
and backup withholding by certifying their status on IRS Form W-8BEN, W-8ECI or
W-8IMY, as applicable.
If you
sell your common stock to or through a United States office or broker, the
payment of the proceeds is subject to both United States backup withholding and
information reporting unless you certify that you are a non-U.S. person, under
penalties of perjury, or you otherwise establish an exemption. If you sell your
common stock through a non-United States office of a non-United States broker
and the sales proceeds are paid to you outside the United States then
information reporting and backup withholding generally will not apply to that
payment. However, United States information reporting requirements, but not
backup withholding, will apply to a payment of sales proceeds, even if that
payment is made to you outside the United States, if you sell your common stock
through a non-United States office of a broker that is a United States person or
has some other contacts with the United States.
Backup
withholding tax is not an additional tax. Rather, you generally may obtain a
refund of any amounts withheld under backup withholding rules that exceed your
income tax liability by filing a refund claim with the Internal Revenue
Service.
We
encourage each stockholder to consult with his, her or its own tax advisor as to
particular tax consequences to it of holding and disposing of Euroseas shares,
including the applicability of any state, local or foreign tax laws and any
proposed changes in applicable law.
|
Dividends
and paying agents
|
Not Applicable.
Not Applicable.
We file
reports and other information with the SEC. These materials, including this
annual report and the accompanying exhibits, may be inspected and copied at the
public reference facilities maintained by the Commission at 100 F Street, N.E.,
Washington, D.C. 20549, or from the SEC's website http://www.sec.gov. You may
obtain information on the operation of the public reference room by calling 1
(800) SEC-0330 and you may obtain copies at prescribed rates.
I.
|
Subsidiary
Information
|
Not
Applicable.
Item 11.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
In the
normal course of business, we face risks that are non-financial or
non-quantifiable. Such risks principally include country risk, credit risk and
legal risk. Our operations may be affected from time to time in varying degrees
by these risks but their overall effect on us is not predictable. We have
identified the following market risks as those which may have the greatest
impact upon our operations:
Interest
Rate Fluctuation Risk
The
international drybulk industry is a capital intensive industry, requiring
significant amounts of investment. Much of this investment is financed by long
term debt. Our debt usually contains interest rates that fluctuate with LIBOR.
In 2007, we did not use and currently we do not have financial instruments such
as interest rate swaps to manage the impact of interest rate changes on earnings
and cash flows and increasing interest rates could adversely impact future
earnings.
As at
December 31, 2007, we had $81.59 million of floating rate debt outstanding with
margins over LIBOR ranging from 0.80% to 1.60%. Our interest expense is affected
by changes in the general level of interest rates. As an indication of the
extent of our sensitivity to interest rate changes, an increase of 100 basis
points would have decreased our net income and cash flows in the twelve-month
period to December 31, 2007 by approximately $773,000 assuming the same debt
profile throughout the year.
In March
of 2004, we entered into an interest rate swap agreement on a notional amount of
$5.00 million. Under this swap agreement, we receive interest based on the
3-month LIBOR rate and we pay based on 1.10% fixed rate if the 1-year LIBOR
remains below 4.02%: otherwise we pay the 1-year LIBOR rate. This agreement was
terminated in October 2005.
The
following table sets forth the sensitivity of loans in U.S. dollars to a 100
basis points increase in LIBOR during the next five years:
Year
Ended December 31,
|
|
Amount
in $
|
|
2008
|
|
|
717,000
|
|
2009
|
|
|
513,000
|
|
2010
|
|
|
399,000
|
|
2011
|
|
|
262,000
|
|
2012
and thereafter
|
|
|
427,000
|
|
Foreign
Exchange Rate Risk
The
international drybulk and containership shipping industry’s functional currency
is the U.S. Dollar. We generate all of our revenues in U.S. dollars, but incur
approximately 35% of our vessel operating expenses in 2007 in currencies other
than U.S. dollars. In addition, our management fee is denominated in
euros (590 euros in 2005 and during January 2006, 610 euros since February 1,
2006 and 630 euros per vessel per day since of February 1, 2007), and, certain
general and administrative expenses (about 8.5% in 2007) were in euros. At
December 31, 2007, approximately 35% of our outstanding accounts payable were
denominated in currencies other than the U.S. dollar, mainly in Euros. We do not
use currency exchange contracts to reduce the risk of adverse foreign currency
movements but we believe that our exposure from market rate fluctuations is
unlikely to be material. Net foreign exchange losses for the year to December
31, 2007 were $7,824.
Inflation
Risk
The
general rate of inflation has been relatively low in recent years and as such
its associated impact on costs has been minimal. We do not believe that
inflation has had, or is likely to have in the foreseeable future, a significant
impact on expenses. Should inflation increase, it will increase our expenses and
subsequently have a negative impact on our earnings.
Item 12.
|
Description
of Securities Other than Equity
Securities
|
Not
Applicable.
PART
II
Item 13.
|
Defaults,
Dividend Arrearages and
Delinquencies
|
None.
Item 14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
None.
Item 15.
|
Controls
and Procedures
|
(a) Evaluation
of Disclosure Controls and Procedures
Pursuant
to Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the
“Exchange Act”), the Company’s management, under the supervision and with the
participation of the Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as of December 31, 2007. The term disclosure
controls and procedures are defined under SEC rules as controls and other
procedures of an issuer that are designed to ensure that information required to
be disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Act is accumulated and communicated to the
issuer’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of
the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives.
Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer has
concluded that our disclosure controls and procedures are effective, as of
December 31, 2007.
(b) Management’s
Annual Report on Internal Control over Financial Reporting
The Company’s management is
responsible for establishing and maintaining adequate internal control over
financial reporting as such term is identified in Exchange Act Rule
13a-15(f) and 15d-15(f). Internal control over financial reporting is a
process designed by, or under the supervision of, the issuer’s principal
executive and principal financial officers, or persons performing similar
functions, and effected by the issuer’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures are being made only in accordance with the authorization of its
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on its consolidated
financial statements.
Our management, with the
participation of Chief Executive Officer and Chief Financial Officer, assessed
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2007. In making this assessment, the Company used the control
criteria framework of the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") published in its report entitled Internal Control-Integrated
Framework. As a result of its assessment, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s internal controls over financial
reporting are effective as of December 31, 2007.
(c) Report
of Independent Registered Public Accounting Firm
Deloitte,
Hadjipavlou, Sofianos and Cambanis S.A., or Deloitte., an independent registered
public accounting firm, as auditors of our consolidated financial statements for
the year ended December 31, 2007, has issued the following attestation report on
the effectiveness of our internal control over financial reporting as of
December 31, 2007:
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Euroseas
Ltd and Subsidiaries
We have
audited the internal control over financial reporting of Euroseas Ltd and
subsidiaries (the "Company") as of December 31, 2007, based on criteria
established in
Internal
Control — Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying “Management’s Report on Internal Control
Over Financial Reporting”. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the criteria
established in
Internal
Control — Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2007 of the Company and our report dated May 8,
2008 expressed an unqualified opinion on those financial
statements.
/s/
Deloitte
Hadjipavlou,
Sofianos & Cambanis S.A.
Athens,
Greece
May 8,
2008
(d) Changes
in Internal Control over Financial Reporting
No change
in the Company’s internal control over financial reporting occurred during the
period covered by this annual report that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Inherent
Limitations on Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls or our internal control over
financial reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls effectiveness to
future periods are subject to risks. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
Item 16A.
|
Audit
Committee Financial Expert
|
Our Board of Directors has determined
that all the members of our Audit Committee qualify as financial experts and
they are all considered to be independent according to the SEC
rules. Mr. Panos Kyriakopoulos serves as the chairman of our Audit
Committee with Mr. Gerald Turner and Mr. George Taniskidis as
members.
We have adopted a code of ethics that
applies to officers and employees. Our code of ethics is posted in our website:
http://www.euroseas.gr under "Corporate Governance".
Item
16C. Principal Accountant Fees and
Services
Our principal auditors, Deloitte
Hadjipavlou, Sofianos & Cambanis S.A. have charged us for audit,
audit-related and non-audit services as follows:
|
|
2007
(dollars
in thousands)
|
|
|
2006
(dollars
in thousands)
|
|
Audit
Fees
|
|
$
|
750
|
|
|
$
|
388
|
|
Further
assurance / audit related fees
|
|
_
|
|
|
_
|
|
Tax
fees
|
|
_
|
|
|
_
|
|
Other
fees / expenses
|
|
|
3
|
|
|
|
3
|
|
Total
|
|
$
|
753
|
|
|
$
|
391
|
|
In 2007, audit fees relate to regular
audit services and audit of our internal controls and services required for
follow-on common stock offerings. For those services our principal
auditors charged us $750,000 of fees plus $2,698 of expenses. In
2006, audit fees relate to audit services provided in connection to a
post-effective amendment to our prior F-1 filing related to our private
placement of August 2005, our F-1 filing related to our follow-on offering
initially filed in November 2006 and the audit of our consolidated financial
statements. For these services our principal auditors charged us
$388,000 of fees plus $3,000 of expenses.
The audit committee is responsible
for the appointment, replacement, compensation, evaluation and oversight of the
work of the independent registered public accounting firm. As part of this
responsibility, the Audit Committee pre-approves the audit and non-audit
services performed by the independent registered public accounting firm in order
to assure that they do not impair the auditor's independence from the Company.
The Audit Committee has adopted a policy which sets forth the procedures and the
conditions pursuant to which services proposed to be performed by the
independent registered public accounting firm may be pre-approved.
All audit services and other services
provided by Deloitte Hadjipavlou, Sofianos & Cambanis S.A., after the
formation of our audit committee in November 2005 were pre-approved by the audit
committee.
Item
16D. Exemptions from the Listing
Standards for Audit Committees
Not
Applicable.
Item
16E. Purchases of Equity
Securities by the Issuer and Affiliated Purchasers
Not
Applicable.
PART
III
Item 17.
|
Financial
Statements
|
See Item
18
Item 18.
|
Financial
Statements
|
The
following financial statements set forth on pages F-1 through F-5 are filed as
part of this annual report.
1.1
|
|
Articles
of Incorporation of Euroseas Ltd.(1)
|
1.2
|
|
Bylaws
of Euroseas Ltd. (1)
|
1.3
|
|
Amendment
to Articles of Incorporation of Euroseas Ltd. (5)
|
2.1
|
|
Specimen
Common Stock Certificate(6)
|
2.2
|
|
Form
of Securities Purchase Agreement(1)
|
2.3
|
|
Form
of Registration Rights Agreement(1)
|
2.4
|
|
Form
of Warrant(1)
|
2.5
|
|
Registration
Rights Agreement between Euroseas Ltd. and Friends Investment Company
Inc., dated November 2, 2005(2)
|
4.1
|
|
Form
of Lock-up Agreement(1)
|
4.2
|
|
Loan
Agreement between Diana Trading Ltd., as borrower, and Oceanopera Shipping
Limited, as corporate guarantor, and HSBC Bank plc, as the lender, dated
October 16, 2002 for the amount of 5,900,000(1)
|
4.3
|
|
Loan
Agreement between Diana Trading Ltd., as borrower, and HSBC Bank plc, as
lender, for the amount of $4,200,000 dated May 9,
2005(1)
|
4.
|
|
|
4.4
|
|
Loan
Agreement dated May 16, 2005 between EFG Eurobank Ergasias S.A., as
lender, and Alcinoe Shipping Limited, Oceanopera Shipping Limited,
Oceanpride Shipping Limited, and Searoute Maritime Limited, as borrowers,
for the amount of $13,500,000(1)
|
4.5
|
|
Secured
Loan Facility Agreement dated May 24, 2005 between Allendale
Investments S.A. and Alterwall Business Inc. as borrowers, Fortis Bank
(Nederland) N.V. and others as lenders, and Fortis Bank (Nederland) N.V.
as agent and security trustee for $20,000,000(1)
|
4.6
|
|
Form
of Standard Ship Management Agreement(1)
|
4.7
|
|
Agreement
between Eurobulk Ltd. and Eurochart S.A., for the provision of exclusive
brokerage services, dated December 20, 2004(1)
|
4.8
|
|
Form
of Current Time Charter(1)
|
4.9
|
|
Amended
and Restated Master Management Agreement between Euroseas Ltd. and
Eurobulk Ltd. dated as of July 17, 2007(7)
|
4.10
|
|
Loan
Agreement between Salina Shipping Corp., as borrower, and Calyon, as
lender, for the amount of USD$15,500,000 dated December 28,
2005(3)
|
4.11
|
|
Loan
Agreement between Xenia International Corp., as borrower, and Fortis Bank
N.V./S.A., Athens Branch and others, as lenders, for the amount of
USD$8,250,000 dated June 30, 2006(4)
|
4.12
|
|
Loan
Agreement between Prospero Maritime Inc., as borrower, and Calyon, as
lender, for the amount of USD$15,500,000 dated August 30,
2006(4)
|
4.13
|
|
Euroseas
2006 Equity Incentive Plan(5)
|
4.14
|
|
Loan
Agreement between Xingang Shipping Ltd., as borrower, and HSBC Bank plc,
as lender, for the amount of USD$20,000,000 dated November 14,
2006(5)
|
4.15
|
|
Form
of Right of First Refusal(6)
|
4.16
|
|
Form
of Advisory Agreement(6)
|
4.17
|
|
Loan
Agreement between Manolis Shipping Limited, as borrower, and EFG Eurobank
Ergasias S.A., as lender, for the amount of USD$10,000,000 dated June 7,
2007(7)
|
4.18
|
|
Loan
Agreement between Trust Navigation Corp., as borrower and EFG Eurobank
Ergasias S.A., as lender, for the amount of USD$15,000,000 dated October
29, 2007(7)
|
8.1
|
|
Subsidiaries
of the Registrant(7)
|
12.1
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer(7)
|
12.2
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer(7)
|
13.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(7)
|
13.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002(7)
|
15.1
|
|
Consent
of Deloitte, Hadjipavlou, Sofianos & Cambanis S.A.(7)
|
(1)
|
Filed
as an Exhibit to the Company's Registration Statement (File No.
333-129145) on October 20, 2005.
|
(2)
|
Filed
as an Exhibit to the Company's Amendment No.1 to Registration Statement
(File No. 333-129145) on December 5,
2005.
|
(3)
|
Filed
as an Exhibit to the Company’s Amendment No. 2 to Registration Statement
(File No. 333-129145) on January 19,
2006.
|
(4)
|
Filed
as an Exhibit to the Company’s Post-Effective Amendment No. 1 to
Registration Statement (File No. 333-12945) on September 12,
2006.
|
(5)
|
Filed
as an Exhibit to the Company’s Registration Statement (File No.
333-138780) on November 16, 2006.
|
(6)
|
Filed
as an Exhibit to the Company’s Amendment No. 1 to Registration Statement
(File No. 333-138780) on January 10,
2007.
|
SIGNATURES
The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign on
its behalf.
|
EUROSEAS
LTD
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
By:
|
/s/
Aristides J. Pittas
|
|
|
|
Aristides
J. Pittas
|
|
|
|
Chairman,
President and CEO
|
|
Date:
May 12, 2008
|
|
|
|
SK 02558 0005 876685
v5
Euroseas
Ltd. and Subsidiaries
Consolidated
financial statements
December
31, 2006 and 2007
Index
to consolidated financial statements
|
Pages
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2007
|
F-3
|
|
|
Consolidated
Statements of Income for the Years Ended
|
|
December
31, 2005, 2006 and 2007
|
F-4
|
|
|
Consolidated
Statements of Shareholders’ Equity for the Years Ended
|
|
December
31, 2005, 2006 and 2007
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended
|
|
December
31, 2005, 2006 and 2007
|
F-6
|
|
|
Notes
to the Consolidated Financial Statements
|
F-8
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Euroseas
Ltd and Subsidiaries
We have
audited the accompanying consolidated balance sheets of Euroseas Ltd and
subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Euroseas Ltd and subsidiaries as of December
31, 2007 and 2006, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2007, in conformity
with accounting principles generally accepted in the United States of
America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2007, based on the criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 8, 2008, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Deloitte
Hadjipavlou,
Sofianos & Cambanis S.A.
Athens,
Greece
May 8,
2008
Consolidated
balance sheets
December
31, 2006 and 2007
(All
amounts, except share data, expressed in U.S. Dollars)
|
|
Notes
|
|
|
2006
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
2,791,107
|
|
|
|
104,135,320
|
|
Trade
accounts receivable
|
|
|
|
|
|
378,216
|
|
|
|
1,174,045
|
|
Other
receivables
|
|
|
|
|
|
268,864
|
|
|
|
741,081
|
|
Due
from related company
|
|
|
8
|
|
|
|
2,649,259
|
|
|
|
5,291,197
|
|
Inventories
|
|
|
3
|
|
|
|
716,131
|
|
|
|
1,903,678
|
|
Restricted
cash
|
|
|
|
|
|
|
1,146,621
|
|
|
|
1,739,879
|
|
Vessel
held for sale
|
|
|
4
|
|
|
|
1,782,840
|
|
|
|
-
|
|
Trading
securities
|
|
|
|
|
|
|
-
|
|
|
|
2,891,658
|
|
Prepaid
expenses
|
|
|
|
|
|
|
242,558
|
|
|
|
430,605
|
|
Total
current assets
|
|
|
|
|
|
|
9,975,596
|
|
|
|
118,307,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels,
net
|
|
|
4
|
|
|
|
95,494,342
|
|
|
|
238,248,984
|
|
Long-term
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
|
|
|
|
2,700,000
|
|
|
|
4,500,000
|
|
Deferred
charges, net
|
|
|
5
|
|
|
|
1,291,844
|
|
|
|
5,529,870
|
|
Deferred
offering expenses
|
|
|
|
|
|
|
500,000
|
|
|
|
-
|
|
Fair
value of above market time charter acquired
|
|
|
7
|
|
|
|
7,543,477
|
|
|
|
4,604,514
|
|
Total
long-term assets
|
|
|
|
|
|
|
107,529,663
|
|
|
|
252,883,368
|
|
Total
assets
|
|
|
|
|
|
|
117,505,259
|
|
|
|
371,190,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, current portion
|
|
|
9
|
|
|
|
18,040,000
|
|
|
|
25,575,000
|
|
Trade
accounts payable
|
|
|
|
|
|
|
1,034,713
|
|
|
|
3,789,764
|
|
Accrued
expenses
|
|
|
6
|
|
|
|
1,233,185
|
|
|
|
2,043,585
|
|
Deferred
revenues
|
|
|
|
|
|
|
1,357,501
|
|
|
|
3,774,162
|
|
Total
current liabilities
|
|
|
|
|
|
|
21,665,399
|
|
|
|
35,182,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
9
|
|
|
|
56,910,000
|
|
|
|
56,015,000
|
|
Fair
value of below market time charters acquired
|
|
|
7
|
|
|
|
918,200
|
|
|
|
8,202,972
|
|
Total
long-term liabilities
|
|
|
|
|
|
|
57,828,200
|
|
|
|
64,217,972
|
|
Total
liabilities
|
|
|
|
|
|
|
79,493,599
|
|
|
|
99,400,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock (par value $0.03, 100,000,000 shares authorized, 12,620,150 and
30,261,113 issued and outstanding)
|
|
|
|
|
|
|
378,605
|
|
|
|
907,834
|
|
Preferred
shares (par value $0.01, 20,000,000 shares authorized, no shares issued
and outstanding)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
|
|
|
|
18,283,767
|
|
|
|
231,147,700
|
|
Retained
earnings
|
|
|
|
|
|
|
19,349,288
|
|
|
|
39,734,814
|
|
Total
shareholders’ equity
|
|
|
|
|
|
|
38,011,660
|
|
|
|
271,790,348
|
|
Total
liabilities and shareholders’ equity
|
|
|
|
|
|
|
117,505,259
|
|
|
|
371,190,831
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Euroseas
Ltd. and Subsidiaries
Consolidated
statements of income
Years
ended December 31, 2005, 2006 and 2007
(All
amounts, except for share data, expressed in U.S. Dollars)
|
|
Notes
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenue
|
|
|
|
|
|
44,523,401
|
|
|
|
42,143,361
|
|
|
|
86,104,365
|
|
Commissions
|
|
|
8
|
|
|
|
(2,388,349
|
)
|
|
|
(1,829,534
|
)
|
|
|
(4,024,032
|
)
|
Net
revenue
|
|
|
|
|
|
|
42,135,052
|
|
|
|
40,313,827
|
|
|
|
82,080,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
15
|
|
|
|
670,551
|
|
|
|
1,154,738
|
|
|
|
897,463
|
|
Vessel
operating expenses
|
|
|
15
|
|
|
|
8,610,279
|
|
|
|
10,368,817
|
|
|
|
17,240,132
|
|
Amortization
of dry-docking and special survey expense and vessel
depreciation
|
|
|
4,
5
|
|
|
|
4,208,252
|
|
|
|
7,292,838
|
|
|
|
17,963,072
|
|
Management
fees
|
|
|
8
|
|
|
|
1,911,856
|
|
|
|
2,266,589
|
|
|
|
3,669,137
|
|
Other
general and administrative expenses
|
|
|
|
|
|
|
420,755
|
|
|
|
1,076,884
|
|
|
|
2,656,176
|
|
Net
gain on sale of vessels
|
|
|
4
|
|
|
|
-
|
|
|
|
(4,445,856
|
)
|
|
|
(3,411,397
|
)
|
Total
operating expenses
|
|
|
|
|
|
|
15,821,693
|
|
|
|
17,714,010
|
|
|
|
39,014,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
26,313,359
|
|
|
|
22,599,817
|
|
|
|
43,065,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other financing costs
|
|
|
|
|
|
|
(1,495,871
|
)
|
|
|
(3,398,858
|
)
|
|
|
(4,850,239
|
)
|
Derivative
(loss)
|
|
|
10
|
|
|
|
(100,029
|
)
|
|
|
-
|
|
|
|
-
|
|
Foreign
exchange gain/(loss)
|
|
|
|
|
|
|
538
|
|
|
|
(1,598
|
)
|
|
|
(7,824
|
)
|
Unrealized
gain on trading securities
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,744
|
|
Interest
income
|
|
|
|
|
|
|
460,457
|
|
|
|
870,046
|
|
|
|
2,357,633
|
|
Other
income (expenses), net
|
|
|
|
|
|
|
(1,134,905
|
)
|
|
|
(2,530,410
|
)
|
|
|
(2,401,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
25,178,454
|
|
|
|
20,069,407
|
|
|
|
40,664,064
|
|
Earnings
per share - basic
|
|
|
14
|
|
|
|
2.34
|
|
|
|
1.60
|
|
|
|
1.89
|
|
Weighted
average number of shares outstanding during the year,
basic
|
|
|
14
|
|
|
|
10,739,476
|
|
|
|
12,535,365
|
|
|
|
21,566,619
|
|
Earnings
per share - diluted
|
|
|
14
|
|
|
|
2.34
|
|
|
|
1.60
|
|
|
|
1.88
|
|
Weighted
average number of shares outstanding during the year,
diluted
|
|
|
14
|
|
|
|
10,739,476
|
|
|
|
12,535,365
|
|
|
|
21,644,920
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Euroseas
Ltd. and Subsidiaries
Consolidated
statements of shareholders’ equity
Years
ended December 31, 2005, 2006 and 2007
(All
amounts, except share data, expressed in U.S. Dollars)
|
|
Comprehensive
Income
|
|
|
Number
of
Shares
|
|
|
Common
Stock
Amount
|
|
|
Preferred
Shares
Amount
|
|
|
Paid
- in
Capital
|
|
|
Retained
Earnings
|
|
|
Total
|
|
Balance,
January
1, 2005
|
|
|
|
|
|
9,918,056
|
|
|
|
297,542
|
|
|
|
-
|
|
|
|
17,073,381
|
|
|
|
13,741,732
|
|
|
|
31,112,655
|
|
Net
income
|
|
|
25,178,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,178,454
|
|
|
|
25,178,454
|
|
Issuance
of shares, net of issuance costs
|
|
|
|
|
|
|
2,342,331
|
|
|
|
70,270
|
|
|
|
-
|
|
|
|
17,510,400
|
|
|
|
-
|
|
|
|
17,580,670
|
|
Dividends
/return of capital declared and paid ($4.67 per share of which return of
capital $1.68 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,700,000
|
)
|
|
|
(30,175,223
|
)
|
|
|
(46,875,223
|
)
|
Balance,
December
31, 2005
|
|
|
|
|
|
|
12,260,387
|
|
|
|
367,812
|
|
|
|
-
|
|
|
|
17,883,781
|
|
|
|
8,744,963
|
|
|
|
26,996,556
|
|
Net
income
|
|
|
20,069,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,069,407
|
|
|
|
20,069,407
|
|
Issuance
of shares, net of issuance costs
|
|
|
|
|
|
|
359,763
|
|
|
|
10,793
|
|
|
|
-
|
|
|
|
(793
|
)
|
|
|
-
|
|
|
|
10,000
|
|
Reversal
of unutilized accrued offering expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,779
|
|
|
|
|
|
|
|
400,779
|
|
Dividends
declared and paid ($0.75 per share)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(9,465,082
|
)
|
|
|
(9,465,082
|
)
|
Balance,
December
31, 2006
|
|
|
|
|
|
|
12,620,150
|
|
|
|
378,605
|
|
|
|
-
|
|
|
|
18,283,767
|
|
|
|
19,349,288
|
|
|
|
38,011,660
|
|
Net
income
|
|
|
40,664,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,
664,064
|
|
|
|
40,664,064
|
|
Issuance
of shares in public offerings, net of issuance costs
|
|
|
|
|
|
|
17,325,000
|
|
|
|
519,750
|
|
|
|
-
|
|
|
|
209,367,229
|
|
|
|
-
|
|
|
|
209,886,979
|
|
Issuance
of shares for warrants exercised
|
|
|
|
|
|
|
248,463
|
|
|
|
7,454
|
|
|
|
-
|
|
|
|
2,675,947
|
|
|
|
-
|
|
|
|
2,683,401
|
|
Issuance
of restricted shares for stock incentive award and share-based
compensation
|
|
|
|
|
|
|
67,500
|
|
|
|
2,025
|
|
|
|
-
|
|
|
|
820,757
|
|
|
|
-
|
|
|
|
822,782
|
|
Dividends
declared and paid ($1.00 per share)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(20,278,538
|
)
|
|
|
(20,278,538
|
)
|
Balance,
December
31, 2007
|
|
|
|
|
|
|
30,261,113
|
|
|
|
907,834
|
|
|
|
-
|
|
|
|
231,147,700
|
|
|
|
39,734,814
|
|
|
|
271,790,348
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Euroseas
Ltd. and Subsidiaries
Consolidated
statements of cash flows
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
25,178,454
|
|
|
|
20,069,407
|
|
|
|
40,664,064
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
of vessels
|
|
|
2,657,914
|
|
|
|
6,277,328
|
|
|
|
16,423,092
|
|
Amortization
of deferred charges
|
|
|
1,634,082
|
|
|
|
1,090,111
|
|
|
|
1,612,696
|
|
Amortization
of fair value of time charters
|
|
|
-
|
|
|
|
(351,369
|
)
|
|
|
548,254
|
|
Gain
on sale of vessels
|
|
|
-
|
|
|
|
(4,445,856
|
)
|
|
|
(3,411,397
|
)
|
Loss
on derivative
|
|
|
100,029
|
|
|
|
-
|
|
|
|
-
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
822,782
|
|
Purchase
of trading securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,792,914
|
)
|
Unrealized
gain on trading securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,744
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
199,767
|
|
|
|
(332,098
|
)
|
|
|
(671,888
|
)
|
Prepaid
expenses
|
|
|
121,927
|
|
|
|
(156,933
|
)
|
|
|
(188,047
|
)
|
Other
receivables
|
|
|
(268,549
|
)
|
|
|
37,439
|
|
|
|
(472,217
|
)
|
Inventories
|
|
|
(68,213
|
)
|
|
|
(344,440
|
)
|
|
|
(1,187,547
|
)
|
Increase/(decrease)
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
to related company
|
|
|
(7,638,780
|
)
|
|
|
363,461
|
|
|
|
(2,641,936
|
)
|
Trade
accounts payable
|
|
|
(42,359
|
)
|
|
|
197,531
|
|
|
|
1,920,051
|
|
Accrued
expenses
|
|
|
334,874
|
|
|
|
(602,002
|
)
|
|
|
1,074,809
|
|
Deferred
revenue
|
|
|
(538,131
|
)
|
|
|
(12,557
|
)
|
|
|
2,292,720
|
|
Dry-docking
expenses paid
|
|
|
(1,076,233
|
)
|
|
|
(821,198
|
)
|
|
|
(4,935,007
|
)
|
Net
cash provided by operating activities
|
|
|
20,594,782
|
|
|
|
20,968,824
|
|
|
|
48,958,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of vessels
|
|
|
(20,821,647
|
)
|
|
|
(53,830,357
|
)
|
|
|
(149,502,254
|
)
|
Cash
paid for above-market charter acquired
|
|
|
-
|
|
|
|
(7,923,480
|
)
|
|
|
-
|
|
Change
in restricted cash
|
|
|
(1,011,969
|
)
|
|
|
(2,765,672
|
)
|
|
|
(2,393,258
|
)
|
Proceeds
from sale of vessels
|
|
|
-
|
|
|
|
9,152,494
|
|
|
|
5,223,521
|
|
Net
cash (used in) investing activities
|
|
|
(21,833,616
|
)
|
|
|
(55,367,015
|
)
|
|
|
(146,671,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of share capital
|
|
|
70,270
|
|
|
|
10,000
|
|
|
|
527,204
|
|
Net
proceeds from shares issued
|
|
|
18,632,106
|
|
|
|
-
|
|
|
|
213,692,072
|
|
Dividends
paid/return of capital
|
|
|
(46,875,223
|
)
|
|
|
(9,465,082
|
)
|
|
|
(20,278,538
|
)
|
Loan
arrangement fees paid
|
|
|
(208,500
|
)
|
|
|
(151,250
|
)
|
|
|
(110,000
|
)
|
Deferred
offering expenses paid
|
|
|
-
|
|
|
|
(41,671
|
)
|
|
|
(1,413,305
|
)
|
Proceeds
from long-term debts
|
|
|
53,200,000
|
|
|
|
43,750,000
|
|
|
|
25,000,000
|
|
Repayment
of long-term debts
|
|
|
(18,630,000
|
)
|
|
|
(17,360,000
|
)
|
|
|
(18,360,000
|
)
|
Net
cash provided by financing activities
|
|
|
6,188,653
|
|
|
|
16,741,997
|
|
|
|
199,057,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,949,819
|
|
|
|
(17,656,194
|
)
|
|
|
101,344,213
|
|
Cash
and cash equivalents at beginning of year
|
|
|
15,497,482
|
|
|
|
20,447,301
|
|
|
|
2,791,107
|
|
Cash
and cash equivalents at end of year
|
|
|
20,447,301
|
|
|
|
2,791,107
|
|
|
|
104,135,320
|
|
(Consolidated
statements of cash flows continues in the next page)
Euroseas
Ltd. and Subsidiaries
Consolidated
statements of cash flows
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
(Continued)
Cash
paid for interest
|
|
|
1,372,957
|
|
|
|
3,081,676
|
|
|
|
4,570,773
|
|
Non
cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in payables from dry-docking expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
835,000
|
|
Fair
value of below-market charters acquired
|
|
|
-
|
|
|
|
1,649,572
|
|
|
|
9,675,481
|
|
Reversal
of unutilized accrued offering expenses
|
|
|
-
|
|
|
|
400,779
|
|
|
|
-
|
|
Deferred
offering expenses
|
|
|
-
|
|
|
|
458,329
|
|
|
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
1. Basis
of Presentation and General Information
Euroseas
Ltd. (the “Company”) was formed on May 5, 2005 under the laws of the Republic of
the Marshall Islands to consolidate the beneficial owners of the ship owning
companies in existence at that time (see list below). On June 28, 2005, the
beneficial owners exchanged all their shares in the ship-owning companies for
shares in Friends Investment Company Inc., a newly formed Marshall Islands
company. On June 29, 2005, Friends Investment Company Inc. then
exchanged all the shares in the ship-owning companies for shares in Euroseas
Ltd., thus, becoming the sole shareholder of Euroseas Ltd. The
transaction described above constitutes a reorganization of companies under
common control, and has been accounted for in a manner similar to a pooling of
interests, as each ship-owning company was under the common control of the
Pittas family prior to the transfer of ownership of the companies to Euroseas
Ltd. Accordingly, the accompanying consolidated financial statements
have been presented as if the ship-owning companies were consolidated
subsidiaries of the Company for all periods presented and using the historical
carrying costs of the assets and the liabilities of the ship-owning companies in
existence at that time (see list below). All share counts are
adjusted for the Company’s 1-for-3 reverse common stock split effected on
October 6, 2006.
On August
25, 2005, Euroseas Ltd. sold 2,342,331 common shares at $9.00 per share in an
institutional private placement, together with 0.25 of detachable warrants for
each common share to acquire up to 585,589 common shares. The total
proceeds, net of issuance costs of $3,500,309, amounted to
$17,510,400. The warrants allow their holders to acquire one share of
Euroseas Ltd. stock at a price of $10.80 per share and are exercisable for a
period of five years from the issue of the warrant.
On August
25, 2005, as a condition to the institutional private placement described above,
the Company and Cove Apparel, Inc. (Cove, an unrelated party and public shell
corporation) signed an Agreement and Plan of Merger (the “Merger
Agreement”). The Merger Agreement provided for the merger of Cove and
Euroseas Acquisition Company Inc., a Delaware corporation and a wholly-owned
subsidiary of Euroseas Ltd. formed on June 21, 2005, with the current
stockholders of Cove receiving 0.0034323 shares of Euroseas Ltd. common
shares for each share of Cove common stock they presently
own. Euroseas Ltd., as part of the merger, filed a registration
statement with the Securities and Exchange Commission (SEC) to register the
shares issued in the merger to the Cove stockholders.
The SEC
declared effective on February 3, 2006 the Company’s registration statement on
Form F-4 that registered the Euroseas Ltd. common shares issued to Cove
shareholders. The SEC also declared effective on February 3, 2006 the
Company’s registration statement on Form F-1 that registered the re-sale of the
2,342,331 Euroseas Ltd. common shares and 585,589 Euroseas Ltd. common shares
issuable upon the exercise of the warrants issued in connection with the
institutional private placement as well as 272,868 Euroseas Ltd. common shares
that were issued to certain Cove shareholders as part of the merger with
Cove.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
1. Basis
of Presentation and General Information - continued
On March
27, 2006, Euroseas Ltd. consummated the merger with Cove and, as a result, Cove
merged into Euroseas Acquisition Company Inc., and the separate corporate
existence of Cove ceased. The Cove stockholders received Euroseas
Ltd. common shares and received dividends totaling to $140,334 related to
dividends previously declared by Euroseas Ltd. Euroseas Acquisition
Company Inc. changed its name to Cove Apparel, Inc. Also, following
the completion of the merger, the common stock of Cove has been de-listed and no
longer trades on the OTC Bulletin Board. On the date of the merger, Cove had
cash of $10,000, had no other assets and had no liabilities.
Euroseas
Ltd. common share was approved to trade on March 2, 2006 and started trading on
the OTC Bulletin Board on May 5, 2006. On October 6, 2006, the
Company effected a 1-for-3 reverse split of its common
stock. On January 31, 2007 upon the pricing of the Company’s
follow-on common stock offering of 5,750,000 shares the Euroseas Ltd. common
share started trading on the NASDAQ Global Market. The total proceeds of the
follow-on common stock offering, net of issuance costs of $4,122,289, amounted
to $43,315,220. On June 29, 2007 the Company priced, and, on July 5, 2007
completed an additional follow-on offering of 5,750,000 shares of common
stock. The total proceeds of this follow-on offering, net of issuance
costs of $4,609,428, amounted to $73,015,572. On November 6, 2007 the Company
priced, and, on November 9, 2007 completed an additional follow-on offering of
5,825,000 shares of common stock. The total proceeds of this follow-on offering,
net of issuance costs of $5,468,812, amounted to $93,556,187.
The
operations of the vessels are managed by Eurobulk Ltd. (the “manager”), a
corporation controlled by members of the Pittas family. The Pittas
family is the controlling shareholders of Friends Investment Company Inc. which
owns 31.1% of the Company’s shares as of December 31, 2007.
The
manager has an office in Greece located at 40 Ag. Konstantinou Ave, Maroussi,
Athens, Greece. The manager provides the Company with a wide range of shipping
services such as technical support and maintenance, insurance consulting,
chartering, financial and accounting services, as well as executive management
services, in consideration for fixed and variable fees (see Note
8).
The
Company is engaged in the ocean transportation of dry bulk and containers
through ownership and operation of dry bulk and container carriers owned by the
following ship-owning companies:
·
|
Searoute
Maritime Ltd. incorporated in Cyprus on May 20, 1992, owner of the Cyprus
flag 33,712 DWT bulk carrier motor vessel (M/V) “Ariel”, which was built
in 1977 and acquired on March 5, 1993. M/V “Ariel” was sold on
February 22, 2007.
|
·
|
Oceanopera
Shipping Ltd. incorporated in Cyprus on June 26, 1995, owner of the Cyprus
flag 34,750 DWT bulk carrier M/V “Nikolaos P”, which was built in 1984 and
acquired on July 22, 1996.
|
·
|
Oceanpride
Shipping Ltd. incorporated in Cyprus on March 7, 1998, owner of the Cyprus
flag 26,354 DWT bulk carrier M/V “John P”, which was built in 1981 and
acquired on March 7, 1998. M/V “John P” was sold on July 5,
2006.
|
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
1.
Basis of Presentation and General Information -
continued
·
|
Alcinoe
Shipping Ltd. incorporated in Cyprus on March 20, 1997, owner of the
Cyprus flag 26,354 DWT bulk carrier M/V “Pantelis P”, which was built in
1981 and acquired on June 4, 1997. M/V “Pantelis P” was sold on
May 31, 2006. On February 22, 2007, Alcinoe Shipping Ltd.
acquired the 38,691 DWT Cyprus flag drybulk carrier M/V “Gregos”, which
was built in 1984. On June 13, 2007, M/V Gregos was transferred
to Gregos Shipping Limited incorporated in the Marshall Islands and its
flag was changed to the flag of the Marshall
Islands.
|
·
|
Allendale
Investment S.A. incorporated in Panama on January 22, 2002, owner of the
Panama flag 18,154 DWT container carrier M/V “Kuo Hsiung”, which was built
in 1993 and acquired on May 13,
2002.
|
·
|
Alterwall
Business Inc. incorporated in Panama on January 15, 2001, owner of the
Panama flag 18,253 DWT container carrier M/V “Ninos” (previously named M/V
“Quingdao I”) which was built in 1990 and acquired on February 16,
2001.
|
·
|
Diana
Trading Ltd. incorporated in the Marshall Islands on September 25, 2002,
owner of the Marshall Islands flag 69,734 DWT bulk carrier M/V “Irini”,
which was built in 1988 and acquired on October 15,
2002.
|
·
|
Salina
Shipholding Corp., incorporated in the Marshall Islands on October 20,
2005, owner of the Marshall Islands flag 29,693 DWT container carrier M/V
“Artemis”, which was built in 1987 and acquired on November 25,
2005.
|
·
|
Xenia
International Corp., incorporated in the Marshall Islands on April 6,
2006, owner of the Marshall Islands flag 22,568 DWT / 950 TEU multipurpose
M/V “Tasman Trader”, which was built in 1990 and acquired on April 27,
2006.
|
·
|
Prospero
Maritime Inc., incorporated in the Marshall Islands on July 21, 2006,
owner of the Marshall Islands flag 69,268 DWT dry bulk M/V “Aristides
N.P.”, which was built in 1993 and acquired on September 4,
2006.
|
·
|
Xingang
Shipping Ltd., incorporated in Liberia on October 16, 2006, owner of the
Liberian flag 23,596 DWT container carrier M/V “YM Xingang I” , which was
built in February 1993 and acquired on November 15,
2006.
|
·
|
Manolis
Shipping Ltd., incorporated in the Marshall Islands on March 16, 2007,
owner of the Marshall Islands flag 20,346 DWT / 1,452 TEU container
carrier M/V “Manolis P”, which was built in 1995 and acquired on April 12,
2007.
|
·
|
Eternity
Shipping Company, incorporated in the Marshall Islands on May 17, 2007,
owner of the Marshall Islands flag 30,007 DWT / 1,742 TEU container
carrier M/V “Clan Gladiator”, which was built in 1992 and acquired on June
13, 2007. On May 9, 2008, M/V “Clan Gladiator” was renamed M/V “OEL
Transworld”.
|
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
1. Basis
of Presentation and General Information - continued
·
|
Emmentaly
Business Inc., incorporated in Panama on July 4, 2007, owner of the
Panamanian flag 33,667 DWT / 1,932 TEU container carrier M/V “Jonathan P”,
which was built in 1990 and acquired on August 7, 2007. On April 16, 2008,
M/V “Jonathan P” was renamed M/V “OEL
Integrity”.
|
·
|
Pilory
Associates Corp., incorporated in Panama on July 4, 2007, owner of the
Panamanian flag 33,667 DWT / 1,932 TEU container carrier M/V “Despina P”,
which was built in 1990 and acquired on August 13,
2007.
|
·
|
Tiger
Navigation Corp., incorporated in Marshall Islands on August 29, 2007,
owner of the Marshall Islands flag 31,627 DWT / 2,228 TEU container
carrier M/V “Tiger Bridge”, which was built in 1990 and acquired on
October 4, 2007.
|
·
|
Trust
Navigation Corp., incorporated in Liberia on October 1, 2007, owner of the
Liberian flag 64,873 DWT bulk carrier M/V “Ioanna P”, which was built in
1984 and acquired on November 1,
2007.
|
In
addition, the accompanying consolidated financial statements include the
accounts of the ship-owning company, Silvergold Shipping Ltd., which
was also managed by Eurobulk Ltd. during the periods presented.
·
|
Silvergold Shipping Ltd.
(Silvergold) incorporated in Cyprus on May 16, 1994. Up to June
3, 1996, Silvergold was engaged in ship owning activities, but thereafter,
Silvergold’s assets and liabilities were liquidated and the remaining net
assets were distributed to shareholders. The Company remained
dormant until October 10, 2000 when it acquired the 18,000 DWT Cyprus flag
container carrier M/V “Widar”, which was built in 1986. M/V
“Widar” was sold on April 24, 2004. The Pittas family, the controlling
shareholders of Friends Investment Company Ltd. which is the Company’s
largest shareholder, also owned Silvergold and, accordingly, these
accompanying financial statements also consolidated the accounts of
Silvergold until May 31, 2005, when Silvergold declared a final dividend
of $35,000 to its
shareholders.
|
During
the years ended December 31, 2005, 2006 and 2007, the following charterers
individually accounted for more than 10% of the Company’s voyage and time
charter revenues as follows:
|
|
|
Year
ended December 31,
|
|
Charterer
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
|
5.50
|
%
|
|
|
15.06
|
%
|
|
|
15.07
|
%
|
|
B
|
|
|
|
9.60
|
%
|
|
|
10.40
|
%
|
|
|
12.53
|
%
|
|
C
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12.10
|
%
|
|
D
|
|
|
|
-
|
|
|
|
16.63
|
%
|
|
|
7.60
|
%
|
|
E
|
|
|
|
17.48
|
%
|
|
|
12.67
|
%
|
|
|
5.19
|
%
|
|
G
|
|
|
|
26.85
|
%
|
|
|
-
|
|
|
|
-
|
|
|
F
|
|
|
|
12.32
|
%
|
|
|
-
|
|
|
|
-
|
|
|
H
|
|
|
|
-
|
|
|
|
5.32
|
%
|
|
|
-
|
|
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2. Significant
Accounting Policies
The
accompanying consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The following are the significant accounting policies
adopted by the Company:
Principles
of consolidation
The
accompanying consolidated financial statements included the accounts of Euroseas
Ltd. and its subsidiaries. Inter-company transactions were eliminated
on consolidation.
Use
of estimates
The
preparation of the accompanying consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosures of contingent assets and liabilities at
the date of the consolidated financial statements, and the stated amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other
comprehensive income
The
Company presents separately comprehensive income, if any, and its components in
stockholders’ equity. The Company has no other comprehensive income
and, accordingly, comprehensive income equals net income for all periods
presented.
Foreign
currency translation
The
Company’s functional currency is the U.S. dollar. Assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
at exchange rates prevailing at the balance sheet date. Income and
expenses denominated in foreign currencies are translated into U.S. dollars at
exchange rates prevailing at the date of the transaction. The
resulting exchange gains and/or losses on settlement or translation are included
in the accompanying consolidated statements of operations.
Cash
equivalents
Cash
equivalents are time deposits or other certificates purchased with an original
maturity of three months or less.
Restricted
Cash
Restricted
cash reflects deposits with certain banks that can only be used to pay the
current loan installments or are required to be maintained as a certain minimum
cash balance per mortgaged vessel.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2. Significant
Accounting Policies - Continued
Trade
accounts receivable
The
amount shown as trade accounts receivable, at each balance sheet date, includes
estimated recoveries from each voyage or time charter. At each balance sheet
date, the Company provides for doubtful accounts on the basis of specific
identified doubtful receivables. At December 31, 2005, 2006 and 2007,
no provision for doubtful debts was considered necessary.
Inventories
Inventories
are stated at the lower of cost and market value. Inventories are
valued using the FIFO (First-In First-Out) method. On January 1, 2007, the
Company changed its accounting policy for the valuation of the inventories of
lubricants to the FIFO method to more accurately value its inventories and
better match revenues and expenses. Until December 31, 2006, inventories of
lubricants were valued on an average cost basis; victualling inventories have
always been valued using the FIFO method. The net cumulative effect of this
change amounted to ($13,568) which was recorded in the vessel operating
expenses. The effect on the years 2005 and 2006 is immaterial and, therefore,
the Company has not retrospective applied the new accounting
principle.
Vessels
Vessels
are stated at cost which comprises the vessels’ contract price, costs of major
repairs and improvements upon acquisition, direct delivery and other acquisition
expenses less accumulated depreciation. Subsequent expenditures for conversions
and major improvements are also capitalized when they appreciably extend the
life, increase the earning capacity or improve the efficiency or safety of the
vessels otherwise these amounts are charged to expense as incurred.
Expenditures
for vessel repair and maintenance are charged against income in the period
incurred.
Depreciation
Depreciation
is calculated on a straight line basis with reference to the cost of the vessel,
age and scrap value as estimated at the date of
acquisition. Depreciation is calculated over the remaining useful
life of the vessel, which is estimated to range from 25 to 30 years from the
completion of its construction. Remaining useful lives of property
are periodically reviewed and revised to recognize changes in conditions and
such revisions, if any, are recognized over current and future
periods.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2. Summary
of Significant Accounting Policies - Continued
Revenue
and expense recognition
Revenues
are generated from voyage and time charter agreements. If a charter
agreement exists, the price is fixed, service is provided and the collection of
the related revenue is reasonably assured, revenues are recorded over the term
of the charter as service is provided and recognized on a pro-rata basis over
the duration of the voyage or time charter adjusted for the off-hire days that a
vessel spends undergoing repairs, maintenance or upgrade work. A voyage is
deemed to commence upon the later of the completion of discharge of the vessel’s
previous cargo or the time it receives a contract that is not cancelable and is
deemed to end upon the completion of discharge of the current
cargo. A time charter contract is deemed to commence from the time of
the delivery of the vessel to an agreed port and is deemed to end upon the
re-delivery of the vessel at an agreed port. We generally enter into a charter
agreement for the vessel’s next voyage or time charter prior to the time of
discharge of the previous cargo or completion of previous time charter. We do
not begin recognizing voyage or time charter revenue until a charter contract
has been agreed to both by us and the customer, even if the vessel has
discharged its cargo or completed the previous time charter and it is
sailing to the
anticipated
load port for its next voyage or to the port it will be delivered to the next
charterer. Demurrage income, which in included in voyage revenues, represents
payments received from the charterer when loading or discharging time exceeded
the stipulated time in the voyage charter and is recognized when earned.
Probable losses on voyages are provided for in full at the time such losses can
be estimated.
For the
Company’s vessels operating in chartering pools, revenues and voyage expenses
are pooled and allocated to each pool’s participants on a time charter
equivalent basis in accordance with an agreed-upon formula, which is determined
by points awarded to each vessel in the pool based on the vessel’s age, design
and other performance characteristics. For vessels that simultaneously
participate in spot chartering pools and cargo pools (pools of contracts of
affreightment, also called, short funds; in the Company’s case, participation in
cargo pools requires participation in spot chartering pools), a combined time
charter equivalent revenue is provided by the operator of the vessel and cargo
pools. Revenues and voyage expenses are recognized during the period services
were performed, the collectability has been reasonably assured, an agreement
with the pool exists and price is determinable.
Charter
fees received in advance is recorded as a liability (deferred revenue) until
charter services are rendered.
Vessels
operating expenses comprise all expenses relating to the operation of the
vessels, including crewing, insurance, repairs and maintenance, stores,
lubricants, spares and consumables, professional and legal fees and
miscellaneous expenses. Vessel operating expenses are recognized as incurred;
payments in advance of services or use are recorded as prepaid expenses. Voyage
expenses are incurred when the vessel is chartered under a voyage charter and
comprise all expenses relating to particular voyages, including bunkers, port
charges, canal tolls, and agency fees. Voyage expenses are recognized on a
pro-rata basis over the estimated length of the each voyage. The impact of
recognizing voyage expenses on a pro-rata basis over the length of the each
voyage is not materially different on a quarterly and annually basis from a
method of recognizing such expenses as incurred.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2.
|
Summary
of Significant Accounting Policies -
Continued
|
Dry-docking
and special survey expenses
Dry-docking
and special survey expenses are deferred and amortized over the estimated period
to the next scheduled dry-docking or special survey, which are generally two and
a half years and five years, respectively. Unamortized dry-docking
and special survey expenses of vessels that are sold are written-off to income
in the year of the vessel’s sale.
Pension
and retirement benefit obligations – crew
The
ship-owning companies employ the crews on board the vessels under short-term
contracts (usually up to 9 months). Accordingly, they are not liable
for any pension or post retirement benefits.
Financing
costs
Loan
arrangement fees are deferred and amortized to interest expense over the
duration of the underlying loan using the effective interest method. Unamortized
fees relating to loan repaid or refinanced are expensed in the period the
repayment or refinancing occurs.
Assets
held for sale
It is the
Company’s policy to dispose of vessels when suitable opportunities occur and not
necessarily to keep them until the end of their useful life. The Company
classifies vessels as being held for sale when: management has committed to a
plan to sell the vessels; the vessels are available for immediate sale in its
present condition; an active program to locate a buyer and other actions
required to complete the plan to sell the vessels have been initiated; the sale
of the vessels is probable, and transfer of the asset is expected to qualify for
recognition as a completed sale within one year; the vessels are being actively
marketed for sale at a price that is reasonable in relation to its current fair
value and actions required to complete the plan indicate that it is unlikely
that significant changes to the plan will be made or that the plan will be
withdrawn.
Long-lived
assets classified as held for sale are measured at the lower of their carrying
amount or fair value less cost to sell. These vessels are not
depreciated once they meet the criteria to be classified as held for
sale.
Impairment
of long-lived assets
Impairment
losses are recognized on long-lived assets used in operations when indicators of
impairment are present and if the carrying amount of the long-lived asset is not
recoverable from the undiscounted cash flows estimated to be generated by those
assets and the asset’s carrying amount is less than its fair value. In
determining fair value and future benefits derived from use of long-lived
assets, the Company performs an analysis of the anticipated undiscounted future
net cash flows of the related long-lived assets. If the carrying
value of the related asset exceeds its undiscounted future net cash flows, the
carrying value is reduced to its fair value. Various factors including future
charter rates and vessel operating costs are included in this analysis. The
Company did not note, for all years presented, any events or changes in
circumstances indicating that the carrying amount of its vessels may not be
recoverable.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2.
|
Summary
of Significant Accounting Policies -
Continued
|
Fair
value of time charter acquired
The
Company records all identified tangible and intangible assets or any liabilities
associated with the acquisition of a vessel at fair value. Where vessels are
acquired with existing time charters, the Company determines the present value
of the difference between: (i) the contractual charter rate and (ii) the
prevailing market rate for a charter of equivalent duration. In discounting the
charter rate differences in future periods, the Company uses its Weighted
Average Cost of Capital (WACC) adjusted to account for the credit quality of the
charterer. The capitalized above-market (assets) and below-market
(liabilities) charters are amortized as a reduction and increase, respectively,
to voyage revenues over the remaining term of the charter.
Stock
incentive plan awards
Share-based
compensation represents vested and nonvested restricted shares granted to
employees and to non-employee directors, for their services as directors, as
well as to non-employees and is included in “Other general and administrative
expenses” in the consolidated statements of income. These shares are measured at
their fair value equal to the market value of the Company's common stock on the
grant date. The shares that do not contain any future service vesting conditions
are considered vested shares and a total fair value of such shares is expensed
on the grant date. The shares that contain a time-based service vesting
condition are considered nonvested shares on the grant date and a total fair
value of such shares recognized on a straight-line basis over the requisite
service period. In addition, nonvested awards granted to non-employees are
measured at its then-current fair value as of the financial reporting dates
until non-employees complete the service (Note 13).
Investments
The
Company classifies unrestricted publicly traded investments as trading
securities and records them at fair value. For trading securities, the Company
records unrealized gains or losses resulting from changes in fair value between
measurement dates as a component of Gain on trading securities. Net unrealized
gains and losses recognized during the reporting period on trading securities
still held at the reporting date amounted to $0, $0 and $98,744 for the years
ended December 31, 2005, 2006 and 2007, respectively. None of the trading
securities were sold during the period. Purchases of, or proceeds from, the sale
of trading securities are classified as cash flows from operating activities.
Upon adoption of Statement of Financial Accounting Standards No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”),
the classification of purchases of, or proceeds from, the sale of trading
securities will be classified to cash flows from operating activities or cash
flows from investing activities based upon the Company’s intent with respect to
these securities ( see Note 2 – Recent Accounting Pronouncements).
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2.
|
Summary
of Significant Accounting Policies -
Continued
|
Derivative
financial instruments
Every
derivative instrument (including certain derivative instruments embedded in
other contracts) are recorded in the balance sheet as either an asset or
liability measured at its fair value with changes in the instruments' fair value
recognized currently in earnings unless specific hedge accounting criteria are
met.
For the
year ended December 31, 2005, the interest rate swaps did not qualify for hedge
accounting treatment. Accordingly, all gains or losses have been
recorded in the consolidated statement of income. There were no interest rate
swaps for the years ended December 31, 2006 and 2007.
Earning
per common share
Basic
earnings per share is computed by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. The weighted-average number of common shares outstanding does not
include any potentially dilutive securities or any unvested restricted shares of
common stock. These unvested restricted shares, although classified as issued
and outstanding at December 31, 2007, are considered contingently returnable
until the restrictions lapse and will not be included in the basic net income
per share calculation until the shares are vested.
Diluted
net income per share gives effect to all potentially dilutive securities. The
Company’s outstanding warrants and nonvested restricted shares were potentially
dilutive securities during the twelve months ended December 31, 2007 (Note
14).
Segment
reporting
The
Company reports financial information and evaluates its operations by charter
revenue and not by the length of ship employment for its customers, i.e. spot or
time charters. The Company does not use discrete financial
information to evaluate the operating results for each such type of charter.
Although revenue can be identified for these types of charters, management
cannot and does not identify expenses, profitability or other financial
information for these charters. As a result, management, including
the chief operating decision maker, reviews operating results solely by revenue
per day and operating results of the fleet and thus the Company has determined
that it operates under one reporting segment. Furthermore, when the Company
charters a vessel to a charterer, the charterer is free to trade the vessel
worldwide and, as a result, the disclosure of geographical information is
impracticable.
Recent
accounting pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure about fair value measurements. SFAS
No. 157 is effective for financial assets and liabilities in fiscal years
beginning after November 15, 2007 and for non-financial assets and liabilities
in fiscal years beginning after March 15, 2008. The Company does not expect the
adoption of SFAS No. 157 to have a material impact on Company’s consolidated
financial statements.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
2.
|
Summary
of Significant Accounting Policies -
Continued
|
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities Including an amendment of FASB Statement No.
115” (SFAS No. 159”) which provides the option to report certain financial
assets and liabilities at fair value, with the intent to mitigate volatility in
financial reporting that can occur when related assets and liabilities are
recorded on different bases. SFAS No. 159 amends FASB Statement No. 95,
“Statement of Cash Flows” (“SFAS No. 95”) and FASB Statement No. 115,
“Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No.
115”). SFAS No. 159 specifies that cash flows from trading securities, including
securities for which an entity has elected the fair value option, should be
classified in the statement of cash flows based on the nature of and purpose for
which the securities were acquired. Before this amendment, SFAS No. 95 and SFAS
No. 115 specified that cash flows from trading securities must be classified as
cash flows from operating activities. This statement is effective for the
Company beginning January 1, 2008. Upon adoption, the Company will be
classifying proceeds from sales of trading securities within the statement of
cash flows as an operating or investing activity based on the intention for
which any securities are acquired. The Company does not expect any of the other
provisions of SFAS No. 159 to have a material impact on our consolidated
financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any non-controlling interest in the acquiree and the goodwill
acquired. SFAS No. 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for fiscal years beginning
after December 15, 2008, and will be adopted by the Company in the first quarter
of fiscal 2009. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS No. 141(R) on the Company's consolidated
results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51 (“SFAS No. 160”).” SFAS No. 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent’s ownership
interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008, and will be adopted by the Company in the first quarter of
fiscal 2009. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS No. 160 on the Company's consolidated
results of operations and financial condition.
In March
2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Acitivities” (“SFAS No. 161”). The new standard is intended
to improve financial reporting about derivative instruments and heding
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. It is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. The Company is currently evaluating the potential impact, if
any, of the adoption of SFAS No. 161 on the Company's consolidated results of
operations, cash flows and financial condition.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
This
consisted of the following:
|
|
2006
|
|
|
2007
|
|
Lubricants
|
|
|
637,758
|
|
|
|
1,232,341
|
|
Victualling
|
|
|
78,373
|
|
|
|
145,767
|
|
Bunkers
|
|
|
-
|
|
|
|
525,570
|
|
Total
|
|
|
716,131
|
|
|
|
1,903,678
|
|
The
amounts in the accompanying consolidated balance sheets are as
follows:
|
|
Costs
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
76,582,041
|
|
|
|
(24,247,144
|
)
|
|
|
52,334,897
|
|
-Depreciation
for the year
|
|
|
-
|
|
|
|
(6,277,328
|
)
|
|
|
(6,277,328
|
)
|
-Purchase
of vessels
|
|
|
55,479,929
|
|
|
|
-
|
|
|
|
55,479,929
|
|
- Vessels
held for sale
|
|
|
(6,119,713
|
)
|
|
|
4,336,873
|
|
|
|
(1,782,840
|
)
|
- Sale
of vessels
|
|
|
(12,411,482
|
)
|
|
|
8,151,166
|
|
|
|
(4,260,316
|
)
|
Balance,
December 31, 2006
|
|
|
113,530,775
|
|
|
|
(18,036,433
|
)
|
|
|
95,494,342
|
|
-Depreciation
for the year
|
|
|
-
|
|
|
|
(16,423,092
|
)
|
|
|
(16,423,092
|
)
|
-Purchase
of vessels
|
|
|
159,177,734
|
|
|
|
-
|
|
|
|
159,177,734
|
|
Balance,
December 31, 2007
|
|
|
272,708,509
|
|
|
|
(34,459,525
|
)
|
|
|
238,248,984
|
|
M/V
Pantelis P was sold in May 2006 and the Company recognized net gain from the
sale of $2,165,799. Depreciation expense for M/V Pantelis P for the year ended
December 31, 2006 amounted to $107,587. M/V John P was sold in July
2006 and the Company recognized net gain from the sale of $2,280,057.
Depreciation expense for M/V John P for the year ended December 31, 2006
amounted to $60,067 (see Note 11).
On
December 19, 2006, Searoute Maritime Ltd., a wholly-owned subsidiary of the
company, signed a Memorandum of Agreement to sell M/V “Ariel”, a handysize bulk
carrier of 33,712 DWT built in 1977 for a gross price of $5,350,000 with 2%
sales commissions. The vessel was delivered to the buyers on February 22, 2007
resulting in a gain of approximately $3,400,000. M/V “Ariel” is
presented as “vessel held for sale” in the consolidated balance sheet as of
December 31, 2006. The vessel was already fully
depreciated
as of December 19, 2006 and, therefore, its classification as “vessel held for
sale” had no effect on the depreciation. The book value of M/V
“Ariel” (representing its estimated salvage value) as of December 31, 2006 was
$1,782,840.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
4.
|
Vessels,
net - Continued
|
The
Company, in 2006, acquired M/V “Tasman Trader”, M/V “Aristides N.P.” and M/V “YM
Xingang I”.
M/V
“Tasman Trader” was acquired for $10,775,000 with an existing time charter (see
Note 7) below the prevailing market charter rate. Consequently, the
Company recorded M/V “Tasman Trader” at $12,091,393 consisting of the amount
paid plus the present value of the below market charter rate of $1,237,072 and
additional cost of acquisition amounting to $79,321.
M/V
“Aristides N.P.” was acquired for $23,460,000 with an existing time charter (see
Note 7) below the prevailing market charter rate. Consequently, the
Company recorded M/V “Aristides N.P.” at $23,985,752 consisting of the amount
paid plus the present value of the below market charter rate of $412,500 and
additional cost of acquisition of $113,252.
M/V “YM
Xingang I” was acquired for $27,250,000 with an existing time charter (see Note
7) above prevailing market rates. Consequently, the Company recorded
M/V “YM Xingang I” at $19,402,784 which is calculated as the total amount paid
less the present value of the above market charter rate of $7,923,480, plus
additional acquisition cost of $76,264.
In 2007,
the Company acquired a total of seven vessels.
On
February 22, 2007, the Company took delivery of M/V “Gregos”, a 38,691 dwt bulk
carrier built in 1984. At the time of purchase, the Company assessed
that the vessel’s condition would allow it to operate economically for at least
5 years and decided to use a depreciation life of 28 years for M/V “Gregos”
measured from the date of vessel construction in 1984. The vessel underwent
dry-docking in June 2007, and, the Company also intends to pass the vessel
through its next special survey in 2009. M/V “Gregos” was acquired
for $13,100,000. The Company recorded M/V “Gregos” at $13,165,025 consisting of
the amount paid plus additional cost of acquisition amounting to
$65,027.
On April
12, 2007, the Company took delivery of M/V “Manolis P”, a 20,356 dwt / 1,452 teu
container carrier built in 1995. M/V “Manolis P” was acquired for $19,150,000.
The Company recorded M/V “Manolis P” at $19,210,275 consisting of the amount
paid plus additional cost of acquisition amounting to $60,275.
On June
13, 2007, the Company took delivery of M/V “Clan Gladiator”, a 30,007 dwt /
1,742 teu container carrier built in 1992. M/V “Clan Gladiator” was acquired for
$25,700,000. The Company recorded M/V “Clan Gladiator” at $25,753,439 consisting
of the amount paid plus additional cost of acquisition amounting to $53,439. On
May 9, 2008, M/V “Clan Gladiator” was renamed M/V “OEL Transworld”.
On August
7, 2007, the Company took delivery of M/V “Jonathan P”, a 33,667 dwt / 1,932 teu
container carrier built in 1990. M/V “Jonathan P” was acquired for $18,700,000.
The Company recorded M/V “Jonathan P” at purchase at $18,791,829, consisting of
the amount paid plus additional cost of acquisition amounting to $91,829, and
recorded vessel improvements of $526,244. On April 16, 2008, M/V “Jonathan P”
was renamed M/V “OEL Integrity”.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
4.
|
Vessels,
net - Continued
|
On August
13, 2007, the Company took delivery of M/V “Despina P”, a 33,667 dwt / 1,932 teu
container carrier built in 1990. M/V “Despina P” was acquired for $18,700,000.
The Company recorded M/V “Despina P” at purchase at $18,779,334, consisting of
the amount paid plus additional cost of acquisition amounting to $79,334, and
recorded vessel improvements of $560,475.
On
October 4, 2007, the Company took delivery of M/V “Tiger Bridge”, a 31,627 dwt /
2,228 teu container carrier built in 1990. M/V “Tiger Bridge” was acquired for
$24,000,000 along with a below market charter of $16,500 per day until July
2009. The Company recorded M/V “Tiger Bridge” at $26,308,421 consisting of the
amount paid plus additional cost of acquisition amounting to $44,498 plus the
cost of the below market charter estimated at $2,263,923 (see Note
7).
On
November 1, 2007, the Company took delivery of M/V “Ioanna P”, a 64,873 dwt bulk
carrier built in 1984. At the time of purchase, the Company assessed
that the vessel’s condition would allow it to operate economically for at least
5 years and decided to use a depreciation life of 28 years for M/V “Ioanna P”
measured from the date of vessel construction in 1984. The vessel underwent
dry-docking in 2007, and, the Company also intends to pass the vessel through
its next special survey in 2009. M/V “Ioanna P” was acquired for
$28,600,000 along with a below market time charter of $35,500 per day until July
2008. The Company recorded M/V “Ioanna P” at $36,082,695 consisting of the
amount paid plus additional cost of acquisition amounting to $71,137 plus the
cost of the below market charter estimated at $7,411,558 (see Note
7).
This
consisted of:
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Balance,
beginning of year
|
|
|
2,205,178
|
|
|
|
1,855,829
|
|
|
|
1,291,844
|
|
Additions
|
|
|
1,284,733
|
|
|
|
972,448
|
|
|
|
5,880,007
|
|
Amortization
of dry-docking and
special
survey expenses
|
|
|
(1,550,338
|
)
|
|
|
(1,015,510
|
)
|
|
|
(1,539,981
|
)
|
Amortization
of loan arrangement fees
|
|
|
(83,744
|
)
|
|
|
(74,601
|
)
|
|
|
(72,715
|
)
|
Unamortized
portion of dry-docking and special survey expenses written-off upon sale
of vessels
|
|
|
-
|
|
|
|
(446,322
|
)
|
|
|
(29,285
|
)
|
Balance,
end of year
|
|
|
1,855,829
|
|
|
|
1,291,844
|
|
|
|
5,529,870
|
|
The
additions of $1,284,733 in 2005 consisted of loan financing fees of $208,500 and
dry-docking and special survey expenses of $1,076,233 for two vessels, M/V
“Irini” and M/V “John P”. The additions of $972,448 in 2006 consisted of loan
financing fees of $151,250 and dry-docking and special survey expenses of
$821,198 for two vessels, M/V “Nikolaos P” and M/V “Kuo Hsiung”. The additions
of $5,880,007 in 2007 consisted of loan financing fees of $110,000 and
dry-docking and special survey expenses of $5,770,007 for seven vessels, M/V
“Artemis”, M/V “Ninos”, M/V “Tasman Trader”, M/V “Gregos”, M/V “Manolis P”, M/V
“Despina P” and M/V “OEL Integrity” (ex M/V “Jonathan P”).
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
6. Accrued
Expenses
The
accrued expenses account consisted of:
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
Accrued
follow-on offering expenses
|
|
|
458,329
|
|
|
|
193,919
|
|
Accrued
payroll expenses
|
|
|
72,807
|
|
|
|
152,843
|
|
Accrued
interest
|
|
|
291,567
|
|
|
|
498,317
|
|
Accrued
general and administrative expenses
|
|
|
199,678
|
|
|
|
503,560
|
|
Other
accrued expenses
|
|
|
210,804
|
|
|
|
694,946
|
|
Total
|
|
|
1,233,185
|
|
|
|
2,043,585
|
|
7.
|
Fair
Value of Above or Below Market Time Charters
Acquired
|
M/V
“Tasman Trader” was acquired on April 27, 2006 with an outstanding time charter
terminating on December 17, 2008 with a charter rate of $8,850 per day and M/V
“Aristides N.P.” was acquired on September 4, 2006 with an outstanding time
charter contract terminating on November 8, 2006 with a charter rate of $19,750
per day. These charter rates were below the market rates for
equivalent time charters prevailing at the time the foregoing vessels were
acquired. The present values of the below the market charters were
estimated by the Company at $1,237,072 and $412,500, respectively, and were
recorded as liabilities in the consolidated balance sheets. Net
voyage revenues included $318,872 as amortization of the below market rate
charters for M/V “Tasman Trader” and $412,500 for M/V “Aristides N.P.” for the
year ended December 31, 2006 and $465,503 for M/V “Tasman Trade” for the year
ended December 31, 2007. The unamortized below market rate charter
for M/V “Tasman Trader” was $918,200 and $452,697 and none for M/V “Aristides
N.P.” as of December 31, 2006 and 2007, respectively, and is recorded as a
liability in the consolidated balance sheets.
M/V “YM
Xingang I” was acquired on November 15, 2006 with an outstanding time charter
terminating on July 21, 2009 with a charter rate of $26,650 per
day. This charter rate was above the market rates for equivalent time
charters prevailing at the time. The present value of the above the
market charter was estimated by the Company at $7,923,480, and was recorded as
an asset in the consolidated balance sheets. Net voyage revenues
included a reduction of $380,003 and $2,938,963 as amortization of the above
market rate charter for M/V “YM Xingang I” for the years ended December 31, 2006
and 2007, respectively. The remaining unamortized above market rate charter was
$7,543,477 and $4,604,514 as of December 31, 2006 and 2007, respectively, and is
recorded as a long term asset in the consolidated balance sheets.
M/V
“Tiger Bridge” was acquired on October 4, 2007 with an outstanding time charter
terminating on August 4, 2009 with a charter rate of $16,500 per
day. This charter rate was below the market rates for equivalent time
charters prevailing at the time. The present value of the
below-market charter was estimated by the Company at $2,263,924, and was
recorded as a liability in the consolidated balance sheets. Net
voyage revenues included $298,946 as amortization of the below-market rate
charter for M/V “Tiger Bridge” for the year ended December 31, 2007. The
remaining unamortized above market rate charter was $1,964,977 as of December
31, 2007.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
7.
|
Fair
Value of Above or Below Market Time Charters Acquired -
continued
|
M/V
“Ioanna P” was acquired on November 1, 2007 with an outstanding time charter
terminating on August 4, 2008 with a charter rate of $35,500 per
day. This charter rate was below the market rates for equivalent time
charters prevailing at the time. The present value of the
below-market charter was estimated by the Company at $7,441,558 and was recorded
as a liability in the consolidated balance sheets. Net voyage
revenues included $1,626,260 as amortization of the below-market rate charter
for M/V “Ioanna P” for the year ended December 31, 2007. The remaining
unamortized above market rate charter was $5,785,298 as of December 31,
2007.
8.
|
Related
Party Transactions
|
The
Company’s vessel owning companies are parties to management agreements with
Eurobulk Ltd. (“Management Company”), which is controlled by members of the
Pittas family, whereby the Management Company provides technical and commercial
vessel management for a fixed daily fee of Euro 590 per vessel for 2005, an
average of Euro 608 for 2006 and Euro 628 for 2007 under the Company’s Master
Management Agreement (see below). Vessel management fees paid to the
Management Company amounted to $1,911,856, $2,266,589 and $3,669,137 in 2005,
2006 and 2007, respectively. These agreements were renewed on January 31, 2005
and amended in August and October 2006 with an initial term of five years and
will automatically be extended after the initial term until terminated by the
parties. Termination is not effective until two months following
notice having been delivered in writing by either party after the expiration of
the initial five-year period. An annual adjustment of the management fee due to
inflation as provided under the management agreement took effect on the annual
anniversary of the agreement on January 31, 2006 increasing the management fee
by Euro 20 per vessel per day to Euro 610 and on January 31, 2007 to Euro 630
per vessel per day. Eurobulk Ltd. agreed not adjust the daily management fee for
inflation in 2008. The Company’s master management agreement with
Eurobulk - effective as of October 1, 2006 and with an initial term of five
years until September 30, 2011 – was amended and renewed for five years on
February 7, 2008 with effect from January 1, 2008. Future inflation
adjustments will take effect on January 1.
In
addition to the vessel management services, Eurobulk provides us with management
services for the Company’s needs as a public company. In 2006, compensation for
such services to us as a public company was $508,750, incremental to the
management fee. The Euroseas Board of Directors approved an increase
of the management services fee to $700,000 per year starting July 1, 2007,
resulting in total cost for such services in 2007 of $608,750. On
February 7, 2008, as part of the amended and renewed master management
agreement, the Board of Directors approved a further increase to this component
of the management fee to $1,100,000 per year starting on January 1, 2008 to be
adjusted for inflation every January 1.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
8.
|
Related
Party Transactions - Continued
|
Amounts
due to or from related parties represent net disbursements and collections made
on behalf of the vessel-owning companies by the Management Company during the
normal course of operations for which a right of off-set exists. As
of December 31, 2006 and 2007, the amount due from related companies was
$2,649,259 and $5,291,196, respectively. Based on the master management
agreement between Euroseas Ltd. and Euroseas’ shipowning subsidiaries and
Eurobulk Ltd. an estimate of the quarter’s operating expenses, expected drydock
expenses, vessel management fee and fee for management executive services is to
be advanced in the beginning of quarter to Eurobulk Ltd. For the
fleet as of December 31, 2007 this advance is estimated between $7,500,000 and
$9,000,000 excluding any advances needed for drydock expenses and is paid in
advance around the beginning of each quarter. Interest earned on funds deposited
in related party accounts is credited to the account of the ship-owning
companies or Euroseas Ltd.
The
Company uses brokers for various services, as is industry
practice. Eurochart S.A., a company controlled by certain members of
the Pittas family, provides vessel sale and purchase services, and chartering
services to the Company whereby the Company pays commission of 1% of the vessel
sales price and 1.25% of charter revenues. Commission expenses for
the years ended December 31, 2007 and 2006 for vessel sales were $53,500 and
$96,000, respectively, incurred for the sale of M/V “Ariel” in 2007, and, sale
of M/V “Pantelis P” and M/V “John P” in 2006; there were no sales of vessels in
2005. Eurochart S.A. also received 1% commission for vessel acquisitions from
the sellers of the vessels that the Company acquired. Commissions to Eurochart
S.A. for chartering services were $536,180, $492,149 and $1,124,416 in 2005,
2006 and 2007, respectively.
Certain
members of the Pittas family, together with another unrelated ship management
company, have formed a joint venture with the insurance broker Sentinel Maritime
Services Inc., and with a crewing agent More Maritime Agencies Inc. The
shareholders’ percentage participation in these joint ventures was 48% in 2005,
78% in 2006 and 78% in 2007. Sentinel Maritime Services Inc. is paid
a commission on premium not exceeding 5%; More Maritime Agencies Inc. is paid a
fee of $50 per crew member per month. Total fees charged by Sentinel Marine
Services Inc. and More Maritime Agencies Inc. were $219,400 and $45,277, in
2005, $60,750 and $79,495, in 2006, and, $67,900 and $117,145 in 2007,
respectively. These amounts are recorded in “Vessel operating
expenses” under “Operating expenses”.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
This
consisted of bank loans of the ship-owning companies are as
follows:
Borrower
|
|
|
December
31,
2006
|
|
|
December
31,
2007
|
|
Diana
Trading Limited
|
(a)
|
|
$
|
4,180,000
|
|
|
$
|
2,100,000
|
|
Alcinoe
Shipping Limited (2006)/
Oceanpride
Shipping Limited/
Searoute
Maritime Ltd/
Oceanopera
Shipping Ltd
|
(b)
|
|
|
3,800,000
|
|
|
|
2,600,000
|
|
Alterwall
Business Inc./
Allendale
Investments S.A
|
(c)
|
|
|
11,750,000
|
|
|
|
7,950,000
|
|
Salina
Shipholding Corp.
|
(d)
|
|
|
12,000,000
|
|
|
|
8,500,000
|
|
Xenia
International Corp
|
(e)
|
|
|
7,720,000
|
|
|
|
6,660,000
|
|
Prospero
Maritime Inc.
|
(f)
|
|
|
15,500,000
|
|
|
|
13,100,000
|
|
Xingang
Shipping Ltd. / Alcinoe Shipping Ltd
|
(g)
|
|
|
20,000,000
|
|
|
|
16,000,000
|
|
Manolis
Shipping Ltd.
|
(h)
|
|
|
-
|
|
|
|
9,680,000
|
|
Trust
Navigation Corp.
|
(i)
|
|
|
-
|
|
|
|
15,000,000
|
|
|
|
|
|
74,950,000
|
|
|
|
81,590,000
|
|
Less:
Current portion
|
|
|
|
(18,040,000
|
)
|
|
|
(25,575,000
|
)
|
Long-term
portion
|
|
|
$
|
56,910,000
|
|
|
$
|
56,015,000
|
|
The
future annual loan repayments are as follows:
To
December 31:
|
|
|
|
2008
|
|
|
25,575,000
|
|
2009
|
|
|
12,450,000
|
|
2010
|
|
|
14,450,000
|
|
2011
|
|
|
6,250,000
|
|
2012
|
|
|
5,710,000
|
|
Thereafter
|
|
|
17,155,000
|
|
Total
|
|
$
|
81,590,000
|
|
Euroseas
Ltd. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
9. Long-Term
Debt - continued
(a)
|
This
consisted of a loan amounting to $4,900,000 and $1,000,000 drawn in
2002. The loan is payable in twenty-four consecutive quarterly
installments of $220,000 each, and a balloon payment of $620,000 payable
together with the final quarterly installment due in October
2008. The interest is based on LIBOR plus 1.6% per
annum.
|
|
An
additional loan of $4,200,000 was drawn on May 9, 2005. The
loan is payable in twelve consecutive quarterly installments consisting of
four installments of $450,000 each, and eight installments of $300,000
each with the final installment due in May 2008. The interest
is based on LIBOR plus 1.25% per
annum.
|
(b)
|
Alcinoe
Shipping Ltd., Oceanpride Shipping Ltd., Searoute Maritime Ltd. and
Oceanopera Shipping Ltd.
drew, in 2005,
$13,500,000 against a loan facility for which they are jointly and
severally liable. The loan is payable in twelve consecutive
quarterly installments consisting of two installments of $2,000,000 each,
one installment of $1,500,000, nine installments of $600,000 each and a
balloon payment of $2,600,000 payable with the final installment due in
May 2008. The interest is based on LIBOR plus 1.5% per
annum.
|
The
Company made two additional early repayments for a total of $3,000,000 from the
sales proceeds of M/V “John P” and M/V “Pantelis P” in June 2006 and July 2006.
The Company also negotiated a revised repayment schedule starting July 1, 2006,
which provides for payment of $300,000 per quarter and a balloon payment of
$2,000,000 payable with the final installment due in the second quarter of
2008. After the sale of the above mentioned vessels in 2006 and the
sale of M/V “Ariel” in February 2007, Oceanopera Shipping Ltd., the owner of M/V
“Nikolaos P” remains the sole liable entity for this loan facility.
(c)
|
Allendale
Investments S.A. and Alterwall Business Inc. drew $20,000,000 on May 26,
2005 against a loan facility for which they are jointly and severally
liable. The loan is payable in twenty-four unequal consecutive
quarterly installments of $1,500,000 each in the first year, $1,125,000
each in the second year, $775,000 each in the third year, $450,000 each in
the fourth through sixth years and a balloon payment of $1,000,000 payable
with the final installment due in May 2011. The interest is
based on LIBOR plus 1.25% per annum as long as the outstanding loan amount
remains below 60% of the fair market value (FMV) of M/V “Ninos” and M/V
“Kuo Hsiung” and plus 1.375% if the outstanding loan amount is above 60%
of the FMV of such vessels.
|
(d)
|
This
is a $15,500,000 loan drawn by Salina Shipholding Corp. on December 30,
2005. The loan is payable in ten consecutive semi-annual
installments consisting of six installments of $1,750,000 each and four
installments of $650,000 each and a balloon payment of $2,400,000 payable
with the final installment due in January 2011. The interest is based on
LIBOR plus a margin that ranges between 0.9%-1.1%, depending on the asset
cover ratio. The loan is secured with the following: (i) first priority
mortgage over M/V “Artemis”, (ii) first assignment of earnings and
insurance of M/V “Artemis”, (iii) a corporate guarantee of Euroseas Ltd.,
(iv) a minimum cash balance equal to an amount of no less than $300,000 in
an account Salina Shipholding Corp. maintains with the bank, and, (v)
overall liquidity (cash and cash equivalents) of $300,000 for each of the
Company’s vessels throughout the life of the
facility.
|
Euroseas
Ltd. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
9. Long-Term
Debt - continued
(e)
|
This
is an $8,250,000 loan drawn by Xenia International Corp. on June 30,
2006. The loan is payable in twenty three consecutive quarterly
installments consisting of $265,000 each and a balloon payment of
$2,155,000 payable with the final quarterly installment due in March 2012.
The interest is based on LIBOR plus a margin of 0.95%. The loan is secured
with the following: (i) first priority mortgage over M/V “Tasman Trader”,
(ii) first assignment of earnings and insurance of M/V “Tasman Trader”,
(iii) a corporate guarantee of Euroseas Ltd., and, (iv) overall liquidity
(cash and cash equivalents) of $300,000 for each of the Company’s vessels
throughout the life of the
facility.
|
(f)
|
This
is a $15,500,000 loan drawn by Prospero Maritime Inc. on September 4,
2006. The loan is payable in fourteen consecutive semi-annual
installments consisting of two installments of $1,200,000 each, one
installment of $1,000,000 each and eleven installments of $825,000 each
and a balloon payment of $3,025,000 payable with the final semi-annual
installment due in September 2013. The interest is based on LIBOR plus a
margin that ranges between 0.9%-0.95%, depending on the asset cover ratio.
The loan is secured with the following: (i) first priority mortgage over
M/V “Aristides N.P.”, (ii) first assignment of earnings and insurance of
M/V “Aristides N.P.”, (iii) a corporate guarantee of Euroseas Ltd., (iv) a
minimum cash balance equal to an amount of no less than $300,000 in an
account Prospero Maritime Inc. maintains with the bank, and, (v) overall
liquidity (cash and cash equivalents) of $300,000 for each of the
Company’s vessels throughout the life of the
facility.
|
(g)
|
This
is a $20,000,000 loan drawn by Xingang Shipping Ltd. on November 15, 2006;
Alcinoe Shipping Ltd., owner of the M/V “Gregos”, became a guarantor to
the loan in March 2007. The loan is payable in eight consecutive quarterly
installments of $1.0 million each, the first of which is due in February
2007, followed by four consecutive quarterly installments of $750,000
each, followed by sixteen consecutive installments of $250,000 each and a
balloon payment of $5.0 million payable with the final quarterly
instalment due in November 2013. The interest was based on LIBOR plus a
margin of 0.935% initially; after Alcinoe Shipping Ltd. became a guarantor
the rate became 0.90%. The loan is secured with the following: (i) first
priority mortgage over M/V “YM Xingang I”, (ii) first assignment of
earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd. and
(iv) a third mortgage on M/V “Irini” also financed by the same
bank.
|
(h)
|
This
is a $10,000,000 loan drawn by Manolis Shipping Ltd. on June 11, 2007. The
loan is payable in thirty-two consecutive quarterly instalments of
$160,000 each, the first of which is due in September 2007, plus a balloon
payment of $4,880,000 payable with the final quarterly instalment in June
2015. The interest is based on LIBOR plus a margin of 0.80% if the ratio
of the outstanding loan to the vessel value is below 55%, otherwise the
margin is 0.90%. The loan is secured with the following: (i)
first priority mortgage over M/V “Manolis P”, (ii) first assignment of
earnings and insurance, (iii) a corporate guarantee of Euroseas Ltd. and
(iv) a minimum cash balance equal to an amount of no less than $300,000 in
an account Manolis Shipping Ltd. maintains with the bank. Other
covenants and guarantees are similar to the rest of the loans of the
Company.
|
Euroseas
Ltd. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
9. Long-Term
Debt - continued
(i)
|
This
is a $15,000,000 loan drawn by Trust Navigation Corp. on November 1, 2007.
The loan is payable in four consecutive quarterly instalments of
$1,850,000 each, the first of which is due in February 2008, followed by
four consecutive quarterly instalments of $750,000 each, followed by four
consecutive quarterly instalments of $550,000 each, plus a balloon payment
of $2,400,000 payable with the final quarterly instalment in November
2010. The interest is based on LIBOR plus a margin of
0.90%. The loan is secured with the following: (i) first
priority mortgage over M/V “Ioanna P”, (ii) first assignment of earnings
and insurance, (iii) a corporate guarantee of Euroseas Ltd. and (iv) a
minimum cash balance equal to an amount of no less than $300,000 in an
account Trust Navigation Corp. maintains with the bank. Other
covenants and guarantees are similar to the rest of the loans of the
Company.
|
In
addition to the terms specific to each loan described above, all the above loans
are secured with one or more of the following:
·
|
first
priority mortgage over the respective vessels on a joint and several
basis.
|
·
|
first
assignment of earnings and
insurance.
|
·
|
a
personal guarantee of one
shareholder.
|
·
|
a
corporate guarantee of Euroseas
Ltd.
|
·
|
a
pledge of all the issued shares of each
borrower.
|
The loan
agreements contain covenants such as restrictions as to changes in management
and ownership of the vessel shipowning companies, distribution of profits or
assets, additional indebtedness and mortgage of vessels without the lender’s
prior consent, sale of vessels, maximum fleet leverage, sale of capital stock of
our subsidiaries, ability to make investments and other capital expenditures,
entering in mergers or acquisitions, minimum requirements regarding the hull
ratio cover, minimum cash balance requirements and minimum cash retention
accounts (restricted cash). The loans agreements also require the
Company to make deposits in retention accounts with certain banks that can only
be used to pay the current loan instalments. Minimum cash balance requirements
are in addition to cash held in retention accounts. These cash deposits amounted
to $3,846,621 and $6,239,879 as of December 31, 2006 and 2007, respectively, and
are shown as “Restricted cash” under “Current Assets” and “Long-Term Assets” in
the consolidated balance sheets. The Company is not in default of any of the
foregoing covenants.
Interest
expense for the years ended December 31, 2005, 2006 and 2007 amounted to
$1,412,127, $3,324,257 and $4,777,524 respectively. At December 31,
2007, LIBOR for the Company’s loans was on average approximately 5% and the
average interest rate on our debt was approximately 6.0%.
Euroseas
Ltd. and subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
10. Derivative
Financial Instruments
The
losses for the period ended December 31, 2005 arose from interest rate swaps
entered into in 2004 and settled in 2005 that did not meet the criteria for
hedge accounting treatment. The Company did not enter into any
derivative transaction in 2006 or 2007.
11. Income
Taxes
Under the
laws of the countries of the companies’ incorporation and/or vessels’
registration, the companies are not subject to tax on international shipping
income, however, they are subject to registration and tonnage taxes, which have
been included in Vessel operating expenses in the accompanying consolidated
statements of income.
Pursuant
to the Internal Revenue Code of the United States (the “Code”), U.S. source
income from the international operations of ships is generally exempt from U.S
tax if the company operating the ships meets certain requirements. Among other
things, in order to qualify for this exemption, the company operating the ships
must be incorporated in a country, which
grants an equivalent
exemption from income taxes to U.S corporations. All the company’s
ship-operations subsidiaries satisfy this particular criterion. In
addition, these Companies must be more than 50% of the value of the stock is
owned, directly or indirectly, by individuals who are residents as defined in
the countries of incorporation or another foreign country that grants an
equivalent exemption to U.S corporations, the “50% Ownership Test”, or, the
stock is “primarily and regularly traded on an established securities market” in
our country of organization, in another country that grants an “equivalent
exemption” to United States corporations, or in the United States, the
“Publicly-Traded Test.”. These companies also satisfied the more that “50%
Ownership Test” requirement for 2005, 2006 and 2007. In addition, the management
of the Company believes that by virtue of the special rule applicable to
situations where the ship operating companies are beneficially owned by a
publicly traded company like the Company, the “Publicly-Traded Test” will be
satisfied for 2008 and thereafter, but no assurance can be given that this will
remain so, since continued compliance with this rule is subject to factors
outside the Company’s control.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
12.
|
Commitments
and Contingencies
|
(a)
|
There
are no material legal proceedings to which the Company is a party or to
which any of its properties are subject, other than routine litigation
incidental to the Company’s business. In the opinion of the
management, the disposition of these lawsuits should not have a material
impact on the consolidated results of operations, financial position and
cash flows.
|
(b)
|
The
distribution of the net earnings by one of the chartering pools which has
one of the Company’s vessels in its pool has not yet been finalized for
the year ended December 31, 2007. The effect on the Company’s
income resulting from a subsequent reallocation of pool income on the
results for the year was not
significant.
|
(c)
|
Future
minimum time charter revenue net of commissions, based on non-cancelable
time charter contracts as of December 31, 2007 will be $40.7 million for
2008, $10.9 million for 2009, $3.3 million for 2010, $3.2 million for 2011
and $0.5 million for 2012 assuming the scheduled drydockings and special
surveys (20-25 days every two and a half years) and one additional offhire
day per quarter to account for any unscheduled off-hire
time.
|
On July
17, 2007, the Board of Directors terminated the Company’s 2006 Stock Incentive
Plan without making any awards. On October 25, 2007, the Board of Directors
approved the Company’s 2007 Stock Incentive Plan (the “Plan”). The Plan is
administered by the Board of Directors which can make awards totaling in
aggregate up to 600,000 shares as over the next 10 years. The persons eligible
to receive awards under the Plan are officers, directors, and executive,
managerial, administrative and professional employees of the Company or Eurobulk
or Eurochart, (collectively, “key persons”) as the Board, in its sole
discretion, shall select based upon such factors as the Board shall deem
relevant. Awards may be made under the Plan in the form of incentive
stock options, non-qualified stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, unrestricted stock, restricted stock units
and performance shares. The Board awarded 135,000 nonvested
restricted shares to 12 key persons on December 18, 2007 of which 50% vested on
December 20, 2007 with the remaining will vest on December 15, 2008 subject to
continuous employment with the Company. Awards to officers and directors
amounted to 80,000 shares; the remaining 55,000 shares were awarded to employees
of Eurobulk. An additional award of 150,000 nonvested restricted shares was made
to the same 12 key persons on February 7, 2008 of which 50% will vest on August
7, 2008 and 50% on August 7, 2009; awards to officers and directors amounted to
95,000 shares and the remaining 55,000 shares were awarded to employees of
Eurobulk.
All
nonvested restricted shares are conditional upon the grantee’s continued service
as an employee of the Company, Eurobulk or as a director until the applicable
vesting date. The grantee does not have the right to vote such unvested
restricted shares until they vest or exercise any right as a shareholder of
these shares, however, the unvested shares will accrue dividends as declared and
paid which will be retained by the Company until the share vest at which time
they are payable to the grantee. As of December 31, 2007 the unvested restricted
shares accrued no dividends. As unvested restricted share grantees accrue
dividends on awards that are expected to vest, such dividends are charged to
retained earnings.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
13.
|
Stock
Incentive Plan - continued
|
The
Company estimates the forfeitures of nonvested restricted shares to be
immaterial. The Company will, however, re-evaluate the reasonableness of its
assumption at each reporting period.
The
compensation cost that has been charged against income for those plans was
$822,782 for the year ended December 31, 2007.
A summary
of the status of the Company’s nonvested shares as of December 31, 2007, and
changes during the year ended December 31, 2007, is presented
below:
|
|
Unvested
Shares
|
|
Shares
|
|
|
Weighted-Average
Grant-Date Fair Value
|
|
Unvested
at January 1, 2007
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
135,000
|
|
|
$
|
1,602,450
|
|
Vested
|
|
|
67,500
|
|
|
$
|
801,225
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Unvested
at December 31, 2007
|
|
|
67,500
|
|
|
$
|
801,225
|
|
As of
December 31, 2007, there was $790,952 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan based on the closing stock price of $12.4 on December 31, 2007 used for the
valuation of the shares awarded to non-employees. That cost is expected to be
recognized over a weighted-average period of 0.956 years. The total fair value
of shares vested during the year ended December 31, 2007 was $797,925 and the
recognized portion of the unvested shares was $24,857.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
Basic and
diluted earnings per common share are computed as follows:
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Income:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
25,178,454
|
|
|
|
20,069,407
|
|
|
|
40,664,064
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares –
Outstanding
|
|
|
10,739,476
|
|
|
|
12,535,365
|
|
|
|
21,566,619
|
|
Basic
earnings per share
|
|
|
2.34
|
|
|
|
1.60
|
|
|
|
1.89
|
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
78,301
|
|
Weighted
average common shares –
Outstanding
|
|
|
10,739,476
|
|
|
|
12,535,365
|
|
|
|
21,644,920
|
|
Diluted
earnings per share
|
|
|
2.34
|
|
|
|
1.60
|
|
|
|
1.88
|
|
During
the year ended December 31, 2007, 248,463 warrants were exercised for gross
proceeds of $2,683,400. As of December 31, 2007, the Company has
outstanding warrants that entitle their holders to purchase 337,125 shares of
common stock at an exercise price of $10.80 per share. The exercise price of
then outstanding 585,589 warrants was above the average market price of the
Company’s shares during the years ended December 31, 2005 and 2006.
Consequently, the Company’s warrants were anti-dilutive and not included in the
computation of diluted earnings per share for the years ended December 31, 2005
and 2006.
In April
2005, the Company decided to distribute to its original shareholders in advance
of going public most of the profits relating to the Company’s operations up to
that time; the Company, declared and paid dividend in the amount of $27,525,000
($2.78 per share) and return of capital in the amount of $16,700,000 ($1.69 per
share); after its private placement in August 2005, the Company declared and
paid a dividend of $2,650,223 ($0.21 per share) for a total dividend / return of
capital in 2005 of $46,875,223 ($4.67 per share). In 2006 and 2007,
the Company declared and paid dividends of $9,465,082 ($0.75 per share) and
$20,278,535 ($1.00 per share), respectively.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
15. Voyage,
Vessel Operating Expenses and Commissions
These
consisted of:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Voyage
expense
|
|
|
|
|
|
|
|
|
|
Port
charges and canal dues
|
|
|
234,535
|
|
|
|
289,496
|
|
|
|
335,091
|
|
Bunkers
|
|
|
416,712
|
|
|
|
845,123
|
|
|
|
547,046
|
|
Agency
fees
|
|
|
19,304
|
|
|
|
20,119
|
|
|
|
15,326
|
|
Total
|
|
|
670,551
|
|
|
|
1,154,738
|
|
|
|
897,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Crew
wages and related costs
|
|
|
4,281,680
|
|
|
|
5,132,985
|
|
|
|
8,152,303
|
|
Insurance
|
|
|
1,525,683
|
|
|
|
1,591,986
|
|
|
|
2,256,024
|
|
Repairs
and maintenance
|
|
|
515,373
|
|
|
|
314,132
|
|
|
|
481,557
|
|
Lubricants
|
|
|
484,930
|
|
|
|
808,338
|
|
|
|
1,815,340
|
|
Spares
and consumable stores
|
|
|
1,465,063
|
|
|
|
1,811,691
|
|
|
|
3,235,221
|
|
Professional
and legal fees
|
|
|
23,975
|
|
|
|
31,488
|
|
|
|
74,050
|
|
Others
|
|
|
313,575
|
|
|
|
678,197
|
|
|
|
1,225,637
|
|
Total
|
|
|
8,610,279
|
|
|
|
10,368,817
|
|
|
|
17,240,132
|
|
Commission
consisted of commissions charged by:
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
Third
parties
|
|
|
1,852,169
|
|
|
|
1,337,385
|
|
|
|
2,799,036
|
|
Related
parties (see Note 8)
|
|
|
536,180
|
|
|
|
492,149
|
|
|
|
1,224,996
|
|
|
|
|
2,388,349
|
|
|
|
1,829,534
|
|
|
|
4,024,032
|
|
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
16.
Financial Instruments
The
principal financial assets of the Company consists of cash on hand and at banks,
interest rate swaps and accounts receivable due from charterers. The principal
financial liabilities of the Company consist of long-term loans and accounts
payable due to suppliers.
Interest
rate risk
The
Company entered into interest rate swap contracts as economic hedges to its
exposure to variability in its floating rate long term debt. Under the terms of
the interest rate swaps the Company and the bank agreed to exchange, at
specified intervals the difference between a paying fixed rate and floating rate
interest amount calculated by reference to the agreed principal amounts and
maturities. Interest rate swaps allow the Company to convert
long-term borrowings issued at floating rates into equivalent fixed rates. Even
though the interest rate swaps were entered into for economic hedging purposes,
the derivatives described below do not qualify for accounting purposes as fair
value hedges, under FASB Statement No. 133,
Accounting for derivative
instruments and hedging activities
, as the Company does not have
currently written contemporaneous documentation, identifying the risk being
hedged, and both on a prospective and retrospective basis performed an effective
test supporting that the hedging relationship is highly effective. Consequently,
the Company recognizes the change in fair value of these derivatives in the
consolidated statements of income. The Company had derivative instruments only
in 2005.
Concentration
of credit risk
Financial
instruments, which potentially subject the Company to significant concentration
of credit risk consist primarily of cash and trade accounts receivable. The
Company places its temporary cash investments, consisting mostly of deposits,
with high credit qualified financial institutions. The Company performs periodic
evaluation of the relative credit standing of these financial institutions that
are considered in the Company’s investment strategy. The Company limits its
credit risk with accounts receivable by performing ongoing credit evaluations of
its customers’ financial condition and generally does not require collateral for
its accounts receivable.
The
carrying values of cash, accounts receivable and accounts payable are reasonable
estimates of their fair value due to the short term nature of these financial
instruments. The fair value of long term bank loans bearing interest at variable
interest rates approximates the recorded values. The fair value of trading
securities is based on the closing price on the last day of the reporting
period.
Euroseas
Ltd. and Subsidiaries
Notes
to the consolidated financial statements
Years
ended December 31, 2005, 2006 and 2007
(All
amounts expressed in U.S. Dollars)
17. Subsequent
Events
|
a)
|
On
February 7, 2008, the Board of Directors declared a cash dividend of $0.30
per Euroseas Ltd. common share. Such cash dividend was paid on
or about March 14, 2008 to the holders of record of Euroseas Ltd. common
shares as of March 4, 2008.
|
|
b)
|
On
February 7, 2008, the Board of Directors granted a stock incentive award
of 150,000 shares to directors, officers and key persons, 50% of which
will vest on August 7, 2008 and the remaining 50% on August 7,
2009.
|
|
c)
|
On
February 7, 2008, the Board of Directors approved the Amended Master
Management Agreement with Eurobulk Ltd. under which the annual part of the
management fee to Eurobulk Ltd. is increased to $1.1 million as of January
1, 2008 while the daily management fee per vessel will remain at Euro 630
for 2008 as Eurobulk Ltd. agreed to forgo the scheduled - as of February
1, 2008 - inflation increase. Both components of the management fee are
scheduled to be adjusted for inflation on January 1 of each
year.
|
|
d)
|
On
May 8, 2008, the Board of Directors declared a cash dividend of $0.31 per
Euroseas Ltd. common share. Such cash dividend was paid on or
about June 18, 2008 to the holders of record of Euroseas Ltd. common
shares as of June 6, 2008.
|
Exhibit
4.9
MASTER
MANAGEMENT AGREEMENT
This
Amended Master Management Agreement (the “
Agreement
”), dated as of
February 7th,, 2008 amends the Master Management Agreement dated as of September
29th 2006 and amended on the 17
th
of July
2007 between Euroseas Ltd. (the “
Company
”), in its own capacity
and as agent for each of its vessel owning subsidiaries identified in Schedule A
hereto together with any additional subsidiaries that may acquire vessels in the
future (the “
Subsidiarie
s”) and Eurobulk
Ltd. (the “
Manager
”).
WHEREAS
(A)
|
The
Subsidiaries are the registered owners of the ships (the “
Vessels
”) described in
Schedule A annexed hereto, as such Schedule may be amended from time to
time.
|
(B)
|
The
Company has retained the Manager to provide, subject to the terms and
conditions set forth herein, management services in respect of the Vessels
and to the Company and the Manager is willing and able to provide such
management services.
|
(C)
|
The
Company and the Manager wish to restate their current agreement in a
comprehensive manner. This Agreement is not intended to alter
any substantive arrangements between the parties except renewing its term
and adjusting the fees payable.
|
NOW
therefore, in
consideration of the foregoing and for other good and valuable consideration,
the parties hereto agree as follows:
|
1.
|
The
Manager is hereby appointed by the Company as manager and the Manager
hereby agrees to act as manager of the Vessels and to the
Company.
|
|
2.
|
The
Manager undertakes to use its best endeavours to provide the following
services to the Vessels, namely: Crewing, Technical Management, Insurance,
Freight Management, Accounting, Chartering, Sale and Purchase, Provisions,
Bunkering and Operation (the “
Services
”). The
parties acknowledge that in performing these services the Manager may use
other agents, consultants, brokers etc as is customary, some of which may
be affiliates. In particular the parties acknowledge that the Manager’s
exclusive agent in respect of Chartering and Purchase and Sale
transactions is Eurochart S.A, an
affiliate.
|
|
3.
|
The
Manager undertakes to use its best endeavours to provide the following
services to the Company: compliance with SEC rules and regulations,
compliance with Sarbanes-Oxley and various other services related to the
proper administration of the Company’s obligations for the proper
operation of the Vessels (the “
Services
”).
|
|
4.
|
The
Manager shall render advice and provide executive services to the Company
from time to time, including, but not limited to, the services of a chief
executive officer, a chief financial officer, a chief administrative
officer, an internal auditor and a secretary and such other matters as may
be mutually agreed between the Manager and the Company. The executive
services shall only be performed by the following persons: President and
Chief Executive officer by Aristides J Pittas; Chief Financial officer and
Treasurer by Anastasios Aslidis; Chief Administrative Officer by Symeon
Pariaros, Internal Auditor by Konstantine Xarhas and Secretary by
Stephania Karmiri. Any other person performing any of these services must
first be approved by the Company in
writing.
|
|
5.
|
The
terms of conditions under which the Manager will provide the Services to
the Vessels are set out in the attached BIMCO standard Ship Management
Agreement (“
SHIPMAN
”) as amended,
which is hereby attached - Schedule B. Each Subsidiary will sign a
management agreement with the Manager. The terms and conditions of this
Agreement in relation to the Services to be provided by the Manager to the
Vessels shall prevail over the terms and conditions of the SHIPMAN to the
extent the two are inconsistent or in
conflict.
|
|
6.
|
In
the exercise of its duties to the Vessels, Manager shall act faithfully
and diligently according to prudent shipping management standards and is
entitled to provide the services in its own discretion, subject however to
the terms and conditions of
SHIPMAN.
|
The
engagement of the Manager shall start on February 7, 2008 and continue through
February 6, 2013 (the “
Initial
Term
”) and shall automatically be renewed thereafter for 5 years unless
terminated by the Company or Manager by written notice to the other on or before
the 90
th
day
preceding the scheduled termination date, unless sooner terminated as
hereinafter provided in section 6 below.
The
Manager shall render the services at one or more suitable locations selected by
the parties.
In
consideration of Manager’s Services, the Company will pay the Manager a fee
broken down in two parts:
1) a lump
sum fee payable directly by the Company of $1,100,000 per annum payable in
advance in four quarterly installments. This amount will be adjusted annually
(every February but valid retroactively since January 1
st
) for
inflation as measured by the official inflation rate in Greece for
the preceding year.
2) a
daily fee of Euro 630 per day per vessel payable by each Subsidiary. This amount
will be adjusted annually (every February but valid retroactively since January
1
st
)
for the official inflation rate in Greece for the preceding year.
In order
to facilitate Manager’s carrying out its duties hereunder to the Company, the
Company shall promptly reimburse Manager for all reasonable expenses paid or
incurred by or on behalf of the Manager in the performance of Manager’s Services
and shall reimburse the Manager for any fees and/or commissions
charged to the Manager by other agents,consultants,brokers etc.
This
Agreement can be terminated:
a)
|
For
cause, which shall mean a party’s willful misconduct in any material
respect, or the material breach or material failure by a party to perform
its duties or responsibilities hereunder or under any SHIPMAN, which shall
not have been cured within 10 days after receipt of written
notice;
|
|
b)
|
On
at least 90 days written notice prior to the end of the Initial Term or
prior to the expiration of any applicable renewal
term;
|
|
c)
|
If
the Company or the Manager ceases to conduct business, or all or
substantially all of the properties or assets of either party is sold,
seized or appropriated; or
|
|
d)
|
The
Company or the Manager file a petition under any bankruptcy law or make an
assignment for the benefit of their creditors, or otherwise seek relief
under any law for the protection of debtors or shall adopt a plan of
liquidation or a petition shall be filed against Company or Manager
seeking to have it declared an insolvent or a bankrupt, and such petition
is not dismissed or stayed within 90 days of its filing, or if Company or
Manager shall admit in writing its insolvency or its inability to pay its
debts as they mature, or if an order is made for the appointment of a
liquidator, manager, receiver or trustee of Company or Manager of all or a
substantial part of its assets, then this Agreement shall forthwith
terminate and be of no further force and
effect.
|
7.
|
CONFIDENTIAL
INFORMATION
|
Manager
agrees that, during its engagement by the Company and at all times thereafter,
it will not disclose to others except to its employees, agents, advisors or
representatives, directly or indirectly, any confidential information, which is
in the nature of trade secrets, relating to the business, prospects or plans of
the Company or the Subsidiaries. Upon termination of the engagement
with the Company, Manager shall surrender to the Company any and all work
papers, reports, manuals, documents and the like (including all originals and
copies thereof) in its or its agents or representatives’ possession which
contain any such confidential information.
8.
|
NONEXCLUSIVE
ENGAGEMENT
|
During
the term of this Agreement, Manager shall be permitted to engage in such other
business activities and perform services for entities other than the Company and
the Subsidiaries;
provided
,
however
, Manager
shall at all times provide sufficient staffing to satisfactorily perform the
Services to be provided hereunder and Manager’s engagement in rendering services
to entities other than the Company shall not substantially interfere with or
adversely affect its provision of the Services hereunder.
Any and
all notices or other communications required or permitted to be given under any
of the provisions of this Agreement shall be in writing and shall be deemed to
have been duly given and received when delivered personally or three (3) days
after mailing, if mailed by registered or certified mail, return receipt
requested. Either party may change its mailing address for the
purposes of this Agreement by notice to the other as herein
provided.
The
Company represents to Manager that this Agreement has been duly authorized on
behalf of the Company by its Board of Directors. Manager represents to the
Company that this Agreement has been duly authorized on behalf of the Manager by
its Board of Directors, that it is free to enter into this Agreement and that
its entering into this Agreement does not violate any obligation that it has to
any other person or legal entity.
In the
event that any provision of this Agreement would be held to be invalid or
unenforceable for any reason unless narrowed by construction, this Agreement
shall be construed as if such invalid or unenforceable provision had been more
narrowly drawn so as not to be invalid or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement shall be held to
be invalid or unenforceable for any reason, such invalidity or unenforceability
shall attach only to such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement.
(a) This
Agreement sets forth the entire understanding of the Company and Manager with
respect to the subject matter hereof and cannot be amended or modified except by
a writing signed by each of the parties hereto. No waiver of any
term, condition or obligation of this Agreement shall be valid unless in writing
and signed by the waiving party. No failure or delay by either the
Company or Manager in exercising any right or remedy under this Agreement will
waive any provision of this Agreement, nor will any single or partial exercise
by either the Company or Manager of any right or remedy under this Agreement
preclude any of them from otherwise or further exercising the rights or remedies
contained herein, or any other rights or remedies granted by any law or any
related document.
(b) The
Section headings contained herein are for the purpose of convenience only and
are not intended to define or limit the contents of said
Sections.
(c) This
Agreement shall be deemed to be a contract under the laws of Greece and shall be
construed and enforced in accordance with the laws of said state. Any dispute
under this Agreement shall be determined exclusively by the Courts of Athens.
However, for disputes arising between the Subsidiaries and the Manager, the
choice of law and the jurisdiction are governed by the terms of the
SHIPMAN.
(d) This
Agreement may be executed in any number of counterparts each of which shall be
deemed an original and all of which, taken together, shall constitute a single
original document.
(e) It
is understood and agreed among the parties that in rendering services hereunder,
Manager is an independent contractor of the Company and shall not be deemed to
constitute a director, officer or employee of the Company solely in respect of
this Agreement.
(f) The
Company shall have no obligation to any person entitled to the benefits of this
Agreement with respect to any tax obligation any such person incurs as a result
of or attributable to this Agreement or arising from any payments made or to be
made hereunder or thereunder.
(g) The
provisions of this Agreement which by their terms call for performance
subsequent to termination of this Agreement shall so survive such
termination.
(h) This
Agreement may not be transferred, assigned or delegated by any of the parties
hereto without the prior written consent of the other parties
hereto.
(i) (1) The
Company hereby confirms to and agrees with Manager with respect to any and all
matters arising out of or in connection with its engagement as a Manager
hereunder, that Manager shall be entitled to receive the benefits of all
indemnification provisions contained in the bylaws of the Company to the fullest
extent permitted by applicable law at the time of the assertion of any liability
against Manager. Without limiting the generality of the foregoing,
the Company hereby covenants and agrees that Manager shall be entitled to
receive any and all indemnification to which Manager would have been entitled
had it or they acted as an officer or director of the Company, including,
without limitation, such indemnification benefits as may hereafter be extended
or otherwise made available by the Company to its executive
officers.
(2) Manager
shall cooperate fully with the Company in the prosecution or defense, as the
case may be, of any and all actions, governmental inquiries or other legal
proceedings in which Manager's assistance may be requested by the
Company. Such cooperation shall include, among other things, making
documents in Manager's custody or control available to the Company or its
counsel, making itself available for interviews by the Company or its counsel,
and making itself available to appear as a witness, at deposition, trial or
otherwise. Any and all reasonable and necessary vouchered
out-of-pocket expenses incurred by Manager in fulfilling its obligations under
this paragraph 12(i) shall be reimbursed by the Company.
(3) The
provisions of this Section 12(i) shall survive the termination or expiration of
this Agreement.
IN
WITNESS WHEREOF, the parties have executed this Management Agreement as of the
date first written above.
Euroseas Ltd.
By:
/s/ Aristides J.
Pittas
Name: Aristides J. Pittas
Title: Chairman of
the Board,President, CEO
Eurobulk Ltd.
By:
/s/ Nicholaos
Pittas
Name: Nikolaos Pittas
Title: Director
EXHIBIT
4.17
DATED:
7th JUNE 2007
MANOLIS
SHIPPING LIMITED
-AND-
EFG
EUROBANK ERGASIAS S.A
LOAN
AGREEMENT
FOR
THE AMOUNT OF USD 10,000,000
M.V
MANOLIS P
|
CONTENTS
|
|
PAGE
NO
|
|
|
|
1
|
PURPOSE,
DEFINITIONS AND INTERPRETATION
|
1
|
2
|
DISBURSEMENT
|
8
|
3
|
CONDITIONS
PRECEDENT
|
9
|
4
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REPRESENTATIONS
AND WARRANTIES
|
10
|
5
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ARRANGEMENT
FEE
|
15
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6
|
EVIDENCE
|
15
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7
|
REPAYMENT
AND PREPAYMENT
|
16
|
8
|
INTEREST
AND INTEREST PERIODS
|
17
|
9
|
THE
MASTER SWAP AGREEMENT
|
19
|
10
|
PAYMENTS
ACCOUNTS & CALCULATIONS
|
21
|
11
|
UNLAWFULNESS
AND INCREASED COSTS
|
22
|
12
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SECURITY
|
23
|
13
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COVENANTS
|
24
|
14
|
EVENTS
OF DEFAULT
|
29
|
15
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APPLICATION
OF RECEIPTS
|
32
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16
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ACCOUNTS
|
33
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17
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INDEMNITY
|
36
|
18
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REMEDIES
AND WAIVERS
|
37
|
19
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LEGAL
IMMINENCE
|
38
|
20
|
COUNTERPARTS
|
38
|
21
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INVALIDITY
|
38
|
22
|
ASSIGNMENT
|
38
|
23
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EXPENSES
|
39
|
24
|
NOTICE
|
39
|
25
|
GOVERNING
LAW AND JURISDICTION
|
40
|
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SCHEDULE
I
|
41
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SCHEDULE
III
|
53
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SCHEDULE
IV
|
54
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SCHEDULE
V
|
55
|
THIS
AGREEMENT is dated the seventh (7
th
) day of
June two thousand seven and made
BETWEEN
1.
MANOLIS SHIPPING LIMITED
being
a company incorporated in accordance with the laws of the Republic of the
Marshall Islands, whose registered office is at Trust Company Complex, Ajeltake
Road, Ajeltake Island, Majuro, Marshall Islands MH 96960, Republic of Marshall
Islands (referred to below as
“the Borrower”);
and
2.
EFG EUROBANK ERGASIAS S.A.,
a
banking societe anonyme duly incorporated under the laws of Greece, having its
registered office at 8, Othonos Street, Athens, Greece, acting for the purposes
of this Agreement through its office at 83, Akti Miaouli, 185 38 Piraeus, Greece
(referred to below as
“the
Bank”).
WHEREAS
At
the request of the Borrower, the Bank has agreed to advance to the Borrower a
secured loan facility in the amount of up to United States Dollars ten million
(USD 10,000,000) upon the terms and conditions hereinafter set
forth.
IT IS HEREBY AGREED
as
follows:-
1
PURPOSE, DEFINITIONS AND
INTERPRETATION
The
purpose of the Loan shall be to make available to the Borrower a facility in the
amount of United States Dollars ten million (USD 10,000,000) by one (1) advance
for the purpose of financing working capital needs and other corporate purposes
associated with the Vessel (as hereinafter defined)
In
this Agreement unless the context otherwise requires the following terms shall
have the following meanings:
“Advance Ratio”
means at any
time the ratio of the Loan to the market value of the Vessel as determined in
accordance with the terms of this Agreement.
“Affiliate”
with respect to
any person at any time, means any entity directly or indirectly controlling,
controlled by or under common control with that person at that time. For
purposes of this definition, “person” means any individual or legal entity or
union of individuals, “control” means the power to direct the management and
policies of an entity, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and “controlling” and “controlled”
have correlative meanings.
“Agreed Rate”
means a rate
agreed between the Bank and the Borrower on the basis of which (instead of
LIBOR) the interest rate is determined pursuant to Clause 8.1.
hereof
“
Agreement
”
means this
Loan Agreement and the documents referred to in Clause 12 hereof as well as
every other document from time to time executed to secure the
Indebtedness.
“Annex
VI
”
means Annex VI (Regulations for the Prevention of Air Pollution from Ships) to
the International Convention for the Prevention of Pollution from Ships 1973 (as
modified in 1978 and 1997).
“Applicable Interest Rate”
means the rate of Interest based on LIBOR as determined in Clause 8.1.
hereof.
“Arrangement Fee”
means the
fee to be paid by the Borrower to the Bank pursuant to Clause 5
hereof.
“Bank”
means EFG EUROBANK
ERGASIAS S.A., a banking societe anonyme duly incorporated under the laws of
Greece, having its registered office at 8, Othonos Street, Athens, Greece,
acting for the purposes of this Agreement through its office at 83, Akti
Miaouli, 185 38 Piraeus, Greece or through any other branch notified to the
Borrower from time to time pursuant to Clause 24 and its successors and
assignees and transferees.
“Banking Day”
means a day on
which banks in New York, London, Athens and Piraeus are open for business.
However in respect of a day on which a payment in Dollars is required to be made
hereunder to the Bank, Banking Day shall mean a day on which dealings in
deposits in Dollars are carried on in the London Interbank Market and on which
banks are open for business in London, and New York City.
“Borrower”
means Manolis
Shipping Limited a company duly incorporated under the laws of the Republic of
the Marshall Islands and having its registered office at Trust Company Complex,
Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960, Republic of
Marshall Islands.
“Break Costs”
means all costs,
liability or loss including a loss of prospective profit, premiums or penalties
incurred by the Bank in the circumstances contemplated by Clause 17.1., or as a
result of it receiving any prepayment of all or any part of the Loan (whether
pursuant to Clause 7 or otherwise), or any other payment under or in relation to
the Security Documents on a day other than the due date for payment of the sum
in question, and includes (without limitation) any losses or costs incurred in
liquidating or re-employing deposits from third parties acquired to effect or
maintain the Loan, and any liabilities, expenses or losses incurred by the Bank
in terminating or reversing, or otherwise in connection with, any Transaction or
any other interest rate transaction or arrangement entered into by any Bank to
hedge any exposure arising under this Agreement, or in terminating or reversing,
or otherwise in connection with, any open position arising under this
Agreement.
“Commitment”
means the
aggregate principal amount which the Bank has agreed to lend to the Borrower
hereunder as reduced by any relevant term of this Agreement
“
Company
” means Eurobulk Ltd.
of Liberia, as the company responsible for the Vessel’s compliance with the ISM
Code pursuant to paragraph 1.1.2 of the ISM Code.
“
Confirmation
” means a
Confirmation exchanged, or deemed exchanged, between the Bank and the Borrower
as contemplated by the Master Swap Agreement.
“Corporate Guarantee”
means
the corporate guarantee referred to in Clause 12.1.(c) hereof
“Corporate Guarantor”
means
Euroseas Ltd., a company duly incorporated under the laws of the Republic of the
Marshall Islands whose registered office is at Trust Company Complex, Ajeltake
Road, Ajeltake Island, Majuro, Marshall Islands MH 96960, Republic of Marshall
Islands or any other legal entity(ies) nominated by the Borrower and accepted by
the Bank which have, or as the context may require, shall or may at any time
guarantee the obligations of the Borrower under this Agreement and/or those of
the other Security Parties to the Bank.
“Credit Support Document”
means any document described as such in the Master Swap Agreement and,
where the context permits, any other document referred to in any Credit Support
Document which has the effect of creating an Encumbrance in favour of the
Bank.
“Currency of Account”
means,
in relation to any payment to be made to the Bank under or pursuant to any of
the Security Documents, the currency in which that payment is required to be
made by the terms of the relevant Security Documents.
“Credit Support Provider”
means any person (other than the Borrower) described as such in the
Master Swap Agreement.
“Default Rate”
means the rate
of Interest per annum determined in accordance with the provisions of Clause 8.4
hereof.
“Designated Transaction(s)”
means a Transaction which fulfils the following
requirements:
|
A.
|
It
is entered by the Borrower at its request and subject to the Bank’s
consent pursuant to the Master Swap Agreement with the
Bank;
|
|
B.
|
It
is designated by the Borrower, by delivery by the Borrower to the Bank of
a notice of designation in the form set out in Schedule V as a Designated
Transaction for the purposes of the Security Documents;
and
|
|
C.
|
Its
purpose is to provide interest and/ or currency swaps or any other
transaction to hedge any exposure of the Borrower under the Agreement for
a period expiring not later that the final Repayment
Date.
|
“Dollars” and “$”
means the
lawful currency of the United States of America and in respect of all payments
to be made hereunder or under any of the Security Documents means funds which
are for same day settlement in the New York Clearing House InterBank Payments
System (or such other same day Dollar funds as the Bank may determine to be
customary for the settlement of international Banking transactions denominated
in Dollars).
“
Drawdown Date
” means the date
being a Banking Day falling not later than the Latest Permissible Drawdown Date
on which the Commitment is advanced or, as the context may require, is to be
advanced to the Borrower.
“
Drawdown Notice
” means a
notice substantially in the form set out in the Schedule III attached
hereto.
“
Earnings
” means all earnings
of the Vessel whatsoever, due or to become due to or for the account of the
Borrower at any time during the period commencing on the Drawdown Date and
terminating on the date upon which all moneys payable or to become payable under
any of the Security Documents shall have been paid and discharged in full,
including all freight, hire and passage moneys, compensation payable to the
Borrower in the event of requisition of the Vessel for hire, remuneration for
salvage and towage services, demurrage and detention moneys, contributions of
any nature whatsoever in respect of general average, damages for breach (or
payments for variation or termination) of any charterparty or other contract for
employment of the Vessel as well as all and any sums recoverable under all the
insurances of the Vessel including the insurances in respect of loss of Earnings
and/or any other losses and/or liabilities of the Borrower in respect of the
Vessel.
“Environmental Affiliate”
means any person having a contractual relationship with any of the
Borrower or any other Relevant Party in connection with any Relevant Ship or its
operation, or the carriage of cargo and/or passengers thereon and/or the
provision of goods and/or services on or from the Relevant Ship.
“Environmental Approval”
means
any approval, licence, permit, exemption, or authorisation applicable on any
Relevant Ship under any applicable Environmental Law.
“Environmental Claim”
means
any and all enforcement, clean up, removal or other governmental or regulatory
actions or orders pursuant to any Environmental Law or Environmental Approval
together with claims made by any third party relating to damage, contribution,
loss or injury, resulting from
any
actual or threatened emission, spill, release or discharge of a Material of
Environmental concern from any Relevant Ship
“
Environmental Law
” means all
laws regulations conventions and agreements whatsoever applicable to any
Relevant Ship relating to pollution or protection of the human health or the
environment including without limitation the carriage of Materials of
Environmental concern and actual or threatened emissions, spills, releases or
discharges of Materials of Environmental concern
“Event of Default” or “Default”
means any of those events specified in Clause 14 hereof or in any of the
Security Documents.
“
Expenses
” means the aggregate
at any relevant time (to the extent that the same have not been received or
recovered by the Bank) of:
(a)
|
all
losses, liabilities, costs, charges, expenses, damages and outgoings of
whatever nature, (including, without limitation, taxes, repair costs, fees
of Bank Advisors and/or Consultants, registration fees and insurance
premiums, crew wages, repatriation expenses and seamen’s pension fund
dues) suffered, incurred, charged to or paid or committed to be paid by
the Bank in connection with the exercise of the powers referred to in or
granted by any of the Security Documents or otherwise payable by the
Borrower or any of them in accordance with the terms of any of the
Security Documents;
|
(b)
|
the
expenses referred to in Clause 23.
|
(c)
|
interest
on all such losses, liabilities, costs, charges, expenses, damages and
outgoings from the date on which the same were suffered, incurred or paid
by the Bank until the date of receipt or recovery thereof at a rate per
annum calculated in accordance with Clause
8.4.
|
“
Facility Period
” means the
period beginning on the date of this Agreement and ending on the date when the
whole of the Indebtedness has been repaid in full and the Borrower has ceased to
be under any further actual or contingent liability to the Bank under or in
connection with the Security Documents.
“Flag State”
means the
Republic of Marshall Islands or such other state or territory acceptable to the
Bank under which the Vessel will be and remain registered throughout the
Facility Period as the
“Flag
State”
of the Vessel for the purposes of the Security
Documents.
“General Assignment”
means the general assignment of all insurances, earnings, and requisition
compensation of the Vessel referred to in Clause 12.1.(e) hereof.
“
Guarantor
” means the Corporate
Guarantor.
“
Group
” means the Borrower, the
other Security Parties and all other entities and/or businesses substantially
owned and/or controlled by and/or managed by the same person(s).
“
IAPPC
” means a valid
international air pollution prevention certificate for the Vessel issued under
Annex VI.
“
Indebtedness
” means the Loan;
any Swap Exposure; all other sums of any nature (together with all interest on
any of those sums) which from time to time may be payable by the Borrower to the
Bank pursuant to the Security Documents; any damages payable as a result of any
breach by the Borrower of any of the Security Documents; and any damages or
other sums payable as a result of any of the obligations of the Borrower under
or pursuant to any of the Security Documents being disclaimed by a liquidator or
any other person, or, where the context permits, the amount thereof for the time
being outstanding.
“Interest Payment Date”
means
in respect of the Loan or of any part thereof, in respect of which a separate
Interest Period is fixed, the last day of the relevant Interest Period and in
case of any Interest Period which overruns three (3) months, the last day of
each such three (3) month period(s).
“Interest Period”
means any
period for the calculation of interest in respect of the Loan determined
pursuant to Clauses 8.2. hereof.
“ISM Code”
means the
International Safety Management Code (including the gu delines on its
implementation), adopted by the International Maritime Organization Assembly as
Resolutions A. 741(18) and A. 788 (19), as the same may be amended or
supplemented from time to time. The terms “Safety Management System”, “Safety
Management Certificate”, “Document of Compliance” and “Major Non-Conformity”
shall have the same meanings as are given to them in the ISM Code.
“ISPS Code”
means the
International Code for the Security of Ships and of Port Facilities (including
Appendixes) adopted by one of the resolutions that were adopted on 12 December
2002 by the Conference of Contracting Governments to the International
Convention for the Safety of Life at Sea 1974 (London, 9 to 13 December 2002) as
the same may be amended or supplemented from time to time.
“
ISPS Company
” means, at any
given time, the company responsible for the Vessel’s compliance with the ISPS
Code.
“
ISSC
” means a valid
international ship security certificate for the Vessel issued under the ISPS
Code.
“Latest Permissible Drawdown Date”
means the 15
th
June
2007 being the latest date for drawdown of the Loan pursuant to Clause 2 hereof
or such later date as the Bank may agree in writing.
“
LIBOR
” means, for an Interest
Period the rate, rounded to the nearest four decimal places downwards (if the
digit displayed in the fifth decimal place is 1,2,3 or 4) or upwards (if the
digit displayed in the fifth decimal place is 5,6,7,8 or 9) displayed as the
British Bankers’ Association Interest Settlement Rate (or such other rate as may
replace it at any time during the Facility Period) on any information service
selected by the Bank on which that rate is displayed, for deposits in the
Currency of Account for a period equal in length to the relevant Interest
Period, or (if the Bank is for any reason unable Ito ascertain that rate) the
rate, rounded (unless the Borrower shall have entered into an interest rate swap
or other instrument with the Bank for the purpose of hedging all or any part of
the Borrower’s interest rate risk under this Agreement, in which event no
rounding shall apply) upwards to the nearest whole multiple of one-sixteenth of
one per centum, at which deposits in the Currency of Account of amounts
comparable to the amount of the Facility (or any relevant part of the Facility)
are offered to the Bank for a period equal in length to the relevant Interest
Period.
“
Loan
” means the aggregate
principal amount owing to the Bank hereunder at any time.
“Manager”
means Eurobulk Ltd.
of the Republic of Liberia, established in Greece under law 89/67, 378/68, 27/75
and 814/78 as amended by law 2234/94 with a branch office in Greece at 40, Agiou
Konstantinou Str., Aethrion, Maroussi, Greece or any other legal entity
nominated by the Borrower as the Manager of the Vessel and accepted by the Bank
and includes its successors in title.
“Manager’s Undertaking”
means
the manager’s undertaking referred to in Clause 12.1.(i) hereof.
“
Margin
” means as the case may
be:
|
(i)
|
zero
point ninety per cent (0.90%) per annum as long as the Advance Ratio is
greater than or equal to 55% of the Loan
(“Margin A”);
and
|
|
(ii)
|
zero
point eighty percent (0.80%) per annum, as long as the Advance Ratio is
less than 55% of the Loan
(“Margin B”)
.
|
“Master Agreement Security Deed”
means the security deed executed or (as the context may require) to be
executed by the Borrower in favour of the Bank as a condition precedent to the
execution of the Master Swap Agreement, such deed to be in a form acceptable to
the Bank in its absolute discretion;
“Master Swap Agreement”
means
the master swap agreement (on the 1992 ISDA (Multicurrency-Crossborder) form)
and the schedule collateral thereto dated the same date as this Agreement and
entered into between the Borrower and the Bank and include all Designated
Transactions from time to time entered into and Confirmations of Designation
Transactions from time to time exchanged under the said master swap
agreement.
“Material Adverse Effect”
means a material adverse effect on the Borrower’s ability to meet its
obligations to the Bank under any of the Security Documents.
“Material of Environmental Concern”
means any object or material which may cause environmental damage,
including pollutants, contaminants, toxic substances, oil as defined in the
United States Oil Pollution Act of 1990 and all hazardous substances as defined
in the United States Comprehensive Environmental Response, Compensation and
Liability Act 1988
“Minimum Value”
means, at any
time, an amount equal at least to a percentage of one hundred twenty (120%) of
the Loan and the Swap Exposure.
“
Month
” means a period
beginning in one calendar month and ending in the next calendar month on the day
numerically corresponding to the day of the calendar month on which it started,
provided that (i) if there is no such numerically corresponding day, it shall
end on the last Banking Day of such next calendar month and (ii) if such
numerically corresponding day is not a Banking Day, the period shall end on the
next following Banking Day of such next calendar month but if there is no such
Banking Day it shall end on the preceding Banking Day and “months” and “monthly”
shall be construed accordingly;
“
Mortgage
” means the first
preferred Marshall Islands mortgage referred to in Clause 12.1 .(d)
hereof.
“Net Worth”
means the value of
the total assets minus total liabilities, as expressed in the financial
statements.
“Notional Amount”,
in respect
of any Designated Transaction, means the Notional Amount as defined in the
Confirmation relating to that Designated Transaction.
“Operating Account”
means each
one of them individually and/or collectively of the account(s) opened or to be
opened by the Borrower with the Bank as per Clause 16.3 hereof.
“
Pledges
”
means:
(a)
|
a
pledge agreement(s) creating security in respect of the Operating Account
to be held with the Bank in the name of the Borrower and/or in the name of
the Corporate Guarantor in respect of the Vessel (the
“Operating Account Pledge(s)”);
and
|
(b)
|
a
pledge agreement creating security in respect of the Retention Account to
be held with the Bank in the name of the Borrower (the
“Retention Account
Pledge”);
|
“Potential Event of Default”
means any event which, with the giving of notice and/or the, passage of
time and/or the satisfaction of any materiality test, would constitute an Event
of Default.
“Relevant Jurisdiction”
means
any jurisdiction in which or where any Security Party “Repayment Instalment"
means each instalment payable pursuant to Clause 7 hereof.is incorporated,
resident, domiciled, has a permanent establishment, carries on, or has a place
of business or is otherwise effectively connected;
“
Relevant Party
” means the
Borrower and/or any other party being a member of the Group.
“Relevant Ship”
means the
Vessel and any other vessels from time to time owned by, managed by, crewed by
or chartered to any Relevant Party (whether before or after the dale of this
Agreement).
“Repayment Dates”
means each
of the dates for the payment of the Repayment Instalment sums falling at three
monthly intervals, the first Repayment Date to occur three (3) months after the
Drawdown Date and each of the subsequent Repayment Dates to occur at consecutive
intervals of three (3) months thereafter pursuant to Clause 7
hereof.
“Repayment Instalment”
means
each instalment payable pursuant to Clause 7 hereof.
“Retention Account”
means the
account opened or to be opened by the Borrower with the Bank as per Clause 16.4
of this Agreement
“Security Documents”
means
this Agreement, the documents referred to in Clause 12 hereof and any other
document from time to time executed to secure the Indebtedness.
“Security Party”
means the
Borrower and any person (other than the Bank) which is or will become a party to
any of the Security Documents.
“Specific Assignment”
means
the specific assignment of the benefit of any charterparty of the Vessel of more
that twelve (12) months’ duration and respective notices and acknowledgments
thereof Clause 12.1.(f) hereof.
“
Subsidiary
” at any time, means
any entity of which more than fifty percent (50%) of the outstanding voting
stock or other equity interest entitled ordinarily to vote in the election of
the directors or other governing body (however designated) of that entity is at
the time beneficially owned or controlled directly or indirectly by the
Borrower, by one or more such entities or by the Borrower and one or more such
entities.
“
Swap Exposure
” means, as at
any relevant date, the amount certified by the Bank to be the aggregate net
amount in Dollars which would be payable by the Borrower to the Bank under (and
calculated in accordance with Section 6(e) (Payments on Early Termination) of
the Master Swap Agreement if an Early Termination Date had occurred on the
relevant date in relation to all continuing Designated
Transactions.
“
Taxes
” includes all present
and future taxes and all stamp and other taxes and levies, imposts, deductions,
duties, charges and withholdings whatsoever and public charges in general
together with interest thereon fines and penalties with respect thereto, if any,
(except taxes on the net income of the Bank imposed in the jurisdiction in which
its principal or its lending office is located) and charges, fees or other
amounts made on or in respect thereof.
“Total Loss”
means (a),
actual, constructive, compromised or arranged total loss of the Vessel; or (b)
compulsory acquisition, or capture, seizure, or confiscation of the Vessel by
any government or person acting or purporting to act on behalf of any government
or, (c) arrest, blockade, detention or simple loss of the Vessel’s possession or
use because of any other reason. For the purpose of this Agreement a Total Loss
shall be deemed to have occurred:
(a)
|
in
case of an actual total loss at the actual date and time the Vessel was
lost or if such date is not known on the date on which the Vessel was last
reported;
|
(b)
|
in
the case of constructive on compromised or arranged total loss at the date
and time notice of abandonment of the Vessel is given to its
insurers;
|
(c)
|
in
the case of capture, seizure, confiscation or compulsory acquisition on
the date of such occurrence, unless it is reasonably expected that the
Vessel will be soon restored absolutely free to its Owner always provided
however that in fact it will be so restored within forty (40) days
thereafter at the latest.
|
(d)
|
in
the case of detention, arrest, blockade or loss of the Vessel’s possession
and/or use because of any reason whatsoever forty (40) days from the date
of such occurrence, unless it is reasonably expected that the Vessel will
be soon restored absolutely free to its Owner, always provided however
that in fact it will be so restored within forty (40) days thereafter at
the latest.
|
“
Transaction
” means a
transaction entered into between the Bank and the Borrower governed by the
Master Swap Agreement.
“
Vessel
” means m.v “MANOLIS P.”
built in 1995 in Germany, being of 14962 tons gross 7579 tons net, currently
registered under the flag of Marshall Islands with Official Number 2849 and
International Call Letters V7MF5 in the name of the Borrower.
In
this Agreement
(a)
|
unless
the context otherwise requires, words denoting the singular number shall
include the plural and vice versa;
|
(b)
|
references
to persons include bodies corporate, bodies unincorporate and
individuals.
|
(c)
|
references
to assets include property, rights and assets of every
description;
|
(d)
|
references
to any document are to be construed as references to such document as
amended or supplemented from time to time;
and
|
(e)
|
references
to any enactment include re-enactments, amendments and extensions
thereof.
|
2
DISBURSEMENT
2.1 Amount
Subject
to the terms and conditions of the Security Documents and to the satisfaction of
all conditions precedent and in reliance on the representations and warranties
made in or in accordance with them the Bank agrees to make available to the
Borrower a facility in the amount of up to United States Dollars ten million
(USD 10,000,000) for the purposes described in Clause 1.
2.2 Drawdown
Subject
to the terms and conditions of this Agreement the Commitment shall be made
available to the Borrower following receipt by the Bank from the Borrower
of:
(a)
|
a
Drawdown Notice in the form set out in Schedule III not later than 10 a.m.
two (2) Banking Days before the proposed Drawdown Date of the
Commitment.
|
(b)
|
confirmation
of the terms of proposed Insurances (as defined in the Schedule II) and
notification of the identities and of the names of the insurers and of the
proposed Classification Society not later than 10 a.m. before the proposed
Drawdown Date.
|
(c)
|
the
documents and evidences referred to in Schedule I (Conditions
Precedent).
|
The
giving of the Drawdown Notice shall constitute the Borrower’s irrevocable
commitment to borrow the amount referred to therein.
2.3 Termination
of Commitment
Any
part of the Commitment remaining undrawn at the end of the Latest Permissible
Drawdown Date shall thereupon be automatically cancelled.
2.4 Number
of Advances
The
Commitment shall be advanced to the Borrower in full one amount on the Drawdown
Date.
3
CONDITIONS
PRECEDENT
3.1 Corporate
Documents and Evidences.
The
obligation of the Bank to make the Commitment available shall be subject to the
condition that:
(a)
|
the
Bank shall have received, not later than four Banking Days before the day
on which the Drawdown Notice for the Commitment is given, the documents
and evidence specified in Part 1 of Schedule I in form and substance
satisfactory to the Bank;
|
(b)
|
the
Bank shall have received, not later than four Banking Days before the day
on which the Drawdown Notice for the Commitment is given, or when this is
not possible, simultaneously with such Drawdown, the documents and
evidence specified in Part 2 of Schedule I in form and substance
satisfactory to the Bank;
|
3.2 Continuing
conditions precedent.
The
obligation of the Bank to advance the Commitment, is subject to the further
condition that at the time of giving a Drawdown Notice and on advancing the
Commitment no Event of Default has occurred or is about to occur and be
continuing. Also that the Arrangement Fee have been received by the Bank in
accordance with the provisions of Clause 5 hereof.
3.3 General
Conditions
The
obligation of the Bank to advance the Commitment shall be subject to the further
condition that there has been no material adverse change in the financial
condition and operation of the Security Parties or in their ability to perform
their obligations under the Security Documents to which they are a party or a
material adverse change of circumstances and that the Bank at the time of
receiving a Drawdown Notice in respect of the Commitment shall have
received:
(a)
|
Confirmations
from Insurance Brokers and Club Managers that the Vessel is fully insured
in accordance with the requirements in clause 4.3. (f) and that the Bank’s
interest as Mortgagee is duly
noted.
|
(b)
|
The
Security Documents duly executed and when appropriate duly
registered
|
with
the appropriate registry.
(c)
|
Evidence
that the Operating Account for the Vessel has been duly opened and all
mandate forms, signature cards and authorities have been duly executed and
delivered to the Bank.
|
(d)
|
Copy
of any charterparty or other contract of employment of the Vessel in
question which will be in force on the Drawdown
Date;
|
3.4 Further
Documents
The
Bank may from time to time request and the Borrower shall, within the period
specified by the Bank, deliver to the Bank such further documents certificates
and/or opinions as requested at the sole discretion of the Bank.
3.5 Waiver
of conditions precedent
The
conditions specified in this Clause 3 are inserted solely for the benefit of the
Bank. In case any conditions precedent have not been fulfilled prior to the
Drawdown, the Bank may at its option, without prejudice to its right not to make
available the Commitment and/or to terminate same, grant to the Borrower a few
days period to fulfill such missing conditions precedent.
4
REPRESENTATIONS AND
WARRANTIES
4.1 Continuing
representations and warranties
The
Borrower represents and warrants to the Bank that:
each
of the corporate Security Parties is duly incorporated and validly existing in
good standing under the laws of its Relevant Jurisdiction and has power to carry
on its business as it is now being conducted and to own its property and other
assets;
the
Borrower has power to borrow the Commitment under this Agreement, to enter into
Designated Transactions under the Master Swap Agreement and to make all the
payments contemplated by, and to comply with, those Finance Documents to which
the Borrower is a party and the Master Swap Agreement and the Borrower and any
of the other Security Parties has power to execute and deliver and perform its
obligations under the Security Documents to which it is or is to be a party; all
necessary corporate, shareholder and other action has been taken to authorise
the execution, delivery and performance of the same
the
Security Documents constitute or will, when executed, constitute valid and
legally binding obligations of the relevant Security Parties enforceable in
accordance with their respective terms;
(d)
|
No conflict with other
obligations
|
the
execution and delivery of, the performance of their obligations under, and
compliance with the provisions of the Security Documents by the relevant
Security Parties will not (i) contravene any existing applicable law, statute,
rule or regulation or any judgment, decree or permit to which any of the
Security Parties is subject, (ii) conflict with, or result in any
breach
of
any of the terms of, or constitute a default under, any agreement or other
instrument to which any of the Security Parties is a party or is subject or by
which it or any of its property is bound.
there
are no claims or actions pending or to the knowledge of any officer of the
Security Parties, threatened and no litigation, arbitration or administrative
proceeding is taking place, pending or, to the knowledge of any officer of the
Security Parties, is threatened against any of such Security Parties or any of
their Affiliates and/or Subsidiaries, which, if adversely determined could have
a material adverse effect on the business, assets or financial condition of
them, or could affect the validity or enforceability of any of the Security
Documents.
save
for the registration of the Mortgage under the laws of the Flag State, it is not
necessary to ensure the legality, validity, enforceability or admissibility in
evidence of any of the Security Documents, that they or any other instrument be
notarised, filed, registered or enrolled in any court, public office or
elsewhere or that any tax be paid in any Relevant Jurisdiction on or in relation
to the Security Documents and/or to their enforcement.
the
choice of English law to govern the Security Documents, except the Mortgage
which is governed by the law of the flag of the Vessel, the Pledges and the
Corporate Guarantee which is governed by the laws of Greece and the submission
by the Security Parties to the nonexclusive jurisdiction of the English Courts
and/or Piraeus Courts are valid and binding;
none
of the Security Parties is entitled to immunity on the grounds of sovereignty or
otherwise from any legal action or proceeding (which shall include, without
limitation, suit, attachment prior to judgment, execution or other enforcement)
and in case any such immunity will be granted to them the Security Parties
concerned will unreservedly waive as against the Bank all their respective
rights and/or entitlement to such immunity.
every
consent, licence or approval of, or registration with or declaration to, public
bodies or authorities or courts required by any Security Party in connection
with the execution, delivery, validity, enforceability or admissibility in
evidence of each of the Security Documents or the performance by each Security
Party of its obligations under the Security Documents has been obtained or made
and is in full force and effect;
The
financial statements of the Security Parties which have been or will be
delivered to the Bank are complete and accurate, have been prepared in
accordance with generally accepted principles of good accounting practice and
fairly present the financial condition of the Security Parties as at the date
thereof and the results of their operations.
There
has been no material adverse change in the financial condition of the Security
Parties or in their ability to perform their obligations under the Security
Documents since the date of the above financial statements.
4.2 Further
Representations and Warranties
The
Borrower further represents and warrants to the Bank that:
(a)
|
No default under any
Indebtedness
|
none
of the Security Parties nor any of their Subsidiaries and/or Affiliates are (nor
would with the giving of notice or lapse of time or the satisfaction of any
other condition be) in breach of or in default under the present or any other
agreement relating to indebtedness to which they are a party or by which they
may be bound;
the
information, exhibits and reports furnished by any Security Party to the Bank
are true and accurate in all material respects, do not omit material facts and
all reasonable enquiries have been made to verify the facts and statements
contained therein;
no
Taxes e.t.c. are imposed by withholding or otherwise on any payment to be made
by any Security Party under the Security Documents or are imposed on or by
virtue of the execution or delivery by the Security Parties of the Security
Documents or any other document or instrument to be executed or delivered under
any of the Security Documents;
4.3 Representations
concerning the Vessel
(a)
|
The
Borrower (is and) will be during the life of this Agreement the sole legal
owner of Vessel.
|
(b)
|
The
Vessel will conform to existing international regulations, and will be
registered as Ships under the laws and flag of the Flag
State.
|
(c)
|
The
Vessel is and will be during the life of this Agreement operationally
seaworthy and in every way fit for service. The Vessel is and will always
continue to be classed in the highest class with a Classification Society
member of IACS and approved by the Bank free of all recommendations
notations or average damage affecting class and will be insured in
accordance with the provisions of this
Agreement.
|
(d)
|
The
Vessel will on the drawdown of the Commitment be subject to no charter or
contract of affreightment nor to any agreement to enter into any charter
or contract other than disclosed to the
Bank.
|
(e)
|
Neither
the Vessel, nor the Earnings, or Insurances nor any part thereof will, on
the drawdown of the Commitment, or thereafter during the course of this
Agreement, be subject to any encumbrances other than encumbrances in
favour of the Bank, neither to any participation entitlement of any other
except the Borrower.
|
(f)
|
The
Borrower shall keep the Vessel insured at all times during the Loan
period, while navigating or in port, to the Bank’s full satisfaction. All
insurances shall be in form and substance satisfactory to the Bank and
with Underwriters acceptable to it in accordance with the provisions of
Schedule II and shall include as a
minimum:
|
|
(i)
|
Hull
and Machinery (disbursements and/or an increased value sum insured) for an
amount not less than 120% of the aggregate amount of the Loan and the Swap
Exposure.
|
|
(ii)
|
War
Risks for the above amount.
|
|
(iii)
|
Protection
and Indemnity (with Excess Liability Insurance for Oil Pollution and FD
and D cover).
|
|
(iv)
|
Mortgagee’s
Interest Insurance (MII) to be effected and maintained by the Bank at
Borrower’s expense for an amount not less than 120% of the aggregate
amount of the Loan and the Swap
Exposure.
|
|
(v)
|
Mortgagee’s
Additional Perils (Pollution) (MAPI) (if required by the Bank at its sole
discretion) to be effected and maintained by the Bank on account of the
Bank at Borrower’s expense for an amount not less than 120% of the
aggregate amount of the Loan and the Swap
Exposure.
|
(g)
|
The
Vessel will on the Drawdown Date of the Commitment be in the absolute
ownership of the Borrower.
|
(h)
|
There
are and there will be no commissions, rebates, premiums or other
repayments by or to or on account of the Borrower, any other Security
Party other than as disclosed to the Bank by the Borrower in
writing.
|
4.4 (a)
Compliance with Environmental Laws and Approvals
except
as may already have been disclosed by the Borrower arid acknowledged in writing
by the Bank:
|
(i)
|
the
Borrower, the Corporate Guarantor and the other Relevant Parties and to
the best of the Borrower’s knowledge and belief their respective
Environmental Affiliates have complied, and will comply during the tenure
of this Agreement with the provisions of all Environmental Laws applicable
at any area the Vessel is sailing in or anchored
at.
|
|
(ii)
|
the
Borrower, the Corporate Guarantor and the other Relevant Parties and to
the best of the Borrower’s knowledge and belief their respective
Environmental Affiliates have obtained all Environmental Approvals and are
and will be during the tenure of this Agreement in compliance with all
such Environmental Approvals; and
|
|
(iii)
|
neither
the Borrower, nor the Corporate Guarantor, nor any other Relevant Party
nor to the best of the Borrower’s knowledge and belief any of their
respective Environmental Affiliates has received notice of any
Environmental Claim that the Borrower or any other Relevant Party or any
such Environmental Affiliate is not in compliance with any Environmental
Law or any Environmental Approval;
|
(b)
|
No Environmental
Claims
|
except
as may already have been disclosed by the Borrower and acknowledged in writing
by the Bank, there is no Environmental Claim pending or, to the best of the
Borrower’s knowledge and belief, threatened against the Borrower or the Vessel
or any other Relevant Party or any other Relevant Ship or to the best of the
Borrower’s knowledge and belief any of their respective Environmental
Affiliates;
(c)
|
The
Borrower shall not trade within any area if it does not comply with all
Environmental Laws applicable in that area, and that it shall require that
none of their Environmental Affiliates trade within any area if the
Environmental Affiliate cannot or does not comply with all Environmental
Laws applicable in that area which relate to the Vessel or its operation
or its carriage of cargo;
|
(d)
|
The
Borrower upon the request of the Bank, conduct and complete all reasonably
necessary investigations, studies, sampling, audits and testing required
in connection with any known (or threatened) Release of Materials of
Environmental Concern which would have a Material Adverse Effect;
and
|
(e)
|
The
Borrower shall, promptly upon the occurrence of any of the following
events, provide to the Bank a certificate specifying in detail the nature
of such event and the proposed response of the Borrower or the
Environmental Affiliate concerned:
|
|
(i)
|
the
receipt by the Borrower or any Environmental Affiliate of any
Environmental Claim which would have a Material Adverse Effect;
or
|
|
(ii)
|
any
(or any threatened) Release of Materials of Environmental Concern which
would have a Material Adverse
Effect,
|
and
upon the written request by the Bank, the Borrower shall submit to the Bank, at
reasonable intervals, a report updating the status of any occurrence of an
Environmental Claim or a Release of Materials of Environmental Concern, which
would have a Material Adverse Effect.
4.5 ISM
Code
As
regards the Vessel, the Borrower shall:
(a)
|
at
all times comply, and be responsible for compliance by itself and by the
Vessel, with the ISM Code;
|
(b)
|
at
all times ensure that:
|
|
(i)
|
the
Vessel has a valid Safety Management
Certificate;
|
|
(ii)
|
the
Vessel is subject to a safety management system which complies with the
ISM Code; and
|
|
(iii)
|
it
has a valid Document of Compliance on board the Vessel to which the
Documents of Compliance relates,
|
and
shall deliver to the Bank a copy of a valid Safety Management Certificate and a
valid Document of Compliance in respect of the Vessel in each case duly
certified by an officer of the Borrower;
(c)
|
promptly
notify the Bank of any actual or threatened withdrawal of an applicable
Safety Management Certificate or Document of
Compliance;
|
(d)
|
promptly
notify the Bank of the identity of the person ashore designated for the
purposes of paragraph 4 of the ISM Code and of any change in the identity
of that person; and
|
(e)
|
promptly
notify the Bank of the occurrence of any accident or major
nonconformity requiring action under the ISM
Code.
|
4.6 ISPS
Code
As
regards the Vessel, the Borrower shall:
(a)
|
at
all times comply, and be responsible for compliance by the Vessel with the
ISPS Code;
|
(b)
|
at
all times ensure that:
|
|
(i)
|
the
Vessel has a valid Ship Security
Certificate;
|
|
(ii)
|
the
Vessel is subject to a security system and any associated security
equipment of the Vessel which comply with the ISPS Code;
and
|
|
(iii)
|
it
has an approved Ship Security Plan on board the
Vessel
|
and
shall deliver to the Bank a copy of a valid Ship Security Certificate in respect
of the Vessel duly certified by an officer of the Borrower;
4.7 Annex
VI
As
regards the Vessel,the Borrower shall:
(a)
|
for
the duration of the Facility Period comply with Annex VI in relation to
the Vessel and procure that the Vessel’s master and crew are familiar
with, and that the Vessel complies with, Annex
VI;
|
(b)
|
obtain,
following its drydocking in 2008, and maintain thereafter a valid and
current IAPPC for the Vessel throughout the Facility Period and provide a
copy to the Bank; and
|
(c)
|
immediately
notify the Bank in writing of any actual or threatened withdrawal,
suspension, cancellation or modification of the IAPPC of the
Vessel.
|
4.8 Repetition
of representations and warranties
On
the Drawdown Date and on each Interest Payment Date the Borrower unless it
states otherwise in writing to the Bank, shall be deemed to further represent
and warrant to the Bank (a) that the then latest audited and/or not audited (as
the case may be) financial statements delivered to the Bank have been prepared
in accordance with generally accepted accounting principles and practices which
have been consistently applied and present fairly and accurately the financial
position of the Borrower and the Corporate Guarantor as at the end of the
financial period to which the same relate and the results of their operations
and, as at the end of such financial period, the Borrower and the Corporate
Guarantor did not have any significant liabilities (contingent or otherwise) or
any unrealised or anticipated losses which are not disclosed by, or reserved
against or provided for in, such financial statements and (b) that the
representations and warranties contained in Clauses 4.1. to 4.6. are true
and
correct
on and as of the Drawdown Date and on each Interest Payment Date, as if each
representation and warranty was made at such time.
5
ARRANGEMENT
FEE
5.1 Arrangement
Fee
The
Borrower shall pay to the Bank a non-refundable Arrangement Fee in the amount of
United States Dollars forty thousand (USD 40,000), payable on the Drawdown Date
of the Loan.
5.2
The
Arrangement Fee shall be payable to the Bank whether or not any part of the
Commitment is ever advanced.
6
EVIDENCE
It
is hereby agreed that abstracts or photocopies or other reproductions of the
Loan Ac count and/or from the books and/or records of the Bank certified by an
officer of the Bank as well as statements of accounts or a certificate signed by
two authorised officers of the Bank shall be, in the absence of a manifest
error, conclusive evidence and binding on the Borrower and on the other Security
Parties as to the existence and/or the amount of the Indebtedness, of any amount
due under this Agreement, of the ap
p
licable
Interest Rate or Default Rate or any other rate referred to in this Agreement,
the Interest Period, the value of additional securities under Clause 13.5., the
payment or non payment of any amount and/or the occurrence of any other Event of
Default.
7
REPAYMENT AND
PREPAYMENT
7.1
The
Borrower hereby absolutely and unconditionally covenants and agrees to repay the
Loan to the Bank in freely transferable Dollars by thirty two (32) consecutive
quarterly instalments, each instalment amounting to United States Dollars one
hundred and sixty thousand (USD 160,000), plus a balloon payment of United
States Dollars four million eight hundred eighty thousand (USD 4,880,000)
payable together the thirty second (32
nd
)
instalment at final maturity
.
The
time, the amount and the balance of the Loan following the payment of each such
instalment are specified for convenience purposes in Schedule IV. In case the
Bank shall advance a sum of less than United States Dollars ten million (USD
10,000,000) the Repayment Instalments will be reduced accordingly pro-rata. Each
such instalment together with interest as hereinafter set forth shall be
correspondingly payable on each of the Repayment Dates. The first Repayment Date
shall be the day falling three (3) months after the Drawdown Date of the
Commitment and each of the subsequent Repayment Dates shall fall at consecutive
intervals of three (3) months thereafter. The Final Repayment Date of the Loan
shall be the day falling 96 months after the Drawdown Date of the Commitment and
it must coincide with the last day of the final Interest Period to be adjusted
accordingly.
7.2 Voluntary
Prepayment
|
7.2.1
|
The
Borrower may prepay part or all of the Loan at any Interest Payment Date
relating to the whole of the Loan provided that it will have given a ten
(10) days prior written notice to the Bank, specifying the amount to be
prepaid on such date.
|
|
7.2.2
|
The
Borrower may also at any other time prepay the Loan or a part thereof upon
ten (10) days prior written notice provided that it will also prepay all
sums that the Bank shall determine to be its loss and cost sustained
because of the prepayment within an Interest Period or Periods including
but not limited to payment of interest Break Costs (if any) and of such
additional amounts (if any) to compensate the Bank for the cost of
redeploying funds as a result of such prepayment as well as any loss of
Interest up
|
|
to
the end of the then current Interest Period or Periods in respect of the
whole amount of the Loan
outstanding
|
7.3 Conditions
All
prepayments shall be conditional to the prior fulfillment of the following
prerequisites:
|
7.3.1
|
The
interest accrued on the Loan to the date of prepayment and any other
additional sums due hereunder and/or under any of the other Security
Documents will be paid to the Bank.
|
|
7.3.2
|
Every
notice of prepayment shall be effective on actual receipt by the Bank,
shall be irrevocable, shall oblige the Borrower to make such prepayment on
the date specified and shall specify the amount to be prepaid, which shall
be not less than United States Dollars one hundred fifty thousand (USD
150,000) or a higher integral multiple therof. Any amount so prepaid may
not be re-borrowed under this
Agreement.
|
|
7.3.3
|
Any
prepayment of less than the whole of the Loan will be applied by the Bank
towards repayment of the Repayment Instalments in inverse order of
maturity or any other way determined by the Bank at its
discretion.
|
7.4 Compulsory
Prepayment
Unless
the Bank agrees to accept substitute security in form and substance satisfactory
to the Bank, in line with Clauses 13.5.2 and 13.5.3 hereof, the Borrower shall,
within one hundred eighty (180) days of the Vessel becoming a Total Loss or such
other later day as may be agreed in writing by the Bank, or upon the Vessel
being sold, prepay the Loan together with accrued interest to the date of
prepayment and all other sums payable by the Borrower to the Bank pursuant to
this Agreement and the other Security Documents (and if the Commitment or any
portion thereof has not been drawn yet, it shall be reduced to
zero).
7.5
Unwinding
of Designated Transactions. On or prior to any repayment or prepayment under
this Clause 7 or any other provision of this Agreement, the Borrower shall
either:
(a)
|
wholly
or partially reverse, offset, unwind or otherwise terminate one or more of
the continuing Designated Transactions so that the notional principal
amount of the continuing Designated Transactions thereafter remaining does
not and will not in the future (taking into account the scheduled
amortisation) exceed the amount of the Loan as reducing from time to time
thereafter pursuant to Clause 7.1;
or
|
(b)
|
provide
the Bank with additional security in all respects acceptable to the Bank
to secure the amount determined by the Bank to be equal to the difference
between the notional principal amount of the continuing Designated
Transactions and the amount of the Loan as reducing from time to time
thereafter pursuant to Clause 7.1
|
Provided that
in the case of a
prepayment made pursuant to the sale of the Vessel, the Borrower may only carry
out any of the matters referred to in this Clause 7.5 after (and not on or prior
to) the prepayment is made due to the sale of the Vessel.
8
INTEREST AND INTEREST
PERIODS
8.1 Interest
Rate
The
Borrower shall pay, on each Interest Payment Date, interest on the Loan (or as
the case may be on each part thereof to which a different Interest Period
relates) at the rate applicable in respect of each
Interest
Period. Interest shall accrue on the Loan (or as the case may be on each portion
thereof to which a different Interest Period relates) during each Interest
Period from and including the first day of that Interest Period, to but
excluding the last day thereof. The rate of the interest shall be the rate per
annum determined by the Bank to be the aggregate of (a) the Margin and (b) the
LIBOR unless there is an Agreed Rate in which case the rate for the calculation
of interest shall be the rate per annum determined by the Bank to be the
aggregate of: (a) the Margin and (b) the Agreed Rate.
8.2 Interest
Period
The
Borrower may by written notice to be received by the Bank not later than 10 a.m.
on the second Banking Day before the beginning of each Interest Period specify
whether such next Interest Period shall have a duration of one (1), three (3) or
six (6) months or other period subject to the availability which shall be
determined solely by the Bank.
8.3 Determination
of Interest Periods
Every
Interest Period shall be of the duration specified by the Borrower pursuant to
Clause 8.2. but so that:
(a)
|
the
first Interest Period shall commence on the Drawdown Date of the
Commitment
and each subsequent Interest Period in respect thereof shall commence on
the last day of the immediately preceding Interest Period in
question
|
(b)
|
if
the last Interest Period would overrun the last Repayment Date, such
Interest Period shall end on such Repayment Date. Should an Interest
Period determined in accordance with the provisions of this Clause overrun
one or more Repayment Dates, so many additional Interest Periods will be
specified as the number of the Repayment Dates being overrun by the above
Interest Period. Each of such additional Interest Periods will be of a
duration ending at the corresponding Repayment Date and for an amount
equal to the instalment due on such Date, while the above overrunning
Interest Period shall be for the remaining balance of the Loan after the
deduction of the amount(s) of the additional Interest Period(s) ending on
the Repayment Date(s) falling within the said over-running Interest
Period.
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(c)
|
if
the Borrower fails to specify the duration of an Interest Period in
accordance with the provisions of Clause 8.2. and this Clause 8.3 such
Interest Period shall have a duration of three months or such other period
as shall comply with this Clause
8.3.;
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(d)
|
if
the Bank determines that the duration of an Interest Period specified by
the Borrower in accordance with Clause 8.2. is not readily available, then
that Interest Period shall have such duration as the Bank after having
consulted with the Borrower may
determine.
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8.4 Default
Rate.
If
the Borrower fails to pay any sum (including, without limitation, any sum
payable pursuant to this clause 8.4.) on its due date for payment under any of
the Security Documents, the Borrower shall pay interest on such sum (Default
Rate) from the due date up to the date of actual payment (as well after as
before judgment) at a rate determined by the Bank to be the aggregate of (a) two
per cent (2%) per annum, (b) the Margin and (c) the LIBOR for periods of not
more than three (3) Month duration as selected by the Bank. The first of the
above periods shall commence on the due date for payment, while each one of the
subsequent periods shall commence on the last day of the preceding such period.
Such interest shall be compounded and shall be due arid payable on the last day
of each such period as determined by the Bank and each such day shall, for the
purposes of this Agreement, be treated as an Interest Payment Date. If, for the
reasons specified in Clause 8.6.(a), the Bank is unable to determine a rate in
accordance with the foregoing provisions of this clause, interest on any sum
not
paid
on its due date for payment shall be calculated at a rate determined by the Bank
to be two per cent (2%) per annum above the aggregate of the Margin and the cost
of funds to the Bank.
8.5 Notification
The
Bank shall notify the Borrower of the duration of each Interest Period and of
each rate of interest determined by it under this Clause 8.
8.6 Non
availability.
(a)
|
If
and whenever, at any time prior to the commencement of any Interest
Period, the Bank shall have determined any of the following facts (which
determination shall be conclusive):
|
|
(i)
|
that
adequate and fair means do not exist for ascertaining LIBOR during such
Interest Period; or
|
|
(ii)
|
that
deposits in Dollars are not available to the Bank in the London InterBank
Market in the ordinary course of business in sufficient amounts or it is
impracticable for the Bank to fund or to continue to fund the Loan in
Dollars.
|
|
(iii)
|
that
LIBOR for that Interest Period will not adequately reflect the cost of
funding the Loan for that Interest
Period.
|
the
Bank shall forthwith give notice (a “Determination Notice”) thereof to the
Borrower. A Determination Notice shall contain particulars of the relevant
circumstances giving rise to this issue. After the giving of any Determination
Notice the undrawn amount of the Loan shall not be borrowed until notice to the
contrary is given to the Borrower by the Bank.
(b)
|
During
the period of 30 Banking Days after any Determination Notice has been
given by the Bank under Clause 8.6.(a), the Bank shall certify an
alternative basis (the “Substitute Basis”) for maintaining the Loan. The
Substitute Basis may (without limitation) include alternative interest
periods, alternative currencies or alternative rates of interest but shall
include a margin above the cost of funds to the Bank equivalent to the
Margin. Each Substitute Basis so certified shall be binding upon the
Borrower and shall take effect in accordance with its terms from the date
specified in the Determination Notice until such time as the Bank notifies
the Borrower that none of the circumstances specified in Sub-clause
8.6.(a) continues to exist whereupon the normal interest rate fixing
provisions of the Agreement shall
apply.
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(c)
|
In
any event, during the thirty (30) days following the giving of a
Determination Notice, the Borrower and the Bank shall negotiate in good
faith in order to arrive at the Substitute Basis for the Bank to fund or
continue to fund the Loan (or the relevant part thereof) during such
Interest Period. If within such thirty (30) day period the Substitute
Basis to fund or to continue to fund the Loan (or the relevant part
thereof) is agreed upon, then such Substitute Basis shall take effect in
accordance with its terms. If the Borrower and the Bank fails to agree on
such Substitute Basis within such thirty (30) day period and such
circumstances are continuing at the end of such thirty day period, then
the Bank shall set a Substitute Basis as per Clause 8.6. (b). If the
circumstance shall continue at the end of such interest period, the
procedure in this Clause 8.6 (c) shall be repeated. If the Borrower shall
not agree with such rate then the Borrower may give not less than fifteen
(15) Business Days irrevocable notice of prepayment to the Bank in which
case the commitment hereunder of the Bank shall thereupon be cancelled
and, if the Loan is outstanding, the Borrower shall prepay the Loan on the
first Business Day after such period in accordance with the terms of this
Agreement and the obligations of the Bank shall thereupon
terminate.
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9
THE MASTER SWAP
AGREEMENT
9.1 Purpose
The
Bank and the Borrower have entered, and/or may during the Facility Period enter,
into one or more Transactions pursuant to a Master Swap Agreement, the terms and
conditions of each of which are or will be specified in a Confirmation sent by
the Bank to the Borrower.
9.2 Additional
Termination Event
If
the Loan is for any reason not advanced to the Borrower on or before the Latest
Permissible Drawdown Date, and the Bank and the Borrower has entered into any
Transactions on or before the Latest Permissible Drawdown Date, for the purposes
of the Master Swap Agreement an Additional Termination Event (with the Bank as
the Affected Party) shall be deemed to have occurred on the Latest Permissible
Drawdown Date.
9.3 Adjustment
of Notional Amounts
If
the aggregate amount of the Loan actually advanced by the Bank to the Borrower
is less than the Notional Amount (or the aggregate Notional Amounts) of the
Transactions entered into on or before the Drawdown Date, the obligations of the
Borrower in respect of those Transactions shall, unless otherwise agreed by the
Bank, be calculated, so far as the Bank considers it practicable to do so, by
reference to a Notional Amount (or aggregate Notional Amounts) equal to the
amount of the Loan actually advanced, reduced on each Repayment Date by the
amount of the Repayment Instalment due on that Repayment Date, adjusted if
necessary in accordance with Clause 7.1.
9.4 Effect
of prepayment
If
the Borrower, subject always to Clause 7, prepay part of the Loan (whether
pursuant to Clause 7, Clause 13.5.2 or any other provision of this Agreement),
and the amount of the Loan remaining outstanding after application of that
prepayment is less than the Notional Amount (or the aggregate Notional Amounts)
of the Transactions then in effect (reduced, if appropriate, in accordance with
the Confirmations relating to those Transactions), the obligations of the
Borrower in respect of those Transactions shall, unless otherwise agreed by the
Bank, be calculated, so far as the Bank considers it practicable to do so, by
reference to a Notional Amount (or aggregate Notional Amounts) equal to the
amount of the Loan remaining outstanding after application of the prepayment in
question, reduced on each Repayment Date by the Repayment Instalment due on that
Repayment Date after taking into account the application of the
prepayment.
9.5 Authority
In
order to give effect to Clauses 9.3 and 9.4, or in the event of voluntary or
compulsory prepayment by the Borrower of the whole of the Loan, the Borrower and
the Bank will agree to amend, restructure, unwind, cancel, net out, terminate,
liquidate, transfer or assign any of the rights and/or obligations created
pursuant to the Master Swap Agreement in respect of those Transactions, and/or
to enter into any other interest rate exchange and/or hedging transaction or
commitment with the Borrower or with any other counterparty approved by the
Bank.
9.6 Termination
of Transactions
If
the exercise of the Bank’s rights under Clause 9.5 results in the termination of
any Transaction (save in the case termination takes place due to voluntary
prepayment), that Transaction shall, for the purposes of the Master Swap
Agreement (including, without limitation, section 6(e)(i) of the
Master
Swap
Agreement) be treated as a Terminated Transaction resulting from an Event of
Default by the Borrower,
9.7 Indemnity
The
Borrower will indemnify the Bank from time to time on demand in respect of all
liabilities, losses, costs or expenses suffered, incurred or sustained by the
Bank arising in any way in relation to the exercise by the Bank of its rights
under this Clause, or arising in any way from any other termination,
cancellation, unwinding or restructuring of any Transaction, together (in each
case) with interest at the Default Rate from the date of the Bank’s demand until
the date on which the Bank receives payment or reimbursement, before or after
any relevant judgment.
9.8 Transaction
under the Master Swap Agreement.
The
Borrower on the date hereof is signing the Master Swap Agreement with the Bank.
At any time during the Facility Period the Borrower may request the Bank to
conclude Transactions for the purpose of swapping its interest payment
obligations under this Agreement. Signature of the Master Swap Agreement does
not commit the Bank to conclude Transactions, or even to offer terms for doing
so, but does provide a contractual framework within which Transactions may be
concluded and secured, assuming that the Bank is willing to conclude any
Transactions at the relevant time and that, if that is the case, mutually
acceptable terms can then be agreed at the relevant time.
|
9.8.1
|
In
relation to the Master Swap Agreement, the Borrower hereby agrees and
undertakes with the Bank throughout the Facility
Period:-
|
|
9.8.1.1
|
at
the Borrower’s option to use Transactions concluded under the Master Swap
Agreement for the purpose of (inter alia) swapping its interest payment
obligations under Clause 8 from LIBOR-based funding to longer-term fixed
rate funding;
|
|
9.8.1.2
|
at
the Borrower’s option to not to conclude Transactions which would result,
at any time during the Facility Period, in the notional principal amount
of all Transactions then remaining exceeding the amount of the Loan, as
reduced from time to time under Clause
7.1.
|
|
9.8.2
|
The
Borrower gives the Bank a right of first refusal in relation to any
proposed swap or other Transactions relative to the Loan so that (subject
only to the rates quoted by the Bank being competitive with other banks
quoting on the same basis), any swap or other Transactions concluded by
the Borrower shall be concluded with the Bank under the Master Swap
Agreement.
|
|
9.8.3
|
The
Bank agrees that, to enable the Borrower to secure its obligations to the
Bank under the Master Swap Agreement, the security of the Security
Documents shall be held by the Bank not only to secure the Borrower’s
obligations under this Agreement but also the Borrower’s obligations under
the Master Swap Agreement.
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10
PAYMENTS ACCOUNTS &
CALCULATIONS
10.1 Not
set off or counterclaim and no deductions.
(a)
|
The
Borrower acknowledges that in performing its obligations under this
Agreement, the Bank will be incurring liabilities to third parties in
relation to the funding of amounts to the Borrower, such liabilities
matching the liabilities of the Borrower to the Bank and that it is
reasonable for the Bank to be entitled to receive payments from the
Borrower gross on the due date in order that the Bank is put in a position
to perform its matching obligations to
the
|
relevant
third parties. Accordingly, all payments to be made by the Borrower under any of
the Security Documents shall be made in full, without any set-off or
counterclaim whatsoever and free and clear of any deductions or withholdings, in
Dollars on the due date (for value on the day on which payment is due) to the
account of the Bank (with a direct tested telex advise to the Bank) or to such
other account at such other bank in such place as the Bank may from time to time
specify for this purpose.
(b)
|
If
at any time the Borrower is required to make any deduction or withholding
in respect of Taxes or otherwise from any payment due under any of the
Security Documents the sum due from the Borrower in respect of such
payment shall be increased to the extent necessary to ensure that after
the making of such deduction or withholding the Bank receives on the due
date for such payment a net sum equal to the sum which it would have
received had no such deduction or withholding been required to be made.
The Borrower shall indemnify the Bank against any losses or costs incurred
by the Bank by reason of any failure of the Borrower to make any such
increased payment to the Bank on account of any deduction or withholding
or by reason of any increased payment not being made on the due date for
such payment. The Borrower shall promptly forward to the Bank official
receipts and any other proof evidencing the amounts paid or payable in
respect of any deduction or withholding as aforesaid. The obligations of
the Borrower under this provision shall remain in force notwithstanding
the repayment of the Loan.
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(c)
|
Payments
by the Borrower shall be considered to be made as of the date on which the
Bank receives correctly authenticated advice of the credit of such account
provided that such advice is received at a time of day when the Bank is
able in accordance with its usual practice to process and utilize such
funds on such day, failing which such payment shall be considered to be
made as of the next Banking Day following receipt of such
advice.
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10.2 Payments
by the Bank.
All
sums to be advanced by the Bank to the Borrower under this Agreement in respect
of the Loan shall be remitted in Dollars on the Drawdown Date to the account
specified in the Drawdown Notice.
10.3 Calculation
All
interest and other payments periodic or payable by reference to a rate per annum
under this Agreement shall accrue from day to day and be calculated on the basis
of actual number of days elapsed and a 360 day year.
11
UNLAWFULNESS AND INCREASED
COSTS
11.1 Unlawfulness.
(a)
|
If
it is or becomes contrary to any law or regulation for the Bank to
disburse the Loan or to maintain the Commitment or the Loan, or to fund
the Loan or to claim or receive any amount payable to it hereunder, the
Bank shall give notice to the Borrower whereupon (a) the Commitment shall
be reduced to zero and (b) the Borrower shall be obliged to prepay the
Loan on a future specified date not being later than the latest
date.
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(b)
|
permitted
by the relevant law or regulation, or, if such date is not provided,
within 40 days from the notice of the Bank, together with interest accrued
to the date of prepayment and all other sums payable by the Borrower under
the Security Documents.
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(c)
|
If
circumstances arise which would result in a Notification under Clause
11.1. then, without in any way limiting the rights of the Bank under
Clause 11.1., the Bank shall use
reasonable
|
endeavours
to transfer each obligations, liabilities and rights under the Security
Documents to another office or financial institution not affected by the
circumstances.
11.2 Increased
Cost.
If,
as a result of (a) any change in or in the interpretation of any law, regulation
e.t.c. by any governmental authority in any country the laws of which are
applicable on the Bank, or (b) compliance by the Bank with any requirement of
any authority (whether or not having the force of law) but which the Bank
usually complies with or any other set of circumstances including any type of
liquidity, stock, or capital adequacy controls or other Banking or monetary
controls or requirements connected with the manner in which the Bank allocates
capital resources to its obligations hereunder:
(a)
|
The
cost to the Bank of making available the Commitment or any part thereof or
maintaining or funding the Loan is increased;
or
|
(b)
|
The
amount payable to the Bank or the effective return to the Bank under any
of the Security Documents, is reduced;
or
|
(c)
|
The
basis of taxation of payments to the Bank of principal or of interest on
any amounts advanced by it is
changed;
|
then
the Borrower shall pay to the Bank on account of the Bank, from time to time,
upon demand, such additional moneys as shall indemnify the Bank for any
increased cost, reduction in principal or interest receivable or other foregone
return whatsoever. The Bank will notify the Borrower in writing of any intention
to claim indemnification and such notification, made in line with the provision
of Clause 6, which will be a conclusive evidence binding on the Borrower as to
the amount of any increased cost or reduction and the method of calculating the
same. Such claim may be made at any time and must be discharged by the Borrower
within fifteen (15) days of demand. It shall not be a defence to a claim by the
Bank hereunder that any increased cost or reduction could have been avoided by
the Bank. Any amount due from the Borrower hereunder shall be due as a separate
debt and shall not be affected by judgement being obtained for any other sums
due under or in respect of this Agreement or of any other Security
Document.
12
SECURITY
12.1 Security
Documents
As
security for the due repayment of all sums from time to time payable to the
Bank, the Borrower shall ensure and procure that the following Security
Documents are duly executed and, where required properly registered in favour of
the Bank at the time specified herein or otherwise as required by the Bank and
ensure that such security, apart from this Agreement, consists of
(a)
|
A
Master Swap Agreement and the relevant Schedule attached thereto (the
“Master Swap Agreement”)
executed by the Borrower in form and substance satisfactory to the
Bank;
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(b)
|
A
Master Agreement Security Deed (the
“Master Agreement Security
Deed”)
executed or (as the context may require) to be executed by
the Borrower in favour of the Bank;
|
(c)
|
A
Corporate Guarantee from the Corporate Guarantor in form and substance
satisfactory to the Bank (the
“Corporate
Guarantee”);
|
(d)
|
A
duly registered First Preferred Mortgage over the Vessel providing on the
basis of the provisions of the applicable law the highest degree of
security for the Bank (the
“Mortgage”);
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(e)
|
A
first Priority General Assignment of all the Insurances, Earnings and
Requisition Compensation for the Vessel in form and substance satisfactory
to the Bank and respective notices of assignment and acknowledgements
thereof (the
“General
Assignment”);
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(f)
|
Specific
assignments of the benefit of any charter of more than twelve (12)
calendar months’ duration in respect of the Vessel chartered and
respective notices and acknowledgements thereof (the
“Specific
Assignment”).
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(g)
|
Pledge
agreement(s) in form and substance satisfactory to the Bank executed or
(as the context may require) to be executed by the Borrower or by the
Corporate Guarantor in favour of the Bank creating security in respect of
the Operating Account for the Vessel (the
“Operating Account
Pledge(s)”)
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(h)
|
A
pledge agreement in form and substance satisfactory to the Bank executed
or (as the context may require) to be executed by the Borrower in favour
of the Bank in respect of the Retention Account (the
“Retention Account
Pledge”);
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(i)
|
Manager’s
undertaking in form and substance satisfactory to the Bank pursuant to
which the Manager will subrogate its rights to the Loan throughout the
Facility Period (the
“Manager’s
Undertaking”).
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13
COVENANTS
The
Borrower covenants with the Bank that, from the date of this Agreement and as
long as any sums are due and/or owing and/or outstanding under this Agreement or
arty of the other Security Documents, the Borrower will:
13.1 Information
Covenants.
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13.1.1
|
Furnish
the Bank, in form and substance satisfactory to the Bank, with annual,
consolidating and consolidated financial statements of the Borrower, the
Corporate Guarantor and of any other of the companies of the Group within
180 days after the end of the financial year concerned, and prepared in
accordance with generally accepted accounting principles consistently
applied;
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|
13.1.2
|
Provide
the Bank from time to time as the Bank may reasonably request and in form
and substance satisfactory to the Bank with any information on the
financial conditions commitments and operations of the Borrower and of any
other of the companies of the
Group.
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|
13.1.3
|
Promptly
inform the Bank of any occurrence which came to the knowledge of the
Borrower which might adversely affect the ability of the Borrower or any
other Security Party to perform its respective obligations under this
Agreement and/or any of the other Security Documents and of any Event of
Default forthwith upon becoming aware
thereof;
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|
13.1.4
|
Promptly
inform the Bank of all major financial developments in the Group such as
new loans, refinancing/restructuring of existing loans, new acquisitions
and sales, contracts for term employment of Vessel
e.t.c.
|
13.2 Banking
Arrangements.
|
13.2.1
|
Use
the Loan exclusively for the purpose specified in this
Agreement;
|
|
13.2.2
|
Ensure
that all obligations under this Agreement and the other Security Documents
will be duly and punctually
performed.
|
|
13.2.3
|
Pay
to the Bank on demand any sum of money which is payable to the Bank under
this Agreement and the other Security Documents but in respect of which it
is not specified in any other Clause when it is due and
payable;
|
|
13.2.4
|
Accept
that a Certificate of any of the Bank or a statement of account executed
by two authorised officers of any of the Bank or an Extract of the Books
of any of the Bank certified by an officer of the Bank shall (save for
manifest error) be conclusive evidence of the amount due under this
Agreement and shall be final and binding on all parties
hereto;
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|
13.2.5
|
Upon
request by the Bank from time to time provide such information and
evidence to the Bank as the Bank would require to demonstrate compliance
with the covenants and warranties set forth in this Agreement and any
other Security Document.
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13.3 Financial
Exposure.
|
13.3.1
|
Incur
no debt and grant no guarantee to and/or in favour of anybody except in
the ordinary course of business, without the prior written consent of the
Bank, which shall not be unreasonably
withheld.
|
|
13.3.2
|
Not
give any loans or credits or advances to any person, or entity without the
previous consenting opinion of the Bank which shall not be unreasonably
withheld;
|
|
13.3.3
|
Not
declare or pay any dividends or other distribution in case of an Event of
Default without the prior written consent of the
Bank;
|
|
13.3.4
|
Not
transfer, sell or otherwise dispose any of its real or personal property,
assets or rights, whether present or future, without the prior written
consent of the Bank or allow any part of its undertaking, property, assets
or rights, whether present or future, to be mortgaged, charged, pledged,
used as a lien (except for lien created by law) or otherwise encumbered
without the prior written consent of the
Bank;
|
|
13.3.5
|
Ensure
that the Indebtedness of the Borrower to the Bank hereunder will not be
subordinated in priority of payment to any other present or future
claim.
|
|
13.3.6
|
Ensure
that the Borrower or the Corporate Guarantor will maintain throughout the
Facility Period in an account with the Bank free and unencumbered (save in
favour of the Bank) minimum liquidity balances equal to United States
Dollars three thousand
(USD300,000).
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|
13.3.7
|
Ensure
that the aggregate debt to equity ratio of the vessels owned by the
Corporate Guarantor will not exceed 75% of their aggregate current market
values obtained on a charter free basis by a broker appointed by and
reporting to the Bank, the latter having the right to obtain such
valuations on a quarterly basis.
|
|
13.3.8
|
Ensure
that the minimum Net Worth of the Corporate Guarantor listed in Nasdaq
will be United States Dollars fifteen million
(USD15,000,00).
|
|
13.3.9
|
Not
without the Bank’s prior written consent assign, novate or in any other
way transfer any of its rights or obligations under or pursuant to the
Master Swap Agreement, nor enter into any interest rate exchange or
hedging agreement with anyone other than the Bank, nor any other agreement
or commitment the effect of which is, in the opinion of the Bank,
materially to prejudice the hedging of the Borrower’s interest rate risk
effected by the Transaction from time to time entered into between the
Borrower and the Bank.
|
13.4 Business
and Corporate Structure.
|
13.4.1
|
Not
change the nature, organisation and conduct of the business of the
Borrower and/or the Corporate Guarantor as shipowner and/or Manager of the
Vessel as the case may be;
|
|
13.4.2
|
Not
merge or consolidate with any other company or other legal
entity;
|
|
13.4.3
|
On
demand and in any event on the thirty-first day of May in each year
deliver or cause to be delivered to the Bank official certificates from
the relevant authority confirming that the Borrower and any other
corporate Security Party is in good standing in its country of
incorporation;
|
|
13.4.4
|
Ensure
that there is no change in the Directors and Officers of the Borrower and
of any other corporate Security Party and moreover ensure that no change
shall be made directly or indirectly in the ownership, beneficial
ownership, control or management of the Borrower without the prior written
consent of the Bank, which shall not be unreasonably
withheld.
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13.5 Obligation
to maintain the Security Value.
|
13.5.1
|
At
all times the Borrower will procure that the value of the Vessel and other
security to be granted to the Bank pursuant to this Clause (the “Security
Value”) is not less than the Minimum Value at any
time.
|
|
13.5.2
|
If
the Security Value is less than the Minimum Value at any time, the
Borrower will within thirty (30) days of a request by the Bank and in
order to secure the Indebtedness on such terms as may be acceptable to the
Bank:
|
|
i.
|
prepay
a proportionate part of the Loan and of the Swap Exposure;
and/or
|
|
ii.
|
procure
for or grant to the Bank such other security as the Bank shall expressly
approve for the purpose of this Clause
13.5.
|
so
that after such prepayment or grant of other security, the Security Value is not
less than the Minimum Value.
|
13.5.3
|
As
far as clause 13.5.2.(ii) is concerned
:
|
|
i.
|
cash
provided by way of security shall be valued in Dollars at its principal
amount;
|
|
ii.
|
any
other security shall be valued on such basis as the Bank shall reasonably
determine in its discretion from time to time;
and
|
|
iii.
|
there
shall be deducted from any value or valuation the amount which is owing
and might become owing and which is secured on the asset concerned by any
prior or equal ranking Security Interest (other than in favour of the Bank
to secure the Indebtedness).
|
|
iv.
|
cash
deposits and/or any other security acceptable to the Bank it will be
provided in a way and manner also acceptable to the
Bank.
|
|
13.5.4
|
At
least once every year and/or at any time that the Bank might consider it
useful and reasonably request the Borrower to undertake to have at its own
cost the Vessel valued with or without physical inspection (as the Bank
may require) in Dollars, on the basis of sale for prompt delivery free of
Encumbrances in favour of the Bank for cash at arm’s length on normal
commercial terms as between a willing seller and a willing buyer by an
independent shipbroker selected by or acceptable to the Bank and reporting
to the Bank. Such valuation shall be made on the basis of the value of the
Vessel charter free. The Borrower agrees to accept the valuation made as
aforesaid as conclusive evidence of the market value of the Vessel at the
date of valuation. The Borrower will supply to the Bank and to the above
shipbrokers such information as such shipbrokers shall
require.
|
13.6 Covenants
concerning the Vessel.
|
13.6.1
|
Ensure
that the Vessel will maintain its present ownership, management, control
and ultimate beneficial ownership;
|
|
13.6.2
|
Ensure
that the Vessel is and will remain properly certified in respect with the
ISM Code and in compliance with the ISO 9001 and the ISPS code whe a
applicable and moreover that it will remain in class free of
recommendations, notations or average damage affecting class and provide
the Bank on demand with copies of all ISM and/or all class and/or trading
certificates of the Vessel.
|
|
13.6.3
|
Ensure
that at all times the Vessel is managed by the Manager or by such company
as may be approved in writing by the Bank and that such company is and
will remain ISM certified and in compliance with the ISO 9001 and the ISPS
Code when applicable and that it shall maintain at all times an
organisation and personnel which in the opinion of the Bank is adequate to
provide sufficient management, agency, financial, secretarial and other
services for the Vessel.
|
|
13.6.4
|
Maintain
all Insurances of the Vessel and comply with all insurance requirements
specified in this Agreement (including in particular Schedule II) and in
case it fails to maintain the Vessel and/or such other property so
insured, the Borrower hereby, for the purpose of serving the interest of’
the Bank, irrevocably authorises the Bank and grant to it the right to
effect the insurances of the Vessel and/or of the property as provided for
in Schedule III in the amount and in terms acceptable to the Bank from
time to time at the cost and on behalf of the Borrower. The Bank will have
the right but not the obligation to effect all or any of such insurances
at the cost of the Borrower and such cost shall consist Expenses in the
meaning of the Clause 1;
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|
13.6.5
|
Supply
copies of all cover notes, certificates of entry, insurance policies and
documents and furnish details of all insurances contemplated by Schedule
[I and/or contracted to the Bank. The Bank may submit all such insurance
documents for examination to an insurance consultant nominated by the
Bank. The Bank will be at liberty to decide on the adequacy and the
compliance of the cover with the
provisions
|
|
of
the Security Documents including Schedule II and its decision shall be
final and binding on the Borrower. The cost including Value Added Tax of
such insurance consultant shall be considered as
Expenses;
|
|
13.6.6
|
The
Bank will be at liberty to conduct at the Borrower’s cost physical
condition survey of the Vessel and a comprehensive record inspection by a
surveyor appointed by the Bank.
|
|
13.6.7
|
At
the Bank’s reasonable request, promptly provide a consultant nominated and
appointed by the Bank to monitor the collection of claims of whatsoever
nature with whatever information and documentation the Bank shall require.
All the cost including Value Added Tax in respect of the appointment of
such consultant shall be considered as
Expenses;
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|
13.6.8
|
Not
grant or permit any charge, lien (except for lien created by law)or other
encumbrance to be imposed upon the Vessel or otherwise dispose of any of
its rights under any charterparty or contract of affreightment relating to
the Vessel or any other earnings of the
Vessel;
|
|
13.6.9
|
Ensure
that the Vessel is maintained and trade in conformity with the laws ofits
flag, of its owning company or of the nationality of the officers, or
crew, and in conformity with the requirements of the Insurances and
nothing is done or permitted to be done which could endanger the flag of
the Vessel, or its free ownership and operation or its
Insurances;
|
|
13.6.10
|
Always
comply with all the covenants provided for in the mortgage on the
Vessel
|
|
13.6.11
|
Not
without the prior written consent of the Bank enter into a charterparty,
contract of affreightment, agreement or related document in respect of the
employment of the Vessel (i) for a period of more than twelve (12) months
or (ii) below the market rate prevailing at the time when the Vessel is
fixed in or on terms which are not in accordance with the commercial
practice prevailing at the relevant time or (iii) on demise
charterparty;
|
|
13.6.12
|
Execute
and deliver to the Bank within fifteen (15) days of signing of any
charter, the duration of which is to be for a period, directly or by
extension of more than twelve (12) months, (a) a specific assignment of
such charter in form and substance satisfactory to the Bank and (b) a
notice of any such assignment addressed to the relevant charterer and
endorsed with an acknowledgement of receipt by the relevant charterer all
in form and substance satisfactory to the
Bank;
|
|
13.6.13
|
The
Borrower undertakes to notify the Bank
forthwith:
|
|
(a)
|
of
any Environmental claim for an amount exceeding USD 300,000 made against
the Vessel and/or its owner.
|
|
(b)
|
upon
becoming aware of any incident which may give rise to an Environmental
Claim and to keep the Bank advised in writing of the owners’ response to
such Environmental claim on such regular basis and in such detail as the
Bank shall require.
|
13.7 Validity
of securities
|
13.7.1
|
Ensure
and procure that all approvals or consents and/or any other steps required
for the validity, enforceability and legality of this Agreement and the
other Security
|
|
Documents
and for the performance thereof by the Borrower and any other Security
Party are appropriately taken and are maintained in full force and
effect.
|
|
13.7.2
|
Ensure
and procure that, unless and until directed by the Bank otherwise (i) all
the Earnings of the Vessel shall be paid to the Operating Account and (ii)
the persons from whom the Earnings are from time to time due are
irrevocably instructed to pay them to the Operating Account in accordance
with the provisions hereof and of the relevant Security
Documents;
|
|
13.7.3
|
Pay
all Taxes, and other governmental charges when the same fall due, except
to the extent that the same are being contested in good faith by
appropriate proceedings and adequate reserves have been set aside for
their payment if such proceedings
fail;
|
|
13.7.4
|
From
time to time at the request of the Bank execute and deliver to the Bank or
procure the execution and delivery to the Bank of all such documents as
shall be deemed desirable at the sole discretion of the Bank for giving
full effect to this Agreement, and for perfecting, protecting the value of
or enforcing any rights or securities granted to the Bank under the
Security Documents and any other documents executed pursuant hereto or
thereto.
|
|
13.7.5
|
The
covenants specified in this Clause are inserted solely for the benefit of
the Bank and may be waived in whole or in part and with or without
conditions by the Bank without prejudicing the right of the Bank to
require fulfillment of such covenants at such time and manner as specified
by the Bank.
|
13.8 Admission,
and warranties of the Security Parties as regards their liability.
(a)
|
The
giving of the Corporate Guarantee by the Guarantor is to the commercial
benefit of such Guarantor in that the Guarantor has close financial
cooperation and mutual assistance with the Borrower and that by lending
its support to the Borrower through such Guarantee it further its own
business interests within the scope of its constitutional
documents;
|
(b)
|
The
liability of the Borrower and of the other Security Parties shall in all
cases, whether so expressed to be or not, be joint and several and each
representation and warranty and each covenant and agreement made or given
or to be made or given by any one of them will be considered as made or
given by them all jointly and
severally;
|
(c)
|
The
Borrower further represents that none of the Security Parties shall be
exonerated and its liability hereunder shall not be lessened or impaired
by any time, indulgence or relief being given by the Bank to any other
Security Party or by the variation, compromise, renewal or release of or
refusal or neglect to perfect or enforce any right, remedies or securities
against the Borrower or any other Security Party, by anything done or
omitted which but for this provision might operate to exonerate any other
Security Parties;
|
(d)
|
The
obligations of the Borrower shall not be affected by any legal limitation,
disability, incapacity or other circumstances relating to any other
Security Party, whether or not known to the Bank, by any invalidity in or
irregularity or unenforceability of the obligations of such other Security
Party under any of the Security Documents or otherwise or by any change in
the constitution of, or any amalgamation or reconstruction of any Security
Party or of the Bank.
|
14
EVENTS OF
DEFAULT
The
following events shall constitute an Event of Default (whether or not caused by
any reason whatsoever outside the control of the Borrower or whether such Event
shall occur or come about by
operation
of Law or regulation or pursuant to, or in compliance with any judgment, decree
or order of any Court or other authority):
14.1 Non
Performance of Obligations.
|
14.1.1
|
If
the Borrower and/or any other Security Party fail to pay any sum due
hereunder and/or under the other Security Documents when due, or in the
case of any sum payable on demand, within seven (7) Banking Days of such
demand;
|
|
14.1.2
|
If
the Borrower and/or any other Security Party fail to obtain and/or
maintain the Insurances (as defined in Schedule II) or if any insurer in
respect of such Insurances becomes entitled to cancel the insurances or to
disclaim liability;
|
|
14.1.3
|
If
the Borrower and/or any other Security Party default in the due
performance and/or observance of any covenant, term, obligation or
undertaking under this Agreement and/or any of the other Security
Documents (other than those referred to in sub-Clauses 14.1.1. and 14.1.2.
hereinabove). In case such default is in the opinion of the Bank, capable
of remedy, if it will continue unremedied for seven (7) Banking Days after
its occurrence.
|
14.2 Representations
incorrect
If
any representation or warranty explicitly made or implied by or in respect of
the Borrower pursuant to the Security Documents proves to have been incorrect or
misleading in a material way when made or at any time during the currency of
this Agreement.
14.3 Events
affecting the Borrower and/or any other Security Party
|
14.3.1
|
If
a creditor of the Borrower attaches or takes possession of, or a distress
execution, sequestration or other process is levied or enforced upon or
sued against the whole or any part of the property of the Borrower and/or
any other Security Party and it is not discharged within fifteen (15)
Banking days;
|
|
14.3.2
|
If
the Borrower and/or any other Security Party is found bankrupt or
insolvent or any order is made by any competent court or resolution passed
by the Borrower and/or any other Security Party or petition presented for
the winding-up or dissolution of the Borrower and/or any other Security
Party or for the appointment of a liquidator, trustee, receiver,
administrator or conservator of any part of the undertakings, assets,
rights or revenues of the Borrower and/or any other Security
Party;
|
|
14.3.3
|
If
the Borrower and/or any other Security Party suspend payment of their
debts or are (or are reasonably deemed to be) unable to or admit inability
to pay their debts as they fall due or propose or enter into any
composition or other arrangement for the benefit of creditors generally or
proceedings are commenced in relation to the Borrower and/or any other
Security Party relating to reconstruction or readjustment of
debts;
|
|
14.3.4
|
If
a meeting is convened by any Security Party for the purpose of passing any
resolution to purchase, reduce or redeem any of its share
capital;
|
|
14.3.5
|
If
a material part of the undertakings, assets, rights or revenues of the
Borrower and/or any other Security Party are seized, nationalised,
expropriated or compulsorily acquired by or under the authority of any
government;
|
|
14.3.6
|
If
any event occurs or proceeding is taken with respect to the Borrower
and/or any other Security Party in any jurisdiction to which anyone of
them is subject which has
|
|
an
effect equivalent or similar to any of the events mentioned in Clauses
14.3.1. to 14.3.5.;
|
|
14.3.7
|
If
the Borrower and/or any other Security Party suspend or threaten to
suspend or cease to carry on its
business;
|
|
14.3.8
|
If
there occurs, in the opinion of the Bank, a materially adverse change in
the financial condition of the Borrower and/or any Security
Party;
|
|
14.3.9
|
If
any other event occurs not mentioned in this Clause 14.3. or circumstances
arise which, in the reasonable opinion of the Bank, is likely adversely to
affect either (i) the ability of the Borrower and/or any other Security
Party to perform all or any of their obligations under or otherwise to
comply with the terms of this Agreement and/or any of the other Security
Documents, or (ii) the security created by this Agreement and/or any of
the other Security Documents;
|
|
14.3.10
|
If
there is any change in the beneficial ownership of the shares in the
Borrower and/or any other Security Party as declared to the Bank prior to
the execution hereof or as represented to the Bank in the Certificate of
beneficial shareholding given to the Bank pursuant to Schedule I, Part
1.
|
|
14.3.11
|
If
any debt of any Security Party is not paid when due or any debt of any
Security Party becomes due and payable prior to the date when it would
otherwise have become due (unless as a result of the exercise by the
relevant Security Party of a voluntary right of prepayment), or any
creditor of an .y Security Party becomes entitled to declare its claim due
and payable, or arty facility or commitment available to any Security
Party is withdrawn, suspended or cancelled by reason of any default
(however described) of such Security
Party;
|
14.4 Events
affecting the Security Documents
|
14.4.1
|
If
this Agreement or any of the other Security Documents shall at any time
and for any reason become invalid or unenforceable or otherwise cease to
remain in full force and effect, or if the validity or enforceability of
any of the Security Documents shall at any time and for any reason be
contested by any party thereto (other than the Bank), or if any such party
shall deny that it has any, or any further, liability thereunder or shall
otherwise repudiate any of the Security Documents or do or cause or permit
to be done any act or thing evidencing an intention to repudiate this
Agreement or any of the other Security Documents or it becomes impossible
or unlawful for the Borrower and/or any other Security Party to fulfill
any of its covenants and obligations contained in this Agreement or any of
the other Security Documents or for the Bank to exercise the rights or any
of them vested in them thereunder or
otherwise;
|
|
14.4.2
|
If
any Encumbrance in respect of any of the properties (or part thereof)
which belongs to the Security Parties (or any of them) becomes
enforceable.
|
|
14.4.3
|
If
a notice is sent by the Bank under section 6(a) of the Master Swap
Agreement, or by any person under section 6(b)(iv) of the Master Swap
Agreement, in either case designating an Early Termination Date for the
purpose of the Master Swap Agreement, or if the Master Swap Agreement is
for any other reason terminated, cancelled, suspended, rescinded, revoked
or otherwise ceases to remain in full force and effect;
or
|
14.5 Events
concerning the Vessel
|
14.5.1
|
if,
due to Borrower’s default, any charter or contract of affreightment
relating to the Vessel for the time being mortgaged to the Bank hereunder
ceases for more than thirty (30) days (other than complete performance in
accordance with its terms) to be in full force and
effect.
|
|
14.5.2
|
If
the Vessel either:
|
(a)
becomes
a Total Loss or
(b)
suffers
damage or is involved in an accident which in the opinion of the Bank may result
in being subsequently considered to be a Total Loss or which may otherwise
reduce the security of the Bank.
|
14.5.3
|
If
the registration of the Vessel under the laws and flag of the Flag State
is
cancelled
or terminated without the prior written consent of the
Bank.
|
|
14.5.4
|
If
the Flag State of the Vessel becomes involved in hostilities or civil war
if, in any such case, such event could in the opinion of the Bank
reasonably be expected to have a material adverse effect on the security
constituted by any of the Security Documents and Borrower fails to comply
with the Bank’s request to change flag acceptable to the Bank within
fifteen (15) Banking Days.
|
14.6 Environmental
Events.
If
the Borrower and/or any other Security Party and/or any other Relevant Party
and/or any of their respective Environmental Affiliates fails to comply with any
Environmental Law or any Environmental Approval or any of the Vessel or any
other Relevant Ship is involved in any incident which gives rise or which may
give rise to any Environmental Claim if, in any such case, such non-compliance
or incident, or the consequences thereof could, in the opinion of the Bank, be
expected to have a Material Adverse Effect on the business assets, operations,
property or financial condition of the Borrower or any other Security Party or
on the security created by any of the Security Documents.
14.7 Consequences
of Default
|
14.7.1
|
At
any time after the occurrence of any Event of Default, the Bank may,
without prejudice to any other of its
rights,
|
|
(a)
|
by
notice to the Borrower declare that the obligation of the Bank to make the
Commitment available shall be terminated, whereupon the Commitment shall
be reduced to zero forthwith and/or
|
|
(b)
|
by
notice to the Borrower declare that the Loan and interest and all sums
payable under this Agreement and the other Security Documents have become
due and payable, or payable on demand, whereupon the same shall
immediately, or in accordance with the terms of such notice, become due
and payable jointly and severally by the Borrower and the other Obligors,
without any further demand protest or notice or any other procedure from
the Bank,
|
|
(c)
|
put
into force and exercise all or any of the rights, powers and remedies
possessed by it under this Agreement and/or under any other Security
Document.
|
|
14.7.2
|
If
an event occurs in respect of the Borrower or any of the other Security
Parties of the type described in Clauses 14.3.2. to 14.3.6. the obligation
of the Bank to make the Commitment available shall terminate immediately
and all amounts under sub-clause 14.7.1.(b) above shall become immediately
due and payable without the need for any demand from the Bank or any
notice to the Borrower or other action of any kind
whatsoever.
|
15
APPLICATION OF
RECEIPTS
15.1
Normal order of application.
Except as any Security Document may otherwise provide, any sums which are
received or recovered by the Bank under or by virtue of any Security Document
after the service of notice on the Borrower shall he applied:
FIRST:
in or towards satisfaction of any amounts then due and payable under the
Security Documents or the Master Swap Agreement in the following
proportions:
|
(i)
|
firstly,
in or towards satisfaction pro rata of all amounts then due and payable to
the Bank under the Security Documents and the Master Swap Agreement (in
respect of Designated Transaction) other than those amounts referred to at
(ii) and (iii) below;
|
|
(ii)
|
secondly,
in or towards satisfaction pro rata of any and all amounts of interest or
default interest payable to the Bank under the Security Documents and the
Master Swap Agreement (in respect of Designated Transaction) (and, for
this purpose, the expression “interest” shall include any net amount which
the Borrower shall have become liable to pay or deliver under section 2(e)
(Obligations) of the Master Swap Agreement (in respect of Designated
Transaction) but shall have failed to pay or deliver to the Bank at the
time of application or distribution under this Clause 15);
and
|
|
(iii)
|
thirdly,
in or towards satisfaction pro rata of the Loan and the Swap Exposure (in
the case of the latter, calculated as at the actual Early Termination Date
applying to each particular Designated Transaction, or if no such Early
Termination Date shall have occurred, calculated as if an Early
Termination Date occurred on the date of application or distribution
hereunder);
|
SECONDLY:
in retention of an amount equal to any amount not then due and payable under any
Security Document or the Master Swap Agreement (in respect of Designated
Transaction) but which the Bank, by notice to the Borrower and the Security
Parties, states in its reasonable opinion will or may become due and payable in
the future and, upon those amounts becoming due and payable, in or towards
satisfaction of them in accordance with the foregoing provisions of this Clause
15.1(a); and
THIRDLY:
any surplus shall be paid to the Borrower or to any other person appearing to be
entitled to it.
15.2
Variation of order of application.
The Bank may (following the occurrence of an Event of Default or a
Potential Event of Default which is continuing), by notice to the Borrower and
the Security provide for a different manner of application from that set out in
Clause 15.1 either as regards a specified sum or sums or as regards sums in a
specified category or categories.
15.3
Notice of variation of order of
application.
The Bank may give notices under Clause 15.2 from time to
time in respect of sums which may be received or recovered in the
future.
15.4
Appropriation rights overridden.
This Clause 15 and any notice which the Bank gives under Clause 15.2
shall override any right of appropriation possessed, and any appropriation made,
by the Borrower or any Security Party.
15.5
Application of Earnings -Payment of
Earnings.
The Borrower undertakes with the Bank to ensure that,
throughout the Facility Period (and subject only to the provisions of the
General Assignment for the Vessel) all the Earnings of the Vessel are paid to
the Operating Account for the Vessel and subject to no Event of Default having
occurred which is continuing at the relevant time, all credit balances on the
Operating Account shall be freely available to the Borrower.
16
ACCOUNTS
16.1 Loan
Account
The
Bank shall maintain in accordance with its usual practice, an account evidencing
the amounts from time to time lent by, owing to and paid to it under the
Security Documents. Such account confirmed by the Bank as per Clause 6 hereof
shall, be conclusive as to the amount from time to time owing by the Borrower
under the Security Documents.
16.2 Set-off
|
16.2.1
|
Upon
the occurrence of any Event of Default, the Borrower authorises the Bank,
without notice to the Borrower, to apply any credit balance to which the
Borrower is then entitled and/or to whatever currency standing upon any
such account of the Borrower with any branch of the in or towards
satisfaction of the Indebtedness. For this purpose, the Bank is authorised
to purchase with the moneys standing to the credit of such account such
other currencies as may be necessary to effect such application. The Bank
shall not be obliged to exercise any right given to it by this clause. The
Bank shall notify the Borrower without delay upon the exercise or
purported exercise of any right of set-off giving details in relation
thereto.
|
|
16.2.2
|
The
rights conferred on the Bank by this Clause shall be in addition to, and
without prejudice to or limitation of, the rights of netting and set off
conferred on the Bank by the Master Swap Agreement. The Borrower
acknowledges that the Bank shall be under no obligation to make any
payment to the Borrower under or pursuant to the Master Swap Agreement if,
at the time that payment becomes due, there shall have occurred an Event
of Default or Potential Event of Default, or an Event of Default or
Termination Event (as those terms are, respectively defined in the Master
Swap Agreement).
|
16.3 Operating
Account
|
16.3.1
|
The
Borrower undertakes with the Bank that it
will:
|
|
(a)
|
on
or before the Drawdown Date open with the Bank the Operating Account;
and
|
|
(b)
|
procure
that all moneys payable to the Borrower in respect of the Earnings cr
other receivables regarding the Vessel shall, unless and until the Bank
directs to the contrary be paid to the Operating Account free from
Encumbrances (save for Encumbrances in favour of the Bank); Provided
however that if any moneys paid to the Operating Account are payable in a
currency other than Dollars, the Bank shall convert such moneys into
Dollars at the Bank spot rate of exchange at the relevant time for the
purchase of Dollars with such currency and the term “spot rate
of
|
|
exchange”
shall include any premium and costs of exchange payable in connection with
the purchase of Dollars with such
currency.
|
|
(c)
|
The
Operating Account shall bear interest at the rate quoted by the Bank to
its customers for comparable deposits in Dollars and for such periods as
the Bank may determine, such interest to be credited to the Operating
Account at intervals the Bank usually pays interest on
deposits.
|
|
(d)
|
The
Borrower hereby assigns to the Bank as a continuing security for the
payment of the Indebtedness the Operating Account and all moneys from time
to time standing to the credit thereof including any interest from time to
time accrued and accruing thereon, such assignment to take effect
immediately upon the occurrence of an Event of
Default.
|
So
long as no Default shall have occurred the Borrower shall be entitled to
withdraw from the Operating Account any amount. Provided however that if in the
opinion of the Bank there will be insufficient sums standing to the credit of
the Operating Account to meet principal falling due on the next Repayment Date
or interest due on the next Interest Payment Date or any other moneys which are
due and payable to the Bank, the Bank shall be entitled to refuse any withdrawal
from the Operating Account.
|
16.3.3
|
Application
of Operating Account
|
|
(a)
|
The
Bank shall be entitled (but not obliged) at any time to deduct from the
balance for the time being standing to the credit of the Operating Account
all other moneys which may fall due to be paid to the Bank under the terms
of the Security Documents or otherwise howsoever in connection with the
Loan.
|
|
(b)
|
At
any time after the occurrence of an Event of Default, the Bank may,
without notice to the Borrower, apply all moneys then standing to the
credit of the Operating Account (together with interest from time to time
accruing or accrued thereon) in or towards satisfaction of any sums due to
the Bank under the Security Documents in the manner specified in Clause
15.
|
|
16.3.4
|
Relocation of
Operating
Account
|
The
Borrower, at its own costs and expenses, undertake to comply with any written
requirement of the Bank from time to time as to the location or relocation of
the Operating Account and will from time to time enter into such documentation
as the Bank may require in order to create or maintain a security interest in
the Operating Ac count.
16.4 Retention
Account
|
16.4.1
|
The
Borrower on or before the Drawdown Date will open with the Bank the
Retention Account.
|
|
(a)
|
For
so long as any moneys are owing under the Security Documents, the Borrower
shall pay to the Retention Account, at monthly intervals commencing with a
first payment on the date falling one Month after the Drawdown Date and at
monthly intervals thereafter (each such day being hereinafter called
“Monthly Retention Date”) such sum (each sum being hereinafter called
“Monthly Retention Amount”) as shall be the aggregate
of:
|
|
i.
|
the
quotient of the Repayment Instalment amount from time to time falling due
on the each time next Repayment Date divided by the number of the months
intervening between the immediately previous and the such next Repayment
Date, pursuant to Clause 7 hereof;
and
|
|
ii.
|
the
quotient of the amount of interest from time to time falling due in
respect of the Loan or each part thereof on the each time next Interest
Payment Date divided by the number of months of the relevant Interest
Period.
|
|
(b)
|
The
Bank is hereby irrevocably authorised by the Borrower to debit at every
Monthly Retention Date the Operating Account with the Monthly Retention
Amounts and to credit them to the Retention
Account.
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|
(c)
|
In
case that any Earnings paid to the Operating Account relate to a period of
employment of the Vessel longer than one (1) Month, then upon receipt of
such Earnings the Retention Account shall be funded by an amount equal to
so many Monthly Retention Amounts or part thereof as shall correspond to
the longer period to which the said Earnings relate or any amount as may
be determined by the Bank.
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|
16.4.2
|
Unless
and until there shall occur an Event of Default all Monthly Retenticn
Amounts credited to the Retention Account together with interest from time
to time accruing or at any time accrued thereon shall be set off and
applied by the Bank (and express and irrevocable authority is hereby given
by the Borrower to the Bank so to set off and apply the same) upon each
Repayment Date and upon each Interest Payment Date in or towards payment
of the Repayment Instalment then falling due and/or (as the case may be)
the amount of interest then due. Each such set off and application by the
Bank shall constitute a payment in or towards satisfaction of the
corresponding payment obligations of the Borrower under this Agreement but
shall be strictly without prejudice to the obligations of the Borrower to
make any such payment to the extent that the aforesaid set off application
by the Bank is insufficient to meet the
same.
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|
16.4.3
|
Any
amount for the time being standing to the credit of the Retenticn Account
shall bear interest at the rate quoted by the Bank to its customers fbr
deposits in Dollars for such period as the Bank may determine and for an
amount comparable with the amount for the time being standing to the
credit of the Retention Account.
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|
16.4.4
|
Upon
the occurrence of an Event of Default or at any time thereafter the Bank
will set off and apply all sums standing to the credit of the Retention
Account including accrued interest (if any) in the manner specified in
Clause 15 without notice to the
Borrower.
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17
INDEMNITY
17.1 Miscellaneous
Indemnities
The
Borrower will indemnify the Bank against any and all expenses, claims, losses or
liabilities sustained or incurred by the Bank as a result of
(a)
|
The
Loan not being drawdown hereunder whether before or after the giving of
the Drawdown Notice in accordance with the provisions of Clause 2.2.
hereof for any reason whatsoever including but not limited to the refusal
of the Bank to allow the disbursement of
the
|
Commitment
because of the non fulfillment of the Conditions Precedent contained in Schedule
I or any of them;
(b)
|
any
default in payment by the Borrower of any sum under any of the Security
Documents;
|
(c)
|
the
occurrence of any other Event of
Default;
|
(d)
|
the
prepayment or repayment of the Loan or part thereof being made otherwise
than on an Interest Payment Date relating to the part of the Loan prepaid
or repaid.
|
including
in any such case, but not limited to, any loss or expense suffered as a result
of reemploying deposits acquired by the Bank (or any person to whom the Bank
have sold a participation in the Loan) for the purpose of funding the Loan at a
rate of return lower than the cost of acquiring the deposits or any expense
incurred by the Bank (or such person) in liquidating the deposits as defined as
“Break Costs” in Clause 1 hereof.
17.2 Currency
If,
any payment by any of the Security Parties under any of the Security Documents
is made or falls to be satisfied in a currency (the “payment currency”) other
than the currency in which such payment is due under or in connection with such
Security Documents (the “contractual currency”), then, to the extent that the
amount of such payment actually received by the Bank, when converted into the
contractual currency at the rate of exchange, falls short of the amount due
under the Security Documents, the Borrower, as a separate and independent
obligation, shall indemnify and hold harmless the Bank against the amount of
such shortfall. For the purposes of the present Clause “rate of exchange” means
the rate at which the Bank is able on or about the date of such payment to
purchase the contractual currency with the payment currency and shall take into
account any premium and other costs of exchange with respect
thereto.
17.3 Environmental
Indemnity
The
Borrower shall indemnify the Bank on demand and hold the Bank harmless from and
against all costs, losses, liabilities, actions, proceedings, penalties, fines,
sanctions or other outgoings of whatever nature which may be suffered, or
asserted against the Bank at any time, whether before or after the repayment in
full of principal and interest under this Agreement, relating to, or arising
directly or indirectly for any cause or reason whatsoever out of an
Environmental Claim made or asserted against the Bank if such Environmental
Claim would not have been made or asserted against the Bank if it had not
entered into any of the Security Documents and/or exercised any of its rights,
powers and discretions thereby conferred and/or performed any of its obligations
thereunder and/or been involved in any of the transactions contemplated by the
Security Documents.
17.4 Communications
Indemnity
Express
authority is hereby given by the Borrower to the Bank to accept (at the sole
discretion of the Bank) all tested or untested communications given by
facsimile, telex cable or e-mail, regarding any or all of the notices, requests,
instructions or other communications under this Agreement.
The
Borrower hereby assumes promises and recognises that the Bank shall not be held
responsible for any loss, liability or expense that may result from the Bank’s
compliance with such communications and the Borrower undertakes to indemnify the
Bank from all actions, proceedings, damages, claims, expenses and any and all
direct and/or indirect losses which the Bank may suffer, by reason of the Bank
following such communications.
With
regard to the above communications issued by electronic and/or mechanical
processes (e.g. by facsimile, telex or e-mail), the risk of equipment
malfunction, including, without limitation, paper
shortage,
transmission errors, omissions and distortions of Borrower’s mechanical
equipment is assumed fully and accepted by the Borrower.
The
risks of misunderstandings and errors of communications being given as mentioned
above, are for the Borrower and the Bank will be indemnified in full pursuant to
this Clause.
Notwithstanding
the above, the Bank may at any time, (and such discretion of the Bank is
expressly admitted by the Borrower hereby) refuse to execute the notices,
requests. instructions or communications of the Borrower, or any part thereof
given by telex or fax if not confirmed in a manner acceptable to the Bank,
without incurring any responsibility for loss, liability or expense arising out
of such refusal.
18
REMEDIES AND
WAIVERS
18.1 Remedies
Modifications
The
Borrower shall not be released from the obligations contained herein by the
granting of time or any other indulgence to the Borrower or by any other act or
thing whatsoever or whereby the Borrower is and has been so released and no
failure to exercise nor any delay in exercising on the part of the Bank any
right or remedy hereunder and/or the other Security Documents or by law shall
operate as a waiver thereof nor shall any single or partial exercise of any
right or remedy prevent any further or other exercise thereof or the exercise of
any other rights or remedy. No modification or waiver by the Bank of any
provision of this Agreement or of any of the other Security Documents nor any
consent by the Bank to any departure therefrom by the Borrower shall be
effective unless the same shall be in writing and then shall only be effective
in the specific case and for the specific purpose for which given. No notice to
or demand on any such party in any such case shall entitle such party to any
other or further notice or demand in similar or other
circumstances.
18.2 Cumulative
Remedies
The
rights and remedies provided herein and/or in any other Security Document are
cumulative and not exclusive of each other nor of any other rights or remedies
provided by law.
18.3 Event
of Default
The
Borrower accepts that upon an Event of Default occurring the Bank has an
absolute right to take immediate steps to realize its security and recover all
and any sums due to it (including but not limited to the Loan remaining
outstanding and any other moneys which may then be due and owing under this
Agreement and/or any of the other Security Documents) exercising all powers
available to it by law and/or set forth in the Security Documents or otherwise
and nothing contained in the Security Documents shall be construed to the
contrary.
19
LEGAL
IMMINENCE
This
Agreement and the other Security Documents contain the entire agreement of the
parties and their provisions supersede the provisions of the Commitment Letter
addressed by the Bank to the Borrower and others (save for the provisions
thereof which relate to fees) and any and all other prior correspondence and
oral negotiation by the parties in respect of the matters regulated by this
Agreement.
19.1 Over
Other Security Documents
In
the event of any inconsistency between the provisions of this Agreement and the
previsions of any other Security Document the provisions of this Agreement shall
prevail.
19.2 Contracts
(Rights of Third Parties) Act 1999
Notwithstanding
the provisions of the: Contracts (Rights of Third Parties) Act 1999, no term of
this Agreement is enforceable by a person who is not a party to it.
20
COUNTERPARTS
This
Agreement may be executed in any number of counterparts each of which when
executed and delivered shall constitute an original but all the counterparts
shall together constitute both one and the same instrument.
21
INVALIDITY
If
at any time any one or more provisions of any Security Document and/or any
Security Document or any other documents executed pursuant hereto or thereto is
or becomes invalid illegal or unenforceable in any respect under any applicable
law in any jurisdiction whatsoever, the validity legality and enforceability of
the remaining previsions hereof or thereof shall not in any way be affected or
impaired thereby. If, however, this event becomes known to the Bank prior to the
drawdown of the Commitment the Bank shall be entitled to refuse drawdown until
this discrepancy is remedied. Where, however, the provisions of any such
applicable law may be waived, they are hereby waived by the parties hereto to
the full extent permitted by that law to the intent that this Agreement, the
other Security Documents and any other documents executed pursuant hereto or
thereto shall be deemed to be valid binding and enforceable in accordance with
their respective terms.
22
ASSIGNMENT
This
Agreement shall constitute continuing and primary obligations of the Borrower
and shall be binding on and inure to the benefit of the Borrower the Bank and
their respective successors and assigns provided that:
22.1 Assignment
by the Borrower
The
Borrower and any other parties to the Security Documents may not assign any
rights and/or obligations hereunder and/or any other Security Document or any
documents executed pursuant thereto without the prior written consent of the
Bank and
22.2 Assignment
by the Bank
The
Bank may at any time assign, transfer or offer participations to any affiliated
company of the EFG Group or, with the prior written consent of the Borrower,
such consent not to be unreasonably withheld, to other banks or financial
institutions in whole or in part, or in any manner dispose of all or any of its
rights and/or obligations arising or accruing under this Agreement or under any
of the other Security Documents or any documents executed pursuant to this
Agreement and/or the other Security Documents. The Bank may disclose to a
potential assignee, transferee or participant or to any other person who may
propose entering into a contractual relations with the Bank in relation this
Agreement such information about the Borrower and the Security Parties as the
Bank shall reasonably consider appropriate.
23
EXPENSES
(a)
|
The
Borrower shall reimburse the Bank immediately upon demand for all expenses
including but not limited to the fees and expenses of the Legal Counsels
of the Insurance Experts and/or
|
|
any
other Experts the Bank may use e.t.c. as well as all legal fees and
disbursements printing costs and other out of pocket expenses of
whatsoever nature incurred by the
Bank
|
|
(i)
|
in
the negotiation preparation execution and where relevant registration of
any of the Security Documents and of any amendment or extension of or
granting of any waiver or consent hereunder and/or any other Security
Document
|
|
(ii)
|
in
contemplation of, or the enforcement of or preservation of any rights
under any of the Security Documents or otherwise in respect of moneys
owing under any of the Security
Documents
|
|
(iii)
|
all
fees and expenses payable pursuant to the present Clause shall be paid
together with value added tax or any other tax (if any) properly
chargeable thereon. Any value added tax or other tax chargeable in respect
of any services supplied by the Bank under this Agreement shall be paid in
addition to any sum agreed to be paid
hereunder.
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(b)
|
The
Borrower shall pay all Taxes, the Security Documents are or at any time
may be subject and shall indemnify the Bank against any liabilities costs
claims arid expenses resulting from any omission to pay or delay in paying
any such duties levies, dues and/or
taxes.
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23.2
If
the Bank pays any of the amounts mentioned above as payable by the Bank, the
Borrower shall reimburse same to the Bank together with interest at the rate
referred to in Clause 8.4. from the date of Bank’s actual disbursement or loss
to the date of payment to the Bank. The expenses are payable on
demand.
24
NOTICE
24.1 Address
Each
notice, request, demand or other communication to be given or made hereunder
and/or any other Security Document shall be given in writing addressed to the
Borrower c/o Eurobulk Ltd. at 40, Agiou Konstantinou Str., 151 24 Maroussi,
Greece, fax no 0030 2111 804097 who is hereby irrevocably appointed by the
Borrower as Its agent and who is empowered by it to receive and take delivery on
Borrower’s behalf and account all documents and/or instruments addressed to the
Borrower of whatever nature, and the Borrower hereby confirms and warrants that
all such notifications, notices, or other communications e.t.c. delivered to its
above agent will be considered by it as having been delivered to and received by
itself. All such notifications notices, requests, demands or other
communications if addressed to the Bank shall be delivered or mailed to the Bank
at No 83, Akti Miaouli Street, Piraeus Greece or to such other address as is
notified by one party to the other party hereunder in writing.
24.2 Time
of Delivery
Any
notice, request, demand or other communication to be given or made to the
Borrower shall be deemed to have been delivered three (3) Banking Days after
having been sent to its agent appointed by them in the preceding Clause, by
first - class registered post prepaid in an envelope addressed as aforesaid but
in the case of a telex facsimile transmission or other means of
telecommunication in permanent written form or delivery by hand, such notice
shall be deemed to have been delivered at the time of dispatch. If the day of
dispatch is not a Banking Day it shall be deemed to have been received at the
opening of business on the next such Banking Day.
25
GOVERNING LAW AND
JURISDICTION
(a)
|
This
Agreement and the Security Documents unless otherwise provided for herein,
shall be governed by and construed in accordance with English Law. The
Mortgage shall be governed by the law of the Flag State of the Vessel. The
Pledges, the Corporate Guarantee shall be governed by the laws of
Greece
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(b)
|
For
the exclusive benefit of the Bank, the Borrower hereby irrevocably submits
itself to the non-exclusive jurisdiction of the Courts of England.
Further, the Borrower agrees that any summons, writ or other legal process
issued against any of the Security Parties either in England or Greece or
in any other country as the case may be, shall be served upon the Borrower
in Greece c/o Hill Taylor Dickinson at 2, II Merarchias Street 185 35
Piraeus Greece, fax no 0030 210 4284777), or in England c/o Messrs Hill
Taylor Dickinson at Irongate House, Duke’s Place, London EC3A 7LP, England
or to their successors, who are hereby authorised by the Borrower, acting
on its own behalf to accept such service, which shall be deemed to be good
service on the Borrower. The foregoing shall not limit the right of the
Bank to start proceedings in any other country or to serve process in any
other manner permitted by law. The Borrower hereby waives any objections
as to the inconvenience of any forum elected by the
Bank.
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(c)
|
If
it is decided by the Bank that any such proceedings should be commenced in
any other country, then any objections as to the jurisdiction or any claim
as to the inconvenience of the forum is hereby waived by the Borrower all
of whom the Borrower confirms that they are representing and binding, and
it is agreed and undertaken by the Borrower to accept service of legal
process and not to contest the validity of such proceedings as far as the
jurisdiction of the court or courts involved is
concerned.
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Schedule
I
Documents
and evidence required as conditions precedent to the Loan being
made
Part
1
(a)
|
Constitutional
documents
|
copies,
legalized by a lawyer and certified by an officer of the Borrower as true,
complete and up to date copies of all documents which contain or establish or
relate to the constitution and organization of the Borrower and of any corporate
shareholder of the Borrower. In case of a Liberian or Marshall Island Company,
copies of
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(i)
|
the
transfer of subscription
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(ii)
|
the
Organizational Meeting
|
|
(iii)
|
the
first Meeting of Directors
|
|
(iv)
|
all
resolutions regarding election and resignation of Directors (if any) from
the first meeting till today.
|
(b)
|
Corporate
authorisations
|
copies
of the relevant minutes containing the resolutions of the directors and
shareholders of each Security Party approving the Security Documents to which
such Security Party is, or is to be, party and authorizing the signature,
delivery and performance of such Security Party’s obligations thereunder, as
well as copies of the resolutions of the Corporate Shareholders to participate
at the relative meeting of the shareholders of the respective Security Party.
All copies of the meetings and resolutions of the Directors and Shareholders of
each such Security Party to be certified (in a certificate dated not earlier
than five Banking Days prior to the date of this Agreement) by the Secretary of
such Security Party as:
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(i)
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being
complete true and correct;
|
|
(ii)
|
being
duly passed at meetings duly convened and held of the directors of such
Security Party where the directors were present in person at arid
throughout the said meetings and the resolutions were passed
unanimously;
|
|
(iii)
|
not
having been amended, modified or revoked;
and
|
|
(iv)
|
being
in full force and effect
|
and
duly notarised and legalised by the appropriate consul as well as the originals
or certified copies of any Powers of Attorney issued by any Security Party
pursuant to such resolutions duly notarised and legalized by the appropriate
consul.
(c)
|
Official
Certificates of Good Standing of the
Borrower.
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(d)
|
Certificate of Incumbency:
a list of directors and officers of each Security Party and of
every corporate shareholder specifying the names and positions of such
persons, certified (in a certificate dated not earlier than five Banking
Days prior to the date of this Agreement) by an appropriate government
authority, or if this is not possible, by the Secretary of such Security
Party, or of the corporate shareholder to be true, complete and up to date
and duly notarised and legalised by the appropriate
consul.
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(e)
|
A
certificate, on behalf of the Borrower, by a Director having been
authorised to execute same, on which the documents mentioned sub-sections
(a), (b), (c), (d) and (e) of this Part 1 of Schedule I will have been
attached, reading substantially as
follows:
|
CERTIFICATE
I,
the undersigned, _______________the Secretary of (name of the Borrower or of the
other Security Party) __________________ (“the Company”), a company duly
organized and existing under the laws of __________hereby certify
that:
1.
|
Attached
hereto and marked “A” is a true and complete copy of the Articles of
Incorporation and of all documents relating to the constitution of the
Company (and of all amendments thereof) which are in full force and effect
as of the date hereof.
|
2
|
Attached
hereto and marked “B” is a true and complete copy of the Minutes of a
Meeting of the Directors of the Company held in ___________ on the
________ day of _______ 2007 at which Meeting all the Directors of the
Company were present in person and acted throughout and the Resolutions
passed at the Meeting were passed unanimously and have not been varied or
revoked and remain in full force and effect as of the date
hereof.
|
3.
|
Attached
hereto and marked “C” is a true and complete copy of the Minutes of the
meeting of the Shareholders of the Company held in ___________ on the ___
day of ________ 2007 at which meeting bearer share certificates
representing all of the authorised and issued shares of the Company were
tabled and voted throughout by the holders thereof (or, as the case may
be, the registered shareholders of all of the authorised and issued shares
of the Corporation were present in person or by proxy and acted
throughout) such meeting having been convened and notice thereof having
been duly waived by all persons entitled thereto and the Resolutions
passed at such meeting remain in full force and effect and unamended as of
the date hereof.
|
4.
|
Attached
hereto marked “D” is a true and complete copy of the Power of Attorney
approved by the Directors and Shareholders of the Company at the Meetings
described in paragraphs, 2 and 3 above, a copy of which Power of Attorney
has been attached to the Minutes of the said
Meetings.
|
5.
|
The
Directors and Officers of the Company are, as at the date hereof, and
were, as at the date of the Meeting of the Directors, the following, being
all the Directors and Officers of the
Company:
|
|
|
Director/President
|
|
|
Director/Secretary
|
|
|
Director/Treasurer
|
6.
|
The
legal shareholder(s) of the Company is/are, as the date hereof, and
was/were, as at the date of the Meetings of the Directors and
shareholders, that referred to in the copy of the Minutes of the Meeting
of Shareholders attached hereto and marked
C.
|
7.
|
The
name, title and specimen signature of each person who has executed or will
execute any of the Security Documents (as such term is defined in the Loan
Agreement referenced in the Resolutions certified in item 2 above) and/or
any other document incidental hereto and thereto on behalf of our Company
are as set forth below, and each such person is on the date hereof and
thereunto duly authorised.
|
Name
and Title
|
|
Specimen
Signature
|
|
|
|
|
|
|
|
|
|
8.
|
I
confirm that I am duly authorised by the Company to execute this
certificate. If any certification contained herein ceases to be true and
correct at any time prior to the execution and delivery of the
documentation referenced in the Resolutions in paragraph 2 above, I will
immediately give to the Bank notice to that
effect.
|
All
terms defined in the Loan Agreement and used but not defined herein have the
meanings given to them in such Agreement.
IN
WITNESS WHEREOF, this certificate has been executed on and as of __________
2007
|
(name
of the Security Party)
|
|
|
|
By:
|
|
|
Title:
|
|
|
|
an
opinion on the validity of the Security Documents addressed to the Bank by
special legal advisers approved by it and having particular knowledge of the
national law by which the validity of the relative Security Document may be
affected.
an
opinion of the legal adviser to the Borrower as to all matters of law as the
Bank shall deem relevant to the Loan Agreement as it may require.
(h)
|
Borrower’s
process agent
|
a
copy, certified as a true copy by the Borrower’s solicitors of a letter from the
Borrower’s agent for receipt of service of proceedings accepting its appointment
under the Security Documents in which it is or is to be appointed as such agent;
and
an
opinion from insurance consultants approved by the Bank, on the insurances
effected in respect of the Vessel.
Evidence
that the Arrangement Fee has been paid in full up to the date.
Documents and evidence
required as conditions precedent and (where the context permits)
subsequent.
Part
2
Evidence
concerning the Vessel
(a)
|
Charter
free valuation and preparation of insurance report of the Vessel as at the
date determined by the Bank prior to the drawdown prepared on the basis
specified in the Agreement.
|
(b)
|
Evidence
that the Vessel has been duly registered in the ownership of its owner
under the laws and flag of its shipping registry free from any
Encumbrances (including those on its earnings, insurances, charter rights
and requisition compensation) save for those in favour of the Bank and
that the Mortgage on the Vessel has been recorded in the respective
Registry with first priority.
|
(c)
|
Evidence
that the Vessel has been surveyed at the cost of the Borrower by surveyors
appointed and/or approved by the Bank and a copy of the surveyors’ report
has been delivered to it.
|
(d)
|
Certificate
of Confirmation of Class for hull and machinery confirming that the Vessel
is classed in the highest Class of a Classification Society acceptable to
the Bank and remains free of recommendations notations affecting class.
The Bank should be notified of the Classification Society with which the
Vessel will be or is (as the case may be) classed at least fifteen days
prior to the Drawdown Date.
|
(e)
|
Due
authorisation enabling the Bank to obtain copies of class records or other
information at its discretion from the Classification Society regarding
the Vessel and a confirmation from the classification Society that it will
forward to the Bank all the quarterly listings issued in respect with that
Vessel’s condition.
|
(f)
|
Photocopies
of the Vessel’s current and unexpired trading
certificates.
|
(g)
|
Evidence
that the Vessel has been or will -on drawdown- be insured in accordance
with the insurance requirements provided for in the Schedule of this
Agreement with Underwriters, Insurance Companies, P & I and War Risks
Associations which meet with the approval of the Bank. Such evidence shall
include Hull and Machinery Marine risks full cover notes, stating all
terms and conditions listing the security involved and incorporating the
Loss Payable Clause and in the case of War Risks and Protection and
Indemnity cover the Certificate of Entry and/or cover notes if
appropriate.
|
(h)
|
Letters
of Undertaking for the Vessel acceptable to the Bank and issued by Hull
and Machinery brokers and/or War Risks Associations or brokers and
Protection & Indemnity Associations approved by the Bank for the
Vessel acceptable to the Bank.
|
(i)
|
Certified
true photocopies of any charterparty or other contract of employment of
the Vessel which will be in force on the Drawdown
Date.
|
(j)
|
Certified
true photocopies of the management agreement relating to the Vessel and
the Manager’s Undertaking duly executed by the Manager confirming that it
will throughout the Facility Period manage the Vessel on behalf of its
Owner and subordinate all its rights against the Owner or the Vessel to
those of the Bank.
|
(k)
|
Evidence
that the Manager and the Vessel has obtained certification of compliance
with ISM Code and/or ISPS Code.
|
(l)
|
Documentary
evidence as to the light displacement tonnage of the
Vessel.
|
(m)
|
Confirmations
by the Insurers of the Vessel addressed to the Bank that they will issue
letters of undertaking and endorse notices of assignment and loss payable
Clauses on the Insurances, as soon as they receive the respective notices
of assignment.
|
(n)
|
As
a condition subsequent authenticated copy of a Transcript of Registry
issued by the Registrar of Ships proving the registration of the Vessel in
the ownership of the Borrower and the recording of the Mortgage on first
priority. Such evidence must be produced to the Bank not later than three
(3) Banking Days after the Drawdown
Date.
|
Schedule
II
INSURANCE
REQUIREMENTS
A
.
PREAMBLE
This
Schedule is an integral part of the above Agreement to which it is attached. All
the terms and conditions hereinbelow and/or any other provision concerning
Insurance in any Clause of the Security Documents form the Insurance
requirements thereof.
All
the words and expressions used in this Schedule shall have the meaning stated in
the Agreement and the following expressions shall be interpreted as
follows:
“Approved Brokers”:
Insurance
Broker(s) and/or firm of Insurance Brokers, appointed by the Owner, as may from
time to time be approved by the Bank in writing and/or appointed by the Bank for
the purposes of this Agreement;
“Excess Risks”:
The proportion
(if any) of claims for general average, salvage and salvage charges and under
the standard collision clause which will not be recoverable, in consequence of
the value at which the Vessel is assessed for the purpose of such claims
exceeding its insured value;
“Insurances”:
All the policies
and contracts of insurance as set forth under paragraph B hereinbelow which are
taken out or entered into by or for the benefit of the Owners (whether in the
sole name of the Owners or, if required by the Bank, in the joint names of the
Owners and the Bank) in respect of the Vessel and its earnings or otherwise
howsoever in connection with the Vessel and all benefits of such policies and/or
contracts (including all claims of whatsoever nature and return of
premiums);
“Insurers”
means the
underwriters or insurance companies with whom any insurance is effected and the
associations of any protection and indemnity, FD & D or war risks or the
managers of such associations in which the Vessel may at any time be entered. Al
Insurances must be contracted with Insurers approved by the Bank;
“Loss Payable Clause”:
The
provisions regulating the manner of payment of sums receivable under the
Insurance which are to be incorporated in the relevant insurance document, such
Loss Payable Clauses to be in the forms set out in Paragraph D (1) hereinbelow,
or such other form as may from time to time be approved in writing by the
Bank;
“Owners”:
The owners of the
Vessel referred to in the Loan Agreement as Borrower;
“Protection and Indemnity Risks”:
The usual risks covered by a Protection and Indemnity Association
(whether actually covered by Protection & Indemnity Association(s) and/or
underwriters) and/or insurance companies), including the proportion (if any)
which is not recoverable in the case of collision under the standard collision
clause;
“Required Amount”
means the
aggregate of the insured amounts on the Vessel referred to in the Loan
Agreement, which Required Amount can not be less than 120 per cent of the amount
of the Loan;
“War Risks”:
Risks including
the risk of mines and all risks excluded from the standard form of marine policy
by the free of capture and seizure clause;
B
.
INSURANCES TO BE EFFECTED AND
MAINTAINED
The
Insurance must be effected and maintained according to the provisions of the
Loan Agreement, including this Schedule and the risks set forth in this as
follows:
a. Hull
and Machinery
Insurance
against fire and usual marine risks (including Excess Risks if so required by
the Bank) on an agreed value basis, on a full cover and all risks basis
according to English or American or similar Hull Clauses, for the Required
Amount, with such reasonable deductible and upon such terms as shall from time
to time be approved in writing by the Bank;
b.
Increased Value
(if
required by the Bank) Insurance of increased value (Total Loss only, Excess
Liabilities included) as per the applicable English or American Institute
Clauses or similar clauses (Disbursement/Increased Value/Excess Liabilities) up
to an amount no less than the Required Amount, as shall from time to time be
approved in writing by the Bank;
c. War
Risks
Insurance
against War Risks according to London Institute War Clauses or similar, on an
agreed value basis, for the Required Amount upon such terms as shall from time
to time be approved in writing by the Bank, attaching also the so-called War
Protection and Indemnity Clauses. If not fully covered by these insurances, crew
war liabilities insurance shall have to be effected separately;
d.
Protection and Indemnity
Insurance
against Protection and Indemnity Risks for the full value and tonnage of the
Vessel insured (as approved in writing by the Bank) in accordance with the
relevant Rules/Protection and Indemnity Institute Clauses and deductibles
provided thereof and/or agreed for all risks including Pollution with Excess
Liability insured by P&I Club(s) and/or underwriter(s) and/or insurance
company(ies) approved in writing by the Bank. No risks will be excluded and no
deductibles provided for in the rules and/or agreed will be altered, without the
written consent of the Bank having been previously obtained. If crew liabilities
(inductively, loss of life, injury or illness) have been excluded from the
insurance cover or insured on a deductible excess basis, such liabilities shall
be further insured separately with other underwriters, always acceptable to the
Bank and upon such terms as shall from time to time be approved in writing by
the Bank;
e.
Pollution Liability
Supplementary
insurance of oil pollution liability including full cover of pollution risks for
the amount up to the maximum commercially available limit and upon such terms as
shall be commercially available and approved in writing by the
Bank;
f.
USA Pollution Risk
Supplementary
insurance of oil pollution liability (in the event the Vessel insured is
scheduled to operate within or nearby USA jurisdiction) for an amount and upon
such terms as shall from time to time be approved in writing by the
Bank;
g.
FD
&
D Cover
Insurance
of Freight, Demurrage and Defence upon such terms and conditions as shall from
time to time be approved in writing by the Bank;
h.
Mortgagee’s Interest
Insurance
of the mortgagee’s interest, to be effected and maintained by the Bank, in the
name of the Bank, but at the expenses of the Owner, or Borrower including (if
required by the Bank at its sole discretion) Mortgagee’s Asset Protection
(Pollution) coverage and/or additional perils pollution in the event the Vessel
insured trades in the United States waters or in the Exclusive Economic Zone of
the United States (as such term is used in the United States Oil Pollution Act
of 1990) or other similar insurance in respect of any pollution claim(s) against
such Vessel insured, for the Required Amount, calculated at the last Interest
Payment Date, under the “german wording” or similar, for 360 days (or less) or
upon such terms as shall from time to time be determined by the
Bank;
i.
Other
Insurance
of such other matters of whatsoever nature and howsoever arising in respect of
which the Bank would at any time reasonably require the Vessel to be
insured;
j.
Port
Risks
(in
the event the Vessel insured is laid up for an extended period) Insurance
effected and maintained with prior written consent of the Bank instead of the
insurances required under the provisions of sub-clauses a, e, f, and k above,
against Hull and Machinery Risks, Protection and Indemnity Risks, subject to the
conditions of “Institute Time Clauses Hulls, Port Risks”, or similar, including
War Risks subject to the conditions of “Institute War and Strikes Clauses,
Hulls, Time”, or similar, extended to include War Protection and Indemnity Risks
or other such similar insurance clauses or contact the terms of which shall be
approved in writing by the Bank.
C.
TERMS AND OBLIGATIONS FOR
EFFECTING AND MAINTAINING INSURANCES
It
is hereby undertaken by the Owner and/or any other person which is obliged under
the Security Documents, that until all moneys payable to the Bank (whether
actually or contingently) pursuant to the Loan Agreement and the other Security
Documents have been paid in full, the Owner shall comply with the following
undertaking:
1.
To
effect and maintain at all timers the Insurances in form and substance and under
terms satisfactory to the Bank.
2.
To
effect the Insurances in Dollars or such other currency as the Bank may approve
and through the Approved Brokers (other than the said mortgagee’s interest
insurance which shall be effected through brokers nominated by the Bank) and
with such Insurers as shall from time to time be appointed and/or be approved in
writing by the Bank.
3.
To
effect and maintain the Insurances free of cost and expense to the Bank in the
sole name of the Owner or, if so required by the Bank, in the joint names of the
Owner and the Bank (but without liability on the part of the Bank for premiums
or calls).
4.
Unless
otherwise agreed in writing by the Bank, the amount in respect of which the
Insurances should be effected shall be equal to at least the market value of the
Vessel and shall at least be 120% of the amount of the Loan and the Swap
Exposure.
5
.
Any
person which is obliged under the Loan Agreement to which these Insurance
Requirements are attached to effect and maintain the Insurances, it will be
obliged and hereby
undertakes,
jointly and severally with any other person having the same obligation to (and
will ensure that the Owner, if they are different persons shall)
(a)
|
procure
and ensure that the Approved Brokers and/or Insurers as the case may be,
shall send to the Bank a Letter of Undertaking in respect of the
Insurances in form and substance satisfactory to the Bank and a Notice of
Cancellation as per Paragraph D hereinbelow. Said Letter of Undertaking
shall be in accordance with the form recommended by Lloyd’s Insurance
Brokers Committee, or any subsequent LIBC form, or any other similar form,
which is approved by the Bank and shall include a further undertaking to
give immediate notice of any insurance being subject to the Condition
Survey Warranty (J.H. 115) and/or structural Conditions Warranty (J.H.
722) and/or the Classification Clause (Hulls) dated 29/6/89, fifteen days
prior to the attachment date of any insurance bearing any of these
warranties, or in such shorter time as the Bank may
agree.
|
(b)
|
If
any of the Insurances form part of a fleet cover, procure that the Vessel
shall be considered by insurers as separately insured and further procure
that the Approved Brokers and/or Insurers as the case may be, shall
undertake to the Bank that they shall neither set off against any claims
in respect of the Vessel any premiums due in respect of other vessels
under such fleet cover or any premiums due for other insurances, nor
cancel the insurance of the Vessel for reason of non-payment of premiums
for other vessels under such fleet cover or of premiums for such other
insurances, and shall undertake to issue a separate policy in respect of
the Vessel if and when so requested by the
Bank;
|
(c)
|
punctually
pay all premiums, calls, contributions or other sums payable in respect of
all Insurances and produce all relevant receipts and details or other
evidence of payment when so required by the
Bank;
|
(d)
|
notify
the Bank of the names of the brokers and/or all of the Insurers proposed
to be employed by the Owners for the purposes of the renewal of such
Insurances and of the amounts and terms in which such Insurances are
proposed to be renewed and the risks to be covered at least twenty one
(21) days before the relevant policies, contracts or entries, expire, (or
in such shorter period as the Bank may agree), and, subject to compliance
with any requirements of the Bank under these Insurance Requirements,
procure that appropriate instructions for the renewal of such Insurances
on the terms so specified are given to the Approved Brokers and/or to the
approved Insurers at least fourteen (14) days before the relevant
policies, contracts or entries expire, and that the Approved Brokers
and/or the approved Insurers will at least seven (7) days before such
expiry (or within such shorter period as the Bank may from time to time
agree) confirm in writing to the Bank as and when such renewals have been
effected in accordance with the instructions so given and to procure that
a Cancellation Clause shall be endorsed on the relevant policies,
contracts or entries for a Notice of Cancellation to the Bank on the terms
set out in Paragraph D of this
Schedule.
|
(e)
|
arrange
for the execution and delivery of such guarantees or indemnities as may
from time to time be required by any protection and indemnity or war risks
association;
|
(f)
|
deposit
with the Approved Brokers (procure the deposit of) all slips, cover notes,
policies, certificates of entry or other instruments of insurance from
time to time issued and procure that the interest of the Bank shall be
endorsed thereon by incorporation of the relevant Loss Payable Clause and
by means of a Notice of Assignment (signed by the Owners) in the form set
out in Paragraph D hereinbelow or in such other form as may from time to
time be agreed in writing by the Bank, and that the Bank shall be
furnished with pro forma copies
thereof.
|
(g)
|
procure
that the Insurers shall note the Bank’s interest and endorse the relevant
Loss Payable Clause on the relevant certificates of entry or policies and
shall furnish the Bank with a copy of such certificates of entry or
policies;
|
(h)
|
do
all other necessary things and provide all such documents, evidence and
information, so as to enable the Bank to collect and recover any moneys
which shall at any time become due in respect of the
Insurances;
|
(i)
|
not
employ or permit the Vessel to be employed in any other way than in
conformity with the terms of the Insurances (including any warranties
express or implied therein) and with any applicable law without first
obtaining the consent of the Insurers to such employment and complying
with such requirements as to extra premium or otherwise as the Insurers
may prescribe;
|
(j)
|
apply
all sums receivable under the Insurances which are paid to the Owner in
accordance with the Loss Payable Clauses in repairing all damage and/or in
discharging the liability in respect of which such sums shall have been
received;
|
(k)
|
in
case that the Vessel is scheduled to operate or operates within or nearby
USA, make all the Protection & Indemnity Club US Voyage Quarterly
Declarations for each quarter in time and/or obtain prior to the Vessel’s
arrival in US territorial waters all relevant certificates as from time to
time may be required, such as COFR, or any other similar, and forward
copies of same to the Bank;
|
(l)
|
not
without the prior consent of the Bank alter any insurance nor make,
consent or agree to any act or omission which would or might render any
insurance invalid, void, voidable or unenforceable or render any sum paid
out under any insurance repayable in whole or in
part.
|
(m)
|
reimburse
the Bank for any premiums paid by the Bank or pay to the Bank the amount
of any premiums to be paid by the Bank in order to effect and maintain a
policy of Mortgagee’s Interest Insurance or any other additional insurance
that the Bank decides to take at its discretion as well as reimburse the
Bank for all expenses and premiums paid by the Bank in order to effect
insurances that the Owner failed to
effect.
|
6.
Fleet
cover is permitted only subject to the prior written approval of the Bank under
the conditions set out in Paragraph 5(b) above and the Bank prior express
written approval of fleet aggregate deductibles.
D.
FORMS AND
WORDING
(a)
Loss payable
clause
The
Loss Payable Clauses to be attached to the Insurances should be substantially 1n
the following form:
(1)
Hull and Machinery (Marine
& War Risks)
: It is hereby noted that by an assignment dated
_______________________ the Owner _______(insert name) _______ has
assigned to EFG EUROBANK ERGASIAS S.A (the Mortgagees) all rights
title and interest in and to all policies and contracts of insurance from time
to time taken out or entered into by or for the benefit of the Owner in respect
of ________ (insert name of Vessel) _____________ and all benefits arising
thereof including all claims of whatsoever nature (including return of premiums)
thereunder and accordingly:
Save
as hereinafter provided, all claims arising under the Insurances, whether in
respect of an actual, constructive, compromised or arranged Total Loss of the
Vessel or otherwise howsoever, shall be payable to the Mortgagees or as it may
direct, (provided that the written consent of the Mortgagees shall be obtained
prior to a compromised or arranged Total Loss being agreed with the Insurers)
and provided always that unless and until written notice to the contrary has
been received from the
Mortgagees,
claims (other than Total Loss claims) not exceeding USD three hundred United
States Dollars (USD 300,000) or its equivalent in any other currency (inclusive
of any deductible) in respect of any one claim may be paid to the Owner or its
order.
(2)
Protection and Indemnity
Risks
: Payment of any recovery in respect of protection and indemnity
risks which _____________ (the “Owner”) is entitled to make out of the funds of
the Insurers in respect of any liability, costs or expenses incurred by the
Owner, shall be made to the Owner or to its order unless and until the Insurer
receives notice to the contrary from EFG EUROBANK ERGASIAS S.A (the Mortgagees)
in which event all recoveries shall thereafter be paid to the Mortgagees or to
its order; provided that no liability whatsoever shall attach to the Insurers or
its agents for failure to comply with the latter obligation until the expiry of
two clear business days from the receipt of such notice.
(b)
Notice of
Assignment
.
The
notice of assignment shall be in the following form:
(For
attachment by way of endorsement to the Policy) __________ the Owner of M/V (the
“Vessel”) , HEREBY GIVE NOTICE that by an assignment of even date herewith and
entered into by us with EFG EUROBANK ERGASIAS S.A there have been assigned by us
to the said Bank, as Mortgagees of the Vessel, all insurances in respect thereof
and all benefits arising under the insurances taken or entered into from time to
time by the Owners or for the benefit of the Owners in respect
________________________________ thereof including but not limited to the
insurances constituted by the policy whereon this notice is endorsed or shall be
endorsed.
Signed
For
and behalf of
Owner
Dated
(c)
Notice of
Cancellation
Owners
to procure that Notices of Cancellation of Insurances be given by the Insurers
and/or by the brokers to EFG EUROBANK ERGASIAS S.A. at its branch office at 83,
Akti Miaouli street, Piraeus, 185 38, Greece (and such Notices of Cancellation
be endorsed on the Insurances) providing that the same will be given to the Bank
in the following cases:
(1)
immediately
in the event of any material changes affecting the insurances.
(2)
not
later than ten days prior to the expiry of any of the insurances, if
ins:ructions have not been received for the renewal thereof and, in the event of
instructions being received to renew, of the details thereof;
(3)
immediately
if the underwriters give notice of their intention to cancel the Insurances
provided that the underwriters will not exercise any rights of cancellation by
reason of unpaid premiums without giving the Bank fourteen (14) days from the
receipt of such notice in which to remit the sums due.
Schedule
III
Notice of
Drawdown
To:
EFG
EUROBANK ERGASIAS S.A 83, Akti Miaouli street
Piraeus
Dear
Sirs,
NOTICE
OF DRAWDOWN
We
refer to the Loan Agreement dated 7 June 2007 made between the Bank and the
Borrower
(“the Loan
Agreement”).
Words
and phrases defined in the Agreement shall have the same meanings when used
herein.
Pursuant
to Clause 2.2 of the Loan Agreement we hereby irrevocably request that you
advance the amount of Dollars representing the Loan to us on 2007, which is a
Business Day, by paying the said sum as to
We
hereby warrant that the representations and warranties contained in Clause 4 of
the Agreement are true and correct at the date hereof and will be true and
correct on 2007 and that no Event of Default nor any event which would with the
giving of notice and/or the passage of time and/or the satisfaction of any
materiality test constitute an Event of Default has occurred or is continuing,
and that no Event of Default will result from the drawdown of the
Loan.
We
select the period of [ ] months as the first interest period for the whole of
the said amount.
|
Yours
faithfully,
|
|
|
|
|
|
|
|
|
For
and on behalf of
Manolis
Shipping Limited
|
|
|
|
|
Schedule
IV
PAYMENT
SCHEDULE
Instalment
No
|
Payment
Date
|
Repayment
Instalment
|
Total
Principal
Amount
|
1
|
3
months after the Drawdown Date
|
USD
160,000
|
USD
9,840,000
|
2
|
6
months after the Drawdown Date
|
USD
160,000
|
USD
9,680,000
|
3
|
9
months after the Drawdown Date
|
USD
160,000
|
USD
9,520,000
|
4
|
12
months after the Drawdown Date
|
USD
160,000
|
USD
9,360,000
|
5
|
15
months after the Drawdown Date
|
USD
160,000
|
USD
9,200,000
|
6
|
18
months after the Drawdown Date
|
USD
160,000
|
USD
9,040,000
|
7
|
21
months after the Drawdown Date
|
USD
160,000
|
USD
8,880,000
|
8
|
24
months after the Drawdown Date
|
USD
160,000
|
USD
8,720,000
|
9
|
27
months after the Drawdown Date
|
USD
160,000
|
USD
8,560,000
|
10
|
30
months after the Drawdown Date
|
USD
160,000
|
USD
8,400,000
|
11
|
33
months after the Drawdown Date
|
USD
160,000
|
USD
8,240,000
|
12
|
36
months after the Drawdown Date
|
USD
160,000
|
USD
8,080,000
|
13
|
39
months after the Drawdown Date
|
USD
160,000
|
USD
7,920,000
|
14
|
42
months after the Drawdown Date
|
USD
160,000
|
USD
7,760,000
|
15
|
45
months after the Drawdown Date
|
USD
160,000
|
USD
7,600,000
|
16
|
48
months after the Drawdown Date
|
USD
160,000
|
USD
7,440,000
|
17
|
51
months after the Drawdown Date
|
USD
160,000
|
USD
7,280,000
|
18
|
54
months after the Drawdown Date
|
USD
160,000
|
USD
7,120,000
|
19
|
57
months after the Drawdown Date
|
USD
160,000
|
USD
6,960,000
|
20
|
60
months after the Drawdown Date
|
USD
160,000
|
USD
6,800,000
|
21
|
63
months after the Drawdown Date
|
USD
160,000
|
USD
6,640,000
|
22
|
66
months after the Drawdown Date
|
USD
160,000
|
USD
6,480,000
|
2
3
|
69
months after the Drawdown Date
|
USD
160,000
|
USD
6,320,000
|
24
|
72
months after the Drawdown Date
|
USD
160,000
|
USD
6,160,000
|
25
|
75
months after the Drawdown Date
|
USD
160,000
|
USD
6,000,000
|
26
|
78
months after the Drawdown Date
|
USD
160,000
|
USD
5,840,000
|
27
|
81
months after the Drawdown Date
|
USD
160,000
|
USD
5,680,000
|
28
|
84
months after the Drawdown Date
|
USD
160,000
|
USD
5,520,000
|
29
|
87
months after the Drawdown Date
|
USD
160,000
|
USD
5,360,000
|
30
|
90
months after the Drawdown Date
|
USD
160,000
|
USD
5,200,000
|
31
|
93
months after the Drawdown Date
|
USD
160,000
|
USD
5,040,000
|
32
|
96
months after the Drawdown Date
|
USD
160,000
|
USD
4,880,000
|
|
Plus
Balloon Payment payable together with the 32nd
Instalment
|
USD4,880,000
|
|
Schedule
V
DESIGNATION
NOTICE
To:
EFG EUROBANK ERGASIAS S.A.
83,
Akti Miaouli Street
185
38 Piraeus
Greece
For
the attention of Mr Sissy Hydreou
[date]
Dear
Sirs
Loan
Agreement dated 7 June 2007 made between (i) ourselves as Borrower and (ii)
yourselves as Lender and Swap Bank (the “Loan Agreement”).
We
refer to:
1. The
Loan Agreement;
2. the
Master Swap Agreement; and
3. a
Confirmation delivered pursuant to the said Master Swap Agreement dated
[ ]
In
accordance with the terms of the Loan Agreement, we hereby give you notice of
the said Confirmation and hereby confirm that the Transaction evidenced by it
will be designated as a “Designated Transaction” for the purposes of the Loan
Agreement and the Finance Documents.
Yours
faithfully,
Stephania
Karmiri
for
and on behalf of
MANOLIS
SHIPPING LIMITED
IN
WITNESS whereof the parties hereto have caused this Agreement to be executed the
day and year first above written.
SIGNED
and
DELIVERED
By
Stephania Karmiri
the
duly appointed Attorney for and on
behalf
of
MANOLIS SHIPPING
LIMITED
in
the presence of Katerina Avramidou
|
)
)
)
)
)
|
|
|
|
|
SIGNED
and DELIVERED
by
Marina Tzoutzourakis and
Ioannis
Toirikos
the
duly authorised attorneys
for
and on behalf of
EF’G
EUROBANK ERGASIAS S.A.
in
the presence of Katerina Avramidou
|
)
)
)
)
)
)
)
|
|
|
|
|
EXHIBIT
4.18
DATED:
29
th
OCTOBER 2007
TRUST NAVIGATION
CORP
.
(THE
“
B
ORROWER”)
-AND-
EFG
EUROBANK ERGASIAS S.A
THE
“
B
ANK”
LOAN
AGREEMENT FOR THE AMOUNT
OF
USD 15,000,000
M/V.
“TRUST JAKARTA” TBN “JOANNA P”
|
|
PAGE
NO
|
|
|
|
1.
|
PURPOSE,
DEFINITIONS AND INTERPRETATION
|
1
|
2.
|
DISBURSEMENT
|
9
|
3.
|
CONDITIONS
PRECEDENT
|
10
|
4.
|
REPRESENTATIONS
AND WARRANTIES
|
11
|
5.
|
ARRANGEMENT
FEE
|
17
|
6.
|
EVIDENCE
|
17
|
7.
|
REPAYMENT
AND PREPAYMENT
|
17
|
8.
|
INTEREST
AND INTEREST PERIODS
|
19
|
9.
|
THE
MASTER SWAP AGREEMENT
|
22
|
10.
|
PAYMENTS
ACCOUNTS & CALCULATIONS
|
23
|
11.
|
UNLAWFULNESS
AND INCREASED COSTS
|
24
|
12.
|
SECURITY
|
25
|
13.
|
COVENANTS
|
26
|
14.
|
EVENTS
OF DEFAULT
|
32
|
15.
|
APPLICATION
OF RECEIPTS
|
36
|
16.
|
ACCOUNTS
|
37
|
17.
|
INDEMNITY
|
39
|
18.
|
REMEDIES
AND WAIVERS
|
41
|
19.
|
LEGAL
IMMINENCE
|
42
|
20.
|
COUNTERPARTS
|
42
|
21.
|
INVALIDITY
|
42
|
22.
|
ASSIGNMENT
|
42
|
23.
|
EXPENSES
|
43
|
24.
|
NOTICE
|
43
|
25.
|
GOVERNING
LAW AND JURISDICTION
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44
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SCHEDULE
I
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44
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SCHEDULE
II
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51
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SCHEDULE
III
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58
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SCHEDULE
IV
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59
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THIS
AGREEMENT is dated the twenty third (29
th
) day of
October two thousand seven and made
BETWEEN
1.
TRUST NAVIGATION CORP
. being a
company incorporated in accordance with the laws of the Republic of Liberia,
whose registered office is at 80, Broad Street, Monrovia, Liberia (referred to
below as “
the
Borrower
”); and
2.
EFG EUROBANK ERGASIAS S.A
., a
banking societe anonyme duly incorporated under the laws of Greece, having its
registered office at 8, Othonos Street, Athens, Greece, acting for the purposes
of this Agreement through its office at 83, Akti Miaouli, 185 38 Piraeus, Greece
(referred to below as “
the
Bank
”).
WHEREAS
At
the request of the Borrower, the Bank has agreed to advance to the Borrower a
secured loan facility in the amount of up to United States Dollars fifteen
million (USD 15,000,000) upon the terms and conditions hereinafter set
forth.
IT IS HEREBY AGREED
as
follows:-
1.
PURPOSE, DEFINITIONS AND
INTERPRETATION
The
purpose of the Loan shall be to make available to the Borrower a facility in the
amount of up to United States Dollars fifteen million (USD 15,000,000) by one
(1) advance for the purpose of partly financing the acquisition cost of the
Vessel (as hereinafter defined)
In
this Agreement unless the context otherwise requires the following terms shall
have the following meanings:
“
Affiliate
” with respect to any
person at any time, means any entity directly or indirectly controlling,
controlled by or under common control with that person at that time. For
purposes of this definition, “person” means any individual or legal entity or
union of individuals, “control” means the power to direct the management and
policies of an entity, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and “controlling” and “controlled”
have correlative meanings.
“
Agreed Rate
” means a rate
agreed between the Bank and the Borrower on the basis of which (instead of
LIBOR) the interest rate is determined pursuant to Clause 8.1.
hereof.
“
Agreement
” means this Loan
Agreement and the documents referred to in Clause 12 hereof as well as every
other document from time to time executed to secure the
Indebtedness.
“
Annex VI
” means Annex VI
(Regulations for the Prevention of Air Pollution from Ships) to the
International Convention for the Prevention of Pollution from Ships 1973 (as
modified in 1978 and 1997).
“
Applicable Interest Rate
”
means the rate of Interest based on LIBOR as determined in Clause 8.1.
hereof.
“
Arrangement Fee
” means the fee
to be paid by the Borrower to the Bank pursuant to Clause 5 hereof.
“
Bank
” means EFG EUROBANK
ERGASIAS S.A., a banking societe anonyme duly incorporated under the laws of
Greece, having its registered office at 8, Othonos Street, Athens, Greece,
acting for the purposes of this Agreement through its office at 83, Akti
Miaouli, 185 38 Piraeus, Greece or through any other branch notified to the
Borrower from time to time pursuant to Clause 24 and its successors and
assignees and transferees.
“
Banking Day
” means a day on
which banks in New York, London, Athens and Piraeus are open for business.
However in respect of a day on which a payment in Dollars is required to be made
hereunder to the Bank, Banking Day shall mean a day on which dealings in
deposits in Dollars are carried on in the London Interbank Market and on which
banks are open for business in London, and New York City.
“
Borrower
” means Trust
Navigation Corp. a company duly incorporated under the laws of the Republic of
Liberia and having its registered office at 80, Broad Street, Monrovia, Republic
of Liberia.
“
Break Costs
” means all costs,
liability or loss including a loss of prospective profit, premiums or penalties
incurred by the Bank in the circumstances contemplated by Clause 17.1., or as a
result of it receiving any prepayment of all or any part of the Loan (whether
pursuant to Clause 7 or otherwise), or any other payment under or in relation to
the Security Documents on a day other than the due date for payment of the sum
in question, and includes (without limitation) any losses or costs incurred in
liquidating or re-employing deposits from third parties acquired to effect or
maintain the Loan, and any liabilities, expenses or losses incurred by the Bank
in terminating or reversing, or otherwise in connection with, any Transaction or
any other interest rate transaction or arrangement entered into by any Bank to
hedge any exposure arising under this Agreement, or in terminating or reversing,
or otherwise in connection with, any open position arising under this
Agreement.
“
Charter
” means the time
charter in respect of the Vessel entered or to be entered into between the
Borrower and the Charterer, for a minimum unexpired duration of eight (8) months
commencing from the Drawdown Date at a minimum net daily rate of hire of United
States Dollars thirty three thousand seven hundred (USD 33,700) or any other
charter or contract of employment which may replace same in respect of the
Vessel acceptable to the Bank.
“
Charterer
” in respect of any
Charter, means a first class charterer in the opinion of the Bank and acceptable
to the Bank in its discretion.
“
Charter Rights
” in respect of
the Vessel, means all rights and benefits accruing to the Borrower under or
arising out of the relevant Charter and not forming part of the
Earnings.
“
Commitment
” means the
aggregate principal amount which the Bank has agreed to lend to the Borrower
hereunder as reduced by any relevant term of this Agreement.
“
Company
” means Eurobulk Ltd.
of Liberia, as the company responsible for the Vessel’s compliance with the ISM
Code pursuant to paragraph 1.1.2 of the ISM Code.
“
Confirmation
” means a
Confirmation exchanged, or deemed exchanged, between the Bank and the Borrower
as contemplated by the Master Swap Agreement.
“
Corporate Guarantee
” means the
corporate guarantee referred to in Clause 12.1.(c) hereof.
“Corporate Guarantor”
means
Euroseas Ltd., a company duly incorporated under the laws of the Republic of the
Marshall Islands whose registered office is at Trust Company Complex, Ajeltake
Road, Ajeltake Island. Majuro, Marshall Islands MH 96960, Republic of Marshall
Islands or any other legal entity(ies) nominated by the Borrower and accepted by
the Bank which have, or as the context may require, shall or may at any time
guarantee the obligations of the Borrower under this Agreement and/or those of
the other Security Parties to the Bank.
“
Credit Support Document
” means
any document described as such in the Master Swap Agreement and, where the
context permits, any other document referred to in any Credit Support Document
which has the effect of creating an Encumbrance in favour of the
Bank.
“
Currency of Account
” means, in
relation to any payment to be made to the Bank under or pursuant to any of the
Security Documents, the currency in which that payment is required to be made by
the terms of the relevant Security Documents.
“
Credit Support Provider
” means
any person (other than the Borrower) described as such in the Master Swap
Agreement.
“
Default Rate
” means the rate
of Interest per annum determined in accordance with the provisions of Clause 8.4
hereof.
“
Designated Transaction
(s)”
means a Transaction which fulfils the following requirements:
A.
|
It
is entered by the Borrower at its request and subject to the Bank’s
consent pursuant to the Master Swap Agreement with the
Bank;
|
B.
|
It
is designated by the Borrower, by delivery by the Borrower to the Bank of
a notice of designation in the form set out in Schedule V as a Designated
Transaction for the purposes of the Security Documents;
and
|
C.
|
Its
purpose is to provide interest and/ or currency swaps or any other
transaction to hedge any exposure of the Borrower under the Agreement for
a period expiring not later that the final Repayment
Date.
|
“
Dollars
”
and
“$” means the lawful
currency of the United States of America and in respect of all payments to be
made hereunder or under any of the Security Documents means funds which are for
same day settlement in the New York Clearing House InterBank Payments System (or
such other same day Dollar funds as the Bank may determine to be customary for
the settlement of international Banking transactions denominated in
Dollars).
“
Drawdown Date
” means the date
being a Banking Day falling not later than the Latest Permissible Drawdown Date
on which the Commitment is advanced or, as the context may require, is to be
advanced to the Borrower.
“
Drawdown Notice
” means a
notice substantially in the form set out in the Schedule III attached
hereto.
“
Earnings
” means all earnings
of the Vessel whatsoever, due or to become due to or for the account of the
Borrower at any time during the period commencing on the Drawdown Date and
terminating on the date upon which all moneys payable or to become payable under
any of the Security Documents shall
have
been paid and discharged in full, including all freight, hire and passage
moneys, compensation payable to the Borrower in the event of requisition of the
Vessel for hire, remuneration for salvage and towage services, demurrage and
detention moneys, contributions of any nature whatsoever in respect of general
average, damages for breach (or payments for variation or termination) of any
charterparty or other contract for employment of the Vessel as well as all and
any sums recoverable under all the insurances of the Vessel including the
insurances in respect of loss of Earnings and/or any other losses and/or
liabilities of the Borrower in respect of the Vessel.
“
Environmental Affiliate
” means
any person having a contractual relationship with any of the Borrower or any
other Relevant Party in connection with any Relevant Ship or its operation, or
the carriage of cargo and/or passengers thereon and/or the provision of goods
and/or services on or from the Relevant Ship.
“
Environmental Approval
” means
any approval, licence, permit, exemption, or authorisation applicable on any
Relevant Ship under any applicable Environmental Law.
“
Environmental Claim
” means any
and all enforcement, clean up, removal or other governmental or regulatory
actions or orders pursuant to any Environmental Law or Environmental Approval
together with claims made by any third party relating to damage, contribution,
loss or injury, resulting from any actual or threatened emission, spill, release
or discharge of a Material of Environmental concern from any Relevant
Ship
“
Environmental Law
” means all
laws regulations conventions and agreements whatsoever applicable to any
Relevant Ship relating to pollution or protection of the human health or the
environment including without limitation the carriage of Materials of
Environmental concern and actual or threatened emissions, spills, releases or
discharges of Materials of Environmental concern
“
Event of Default
” or “
Default
” means any of those
events specified in Clause 14 hereof or in any of the Security
Documents.
“
Expenses
” means the aggregate
at any relevant time (to the extent that the same have not been received or
recovered by the Bank) of:
(a)
|
all
losses, liabilities, costs, charges, expenses, damages and outgoings of
whatever nature, (including, without limitation, taxes, repair costs, fees
of Bank Advisors and/or Consultants, registration fees and insurance
premiums, crew wages, repatriation expenses and seamen’s pension fund
dues) suffered, incurred, charged to or paid or committed to be paid by
the Bank in connection with the exercise of the powers referred to in or
granted by any of the Security Documents or otherwise payable by the
Borrower or any of them in accordance with the terms of any of the
Security Documents;
|
(b)
|
the
expenses referred to in Clause 23.
|
(c)
|
interest
on all such losses, liabilities, costs, charges, expenses, damages and
outgoings from the date on which the same were suffered, incurred or paid
by the Bank until the date of receipt or recovery thereof at a rate per
annum calculated in accordance with Clause
8.4.
|
“
Facility Period
” means the
period beginning on the date of this Agreement and ending on the date when the
whole of the Indebtedness has been repaid in full and the Borrower has ceased to
be under any further actual or contingent liability to the Bank under or in
connection with the Security Documents.
“
Flag State
” means the Republic
of Liberia or such other state or territory acceptable to the Bank under which
the Vessel will be and remain registered throughout the Facility Period as the
“Flag State” of the Vessel for the purposes of the Security
Documents.
“
General Assignment
” means the
general assignment of all Insurances, Earnings, Charter Rights and Requisition
Compensation of the Vessel referred to in Clause 12.1.(e) hereof.
“
Guarantor
” means the Corporate
Guarantor.
“
Group
” means the Borrower, the
other Security Parties and all other entities and/or businesses substantially
owned and/or controlled by and/or managed by the same person(s).
“
IAPPC
” means a valid
international air pollution prevention certificate for the Vessel issued under
Annex VI.
“
Indebtedness
” means the Loan;
any Swap Exposure; all other sums of any nature (together with all interest on
any of those sums) which from time to time may be payable by the Borrower to the
Bank pursuant to the Security Documents; any damages payable as a result of any
breach by the Borrower of any of the Security Documents; and any damages or
other sums payable as a result of any of the obligations of the Borrower under
or pursuant to any of the Security Documents being disclaimed by a liquidator or
any other person, or, where the context permits, the amount thereof for the time
being outstanding.
“
Interest Payment Date
” means
in respect of the Loan or of any part thereof, in respect of which a separate
Interest Period is fixed, the last day of the relevant Interest Period and in
case of any Interest Period which overruns three (3) months, the last day of
each such three (3) month period(s).
“
Interest Period
” means any
period for the calculation of interest in respect of the Loan determined
pursuant to Clauses 8.2. hereof
“
ISM Code
” means the
International Safety Management Code (including the guidelines on its
implementation), adopted by the International Maritime Organization Assembly as
Resolutions A. 741(18) and A. 788 (19), as the same may be amended or
supplemented from time to time. The terms “Safety Management System”, “Safety
Management Certificate”, “Document of Compliance” and “Major Non-Conformity”
shall have the same meanings as are given to them in the ISM Code.
“
ISPS Code
” means the
International Code for the Security of Ships and of Port Facilities (including
Appendixes) adopted by one of the resolutions that were adopted on 12 December
2002 by the Conference of Contracting Governments to the International
Convention for the Safety of Life at Sea 1974 (London, 9 to 13 December 2002) as
the same may be amended or supplemented from time to time.
“
ISPS Company
” means, at any
given time, the company responsible for the Vessel’s compliance with the ISPS
Code.
“
ISSC
” means a valid
international ship security certificate for the Vessel issued under the ISPS
Code.
“
Latest Permissible Drawdown
Date
” means the 30th November 2007 being the latest date for drawdown of
the Loan pursuant to Clause 2 hereof or such later date as the Bank may agree in
writing.
“
LIBOR
” means, for an Interest
Period the rate, rounded to the nearest four decimal places downwards (if the
digit displayed in the fifth decimal place is 1,2,3 or 4) or upwards (if the
digit displayed in the fifth decimal place is 5,6,7,8 or 9) displayed as the
British Bankers’ Association Interest Settlement Rate (or such other rate as may
replace it at any time during the Facility Period) on any information service
selected by the Bank on which that rate is displayed, for deposits in the
Currency of Account for a period equal in length to the relevant Interest
Period, or (if the Bank is for any reason unable to ascertain that rate) the
rate, rounded (unless the Borrower shall have entered into an interest rate swap
or other instrument with the Bank for the purpose of hedging all or any part of
the Borrower’s interest rate risk under this Agreement, in which event no
rounding shall apply) upwards to the nearest whole multiple of one-sixteenth of
one per centum, at which deposits in the Currency of Account of amounts
comparable to the amount of the Facility (or any relevant part of the Facility)
are offered to the Bank for a period equal in length to the relevant Interest
Period.
“Loan
” means the aggregate
principal amount owing to the Bank hereunder at any time.
“
Manager
” means Eurobulk Ltd.
of the Republic of Liberia, established in Greece under law 89/67, 378/68, 27/75
and 814/78 as amended by law 2234/94 with a branch office in Greece at 40, Agiou
Konstantinou Str., Aethrion, Maroussi, Greece or any other legal entity
nominated by the Borrower as the Manager of the Vessel and accepted by the Bank
and includes its successors in title.
“
Manager’s Undertaking
” means
the manager’s undertaking referred to in Clause 12.1.(i) hereof.
“
Margin
” means zero point
ninety per cent (0.90%) per annum
“
Master Agreement Security
Deed
” means the security deed executed or (as the context may require) to
be executed by the Borrower in favour of the Bank as a condition precedent to
the execution of the Master Swap Agreement, such deed to be in a form acceptable
to the Bank in its absolute discretion;
“
Master Swap Agreement
” means
the master swap agreement (on the 1992 ISDA (Multicurrency-Crossborder) form)
and the schedule collateral thereto dated the same date as this Agreement and
entered into between the Borrower and the Bank and include all Designated
Transactions from time to time entered into and Confirmations of Designation
Transactions from time to time exchanged under the said master swap
“
Material Adverse Effect
” means
a material adverse effect on the Borrower's to meet its obligations to the Bank
under any of the Security Documents.
“
Material of Environmental
Concern
” means any object or material which may cause environmental
damage, including pollutants, contaminants, toxic substances, oil as defined in
the United States Oil Pollution Act of 1990 and all hazardous substances as
defined in the United States Comprehensive Environmental Response, Compensation
and Liability Act 1988.
“
Minimum Value
” means, at any
time, an amount equal at least to a percentage of one hundred and thirty per
cent (130%) of the Loan and the Swap Exposure.
“
MOA
” means the Memorandum of
Agreement dated 28th September 2007 as same has been amended by Addendum No 1,
thereafted novated by a novation agreement dated 27 September 2007 and Addendum
No 2 dated 9 October 2007 entered into between the Seller and the Borrower as
this may be
amended
from time to time in respect of the sale by the Seller to and the purchase by
the Borrower of the Vessel.
“
Month
” means a period
beginning in one calendar month and ending in the next calendar month on the day
numerically corresponding to the day of the calendar month on which it started,
provided that (i) if there is no such numerically corresponding day, it shall
end on the last Banking Day of such next calendar month and (ii) if such
numerically corresponding day is not a Banking Day, the period shall end on the
next following Banking Day of such next calendar month but if there is no such
Banking Day it shall end on the preceding Banking Day and “months” and “monthly”
shall be construed accordingly;
“
Mortgage
” means the first
preferred Liberian mortgage referred to in Clause 12.1.(d) hereof.
“
Net Worth
” means the value of
the total assets minus total liabilities, as expressed in the financial
statements.
“
Notional Amount
”, in respect
of any Designated Transaction, means the Notional Amount as defined in the
Confirmation relating to that Designated Transaction.
“
Operating Account
” means each
one of them individually and/or collectively of the account(s) opened or to be
opened by the Borrower with the Bank as per Clause 16.3 hereof.
“
Pledges
” means:
(a)
|
a
pledge agreement(s) creating security in respect of the Operating Account
to be held with the Bank in the name of the Borrower and/or in the name of
the Corporate Guarantor in respect of the Vessel (the “
Operating Account
Pledge(s)
”); and
|
(b)
|
a
pledge agreement creating security in respect of the Retention Account to
be held with the Bank in the name of the Borrower (the “
Retention Account
Pledge
”);
|
“
Potential Event of Default
”
means any event which, with the giving of notice and/or the passage of time
and/or the satisfaction of any materiality test, would constitute an Event of
Default.
“
Relevant Jurisdiction
” means
any jurisdiction in which or where any Security Party is incorporated, resident,
domiciled, has a permanent establishment, carries on, or has a place of business
or is otherwise effectively connected;
“
Relevant Party
” means the
Borrower and/or any other party being a member of the Group.
“
Relevant Ship
” means the
Vessel and any other vessels from time to time owned by, managed by, crewed by
or chartered to any Relevant Party (whether before or after the date of this
Agreement).
“
Repayment Dates
” means each of
the dates for the payment of the Repayment Instalment sums falling at three
monthly intervals, the first Repayment Date to occur three (3) months after the
Drawdown Date and each of the subsequent Repayment Dates to occur at consecutive
intervals of three (3) months thereafter pursuant to Clause 7
hereof.
“
Repayment Instalment
” means
each instalment payable pursuant to Clause 7 hereof.
“
Retention Account
” means the
account opened or to be opened by the Borrower with the Bank as per Clause 16.4
of this Agreement
“
Security Documents
” means this
Agreement, the documents referred to in Clause 12 hereof and any other document
from time to time executed to secure the Indebtedness.
“
Security Party
” means the
Borrower and any person (other than the Bank) which is or will become a party to
any of the Security Documents.
“
Seller
” means Delta Shipping
Line S.A., a company duly organised and validly existing under the laws of the
Republic of Panama, having its registered office in Panama, Republic of
Panama.
“
Specific Assignment
” means the
specific assignment of the benefit the Charter or of any other charterparty of
the Vessel of more than twelve (12) months’ duration and respective notices and
acknowledgments thereof Clause 12.1.(f) hereof.
“
Subsidiary
” at any time, means
any entity of which more than fifty percent (50%) of the outstanding voting
stock or other equity interest entitled ordinarily to vote in the election of
the directors or other governing body (however designated) of that entity is at
the time beneficially owned or controlled directly or indirectly by the
Borrower, by one or more such entities or by the Borrower and one or more such
entities.
“
Swap Exposure
” means, as at
any relevant date, the amount certified by the Bank to be the aggregate net
amount in Dollars which would be payable by the Borrower to the Bank under (and
calculated in accordance with Section 6(e) (Payments on Early Termination) of
the Master Swap Agreement if an Early Termination Date had occurred on the
relevant date in relation to all continuing Designated
Transactions.
“
Taxes
” includes all present
and future taxes and all stamp and other taxes and levies, imposts, deductions,
duties, charges and withholdings whatsoever and public charges in general
together with interest thereon fines and penalties with respect thereto, if any,
(except taxes on the net income of the Bank imposed in the jurisdiction in which
its principal or its lending office is located) and charges, fees or other
amounts made on or in respect thereof
“
Total Loss
” means (a), actual,
constructive, compromised or arranged total loss of the Vessel; or (b)
compulsory acquisition, or capture, seizure, or confiscation of the Vessel by
any government or person acting or purporting to act on behalf of any government
or, (c) arrest, blockade, detention or simple loss of the Vessel’s possession or
use because of any other reason. For the purpose of this Agreement a Total
Loss
shall
he deemed to have occurred:
(a)
|
in
case of an actual total loss at the actual date and time the Vessel was
lost or if such date is not known on the date on which the Vessel was last
reported;
|
(b)
|
in
the case of constructive on compromised or arranged total loss at the date
and time notice of abandonment of the Vessel is given to its
insurers;
|
(c)
|
in
the case of capture, seizure, confiscation or compulsory acquisition on
the date of such occurrence, unless it is reasonably expected that the
Vessel will be soon restored absolutely free to its Owner always provided
however that in fact it will be so restored within forty (40) days
thereafter at the latest.
|
(d)
|
in
the case of detention, arrest, blockade or loss of the Vessel’s possession
and/or use because of any reason whatsoever forty (40) days from the date
of such occurrence, unless it is reasonably expected that the Vessel will
be soon restored absolutely free to its Owner, always provided however
that in fact it will be so restored within forty (40) days thereafter at
the latest.
|
“
Transaction
” means a
transaction entered into between the Bank and the Borrower governed by the
Master Swap Agreement.
“
Vesse
l” means the m.v. Trust
Jakarta built in 1984, being of 35,746 tons gross, 23,739 tons net, currently
registered under the flag of the Republic of Panama under IMO No 8103169 in the
name of Delta Shipping Line S.A. of Panama tbn “IOANNA P.” and to be registered
under the flag of the Republic of Liberia in the ownership of the
Borrower.
In
this Agreement
(a)
|
unless
the context otherwise requires, words denoting the singular number shall
include the plural and vice versa;
|
(b)
|
references
to persons include bodies corporate, bodies unincorporate and
individuals.
|
(c)
|
references
to assets include property, rights and assets of every
description;
|
(d)
|
references
to any document are to be construed as references to such document as
amended or supplemented from time to time;
and
|
(e)
|
references
to any enactment include re-enactments, amendments and extensions
thereof.
|
2.
DISBURSEMENT
Subject
to the terms and conditions of the Security Documents and to the satisfaction of
all conditions precedent (including inter-alia the entering by the Borrower into
the Charter) and in reliance on the representations and warranties made in or in
accordance with them the Bank agrees to make available to the Borrower a
facility in the amount of up to United States Dollars fifteen million (USD
15,000,000) for the purposes described in Clause 1.
Subject
to the terms and conditions of this Agreement the Commitment shall be made
available to the Borrower following receipt by the Bank from the Borrower
nf:
(a)
|
a
Drawdown Notice in the form set out in Schedule III not later than 10 a.m.
two (2) Banking Days before the proposed Drawdown Date of the
Commitment.
|
(b)
|
confirmation
of the terms of proposed Insurances (as defined in the Schedule II) and
notification of the identities and of the names of the insurers and of the
proposed Classification Society not later than 10 a.m. before the proposed
Drawdown Date.
|
(c)
|
the
documents and evidences referred to in Schedule I (Conditions
Precedent).
|
The
giving of the Drawdown Notice shall constitute the Borrower’s irrevocable
commitment to borrow the amount referred to therein.
2.3
|
Termination
of Commitment
|
Any
part of the Commitment remaining undrawn at the end of the Latest Permissible
Drawdown Date shall thereupon be automatically cancelled.
The
Commitment shall be advanced to the Borrower in full one amount on the Drawdown
Date.
3.
CONDITIONS PRECEDENT
3.1
|
Corporate
Documents and Evidences.
|
The
obligation of the Bank to make the Commitment available shall be subject to the
condition that:
(a)
|
the
Bank shall have received, not later than four Banking Days before the day
on which the Drawdown Notice for the Commitment is given, the documents
and evidence specified in Part 1 of Schedule I in form and substance
satisfactory to the Bank;
|
(b)
|
the
Bank shall have received, not later than four Banking Days before the day
on which the Drawdown Notice for the Commitment is given, or when this is
not possible, simultaneously with such Drawdown, the documents and
evidence specified in Part 2 of Schedule I in form and substance
satisfactory to the Bank;
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3.2
|
Continuing
conditions precedent.
|
The
obligation of the Bank to advance the Commitment, is subject to the further
condition that at the time of giving a Drawdown Notice and on advancing the
Commitment no Event of Default has occurred or is about to occur and be
continuing. Also that the Arrangement Fee have been received by the Bank in
accordance with the provisions of Clause 5 hereof.
The
obligation of the Bank to advance the Commitment shall be subject to the further
condition that there has been no material adverse change in the financial
condition and operation of the Security Parties or in their ability to perform
their obligations under the Security Documents to which they are a party or a
material adverse change of circumstances and that the Bank at the time of
receiving a Drawdown Notice in respect of the Commitment shall have
received:
(a)
|
Confirmations
from Insurance Brokers and Club Managers that the Vessel is fully insured
in accordance with the requirements in clause 4.3. (f) and that the Bank’s
interest as Mortgagee is duly
noted.
|
(b)
|
The
Security Documents duly executed and when appropriate duly registered with
the appropriate registry.
|
(c)
|
Evidence
that the Operating Account for the Vessel has been duly opened and all
mandate forms, signature cards and authorities have been duly executed and
delivered to the Bank.
|
(d)
|
Copy
of any charterparty or other contract of employment of the Vessel in
question which will be in force on the Drawdown Date, including, without
limitation, copy of the Charter;
|
(e)
|
evidence
that the Vessel has been delivered to the Charterer under the
Charter;
|
The
Bank may from time to time request and the Borrower shall, within the period
specified by the Bank, deliver to the Bank such further documents certificates
and/or opinions as requested at the sole discretion of the Bank.
3.5
|
Waiver
of conditions precedent
|
The
conditions specified in this Clause 3 are inserted solely for the benefit of the
Bank. In case any conditions precedent have not been fulfilled prior to the
Drawdown, the Bank may at its option, without prejudice to its right not to make
available the Commitment and/or to terminate same, grant to the Borrower a few
days period to fulfill such missing conditions precedent.
4.
REPRESENTATIONS AND
WARRANTIES
4.1
|
Continuing
representations and warranties
|
The
Borrower represents and warrants to the Bank that:
each
of the corporate Security Parties is duly incorporated and validly existing in
good standing under the laws of its Relevant Jurisdiction and has power to carry
on its business as it is now being conducted and to own its property and other
assets;
the
Borrower has power to borrow the Commitment under this Agreement, to enter into
Designated Transactions under the Master Swap Agreement and to make all the
payments contemplated by, and to comply with, those Finance Documents to which
the Borrower is a party and the Master Swap Agreement and the Borrower and any
of the other Security Parties has power to execute and deliver and perform its
obligations under the Security Documents to which it is or is to be a party; all
necessary corporate, shareholder and other action has been taken to authorise
the execution, delivery and performance of the same
the
Security Documents constitute or will, when executed, constitute valid and
legally binding obligations of the relevant Security Parties enforceable in
accordance with their respective terms;
(d)
|
No conflict with other
obligations
|
the
execution and delivery of, the performance of their obligations under, and
compliance with the provisions of the Security Documents by the relevant
Security Parties will not (i) contravene any existing applicable law, statute,
rule or regulation or any judgment, decree or permit to which any of the
Security Parties is subject, (ii) conflict with, or result in any breach of any
of the terms of, or constitute a default under, any agreement or other
instrument to which any of the Security Parties is a party or is subject or by
which it or any of its property is bound.
there
are no claims or actions pending or to the knowledge of any officer of the
Security Parties, threatened and no litigation, arbitration or administrative
proceeding is taking place, pending or, to the knowledge of any officer of the
Security Parties, is threatened against any of such Security Parties or any of
their Affiliates and/or Subsidiaries, which, if adversely determined could have
a material adverse effect on the business, assets or financial condition of
them, or could affect the validity or enforceability of any of the Security
Documents.
save
for the registration of the Mortgage under the laws of the Flag State, it is not
necessary to ensure the legality, validity, enforceability or admissibility in
evidence of any of the Security Documents, that they or any other instrument be
notarised, filed, registered or enrolled in any court, public office or
elsewhere or that any tax be paid in any Relevant Jurisdiction on or in relation
to the Security Documents and/or to their enforcement.
the
choice of English law to govern the Security Documents, except the Mortgage
which is governed by the law of the flag of the Vessel, the Pledges and the
Corporate Guarantee which is governed by the laws of Greece and the submission
by the Security Parties to the nonexclusive jurisdiction of the English Courts
and/or Piraeus Courts are valid and binding;
none
of the Security Parties is entitled to immunity on the grounds of sovereignty or
otherwise from any legal action or proceeding (which shall include, without
limitation, suit, attachment prior to judgment, execution or other enforcement)
and in case any such immunity will be granted to them the Security Parties
concerned will unreservedly waive as against the Bank all their respective
rights and/or entitlement to such immunity.
every
consent, licence or approval of, or registration with or declaration to, public
bodies or authorities or courts required by any Security Party in connection
with the execution, delivery, validity, enforceability or admissibility in
evidence of each of the Security Documents or the performance by each Security
Party of its obligations under the Security Documents has been obtained or made
and is in full force and effect;
The
financial statements of the Security Parties which have been or will be
delivered to the Bank are complete and accurate, have been prepared in
accordance with generally accepted principles of good accounting practice and
fairly present the financial condition of the Security Parties as at the date
thereof and the results of their operations.
There
has been no material adverse change in the financial condition of the Security
Parties or in their ability to perform their obligations under the Security
Documents since the date of the above financial statements.
4.2
|
Further
Representations and Warranties
|
The
Borrower further represents and warrants to the Bank that:
(a)
|
No default under any
Indebtedness
|
none
of the Security Parties nor any of their Subsidiaries and/or Affiliates are (nor
would with the giving of notice or lapse of time or the satisfaction of any
other condition be) in breach of or in default under the present or any other
agreement relating to indebtedness to which they are a party or by which they
may be bound;
the
information, exhibits and reports furnished by any Security Party to the Bank
are true and accurate in all material respects, do not omit material facts and
all reasonable enquiries have been made to verify the facts and statements
contained therein;
no
Taxes e.t.c. are imposed by withholding or otherwise on any payment to be made
by any Security Party under the Security Documents or are imposed on or by
virtue of the execution or delivery by the Security Parties of the Security
Documents or any other document or instrument to be executed or delivered under
any of the Security Documents;
4.3
|
Representations
concerning the Vessel
|
(a)
|
The
Borrower (is and) will be during the life of this Agreement the sole legal
owner of Vessel.
|
(b)
|
The
Vessel will conform to existing international regulations, and will be
registered as Ships under the laws and flag of the Flag
State.
|
(c)
|
The
Vessel is and will be during the life of this Agreement operationally
seaworthy and in every way fit for service. The Vessel is and will always
continue to be classed in the highest class with a Classification Society
member of IACS and approved by the Bank free of all recommendations
notations or average damage affecting class and will be insured in
accordance with the provisions of this
Agreement.
|
(d)
|
The
Vessel will on the drawdown of the Commitment be subject to no charter or
contract of affreightment nor to any agreement to enter into any charter
or contract other than disclosed to the
Bank.
|
(e)
|
Neither
the Vessel, nor the Earnings, or Insurances nor any part thereof will, on
the drawdown of the Commitment, or thereafter during the course of this
Agreement, be subject to any encumbrances other than encumbrances in
favour of the Bank, neither to any participation entitlement of any other
except the Borrower.
|
(f)
|
The
Borrower shall keep the Vessel insured at all times during the Loan
period, while navigating or in port, to the Bank’s full satisfaction. All
insurances shall be in form and substance satisfactory to the Bank and
with Underwriters acceptable to it in accordance with the provisions of
Schedule II and shall include as a
minimum:
|
|
(i)
|
Hull
and Machinery (disbursements and/or an increased value sum insured) for an
amount not less than 120% of the aggregate amount of the Loan and the Swap
Exposure.
|
|
(ii)
|
War
Risks for the above amount.
|
|
(iii)
|
Protection
and Indemnity (with Excess Liability Insurance for Oil Pollution and FD
and D cover).
|
|
(iv)
|
Mortgagee’s
Interest Insurance (MII) to be effected and maintained by the Bank at
Borrower’s expense for an amount not less than 120% of the aggregate
amount of the Loan and the Swap
Exposure.
|
|
(v)
|
Mortgagee’s
Additional Perils (Pollution) (MAPI) (if required by the Bank at its sole
discretion) to be effected and maintained by the Bank on account of the
Bank at Borrower’s expense for an amount not less than 120% of the
aggregate amount of the Loan and the Swap
Exposure.
|
(g)
|
The
Vessel will on the Drawdown Date of the Commitment be in the
absolute
|
|
ownership
of the Borrower.
|
(h)
|
There
are and there will be no commissions, rebates, premiums or other
repayments by or to or on account of the Borrower, any other Security
Party other than as disclosed to the Bank by the Borrower in
writing.
|
4.4
|
(a)
|
Compliance
with Environmental Laws and
Approvals
|
except
as may already have been disclosed by the Borrower and acknowledged in writing
by the Bank:
|
(i)
|
the
Borrower, the Corporate Guarantor and the other Relevant Parties and to
the best of the Borrower’s knowledge and belief their respective
Environmental Affiliates have complied, and will comply during the tenure
of this Agreement with the provisions of all Environmental Laws applicable
at any area the Vessel is sailing in or anchored
at.
|
|
(ii)
|
the
Borrower, the Corporate Guarantor and the other Relevant Parties and to
the best of the Borrower’s knowledge and belief their respective
Environmental Affiliates have obtained all Environmental Approvals and are
and will be during the tenure of this Agreement in compliance with all
such Environmental Approvals; and
|
|
(iii)
|
neither
the Borrower, nor the Corporate Guarantor, nor any other Relevant Party
nor to the best of the Borrower’s knowledge and belief any of their
respective Environmental Affiliates has received notice of any
Environmental Claim that the Borrower or any other Relevant Party or any
such Environmental Affiliate is not in compliance with any Environmental
Law or any Environmental Approval;
|
(b)
|
No Environmental
Claims
|
except
as may already have been disclosed by the Borrower and acknowledged in writing
by the Bank, there is no Environmental Claim pending or, to the best of the
Borrower’s knowledge and belief, threatened against the Borrower or the Vessel
or any other Relevant Party or any other Relevant Ship or to the best of the
Borrower’s knowledge and belief any of their respective Environmental
Affiliates;
(c)
|
The
Borrower shall not trade within any area if it does not comply with all
Environmental Laws applicable in that area, and that it shall require that
none of their Environmental Affiliates trade within any area if the
Environmental Affiliate cannot or does not comply with all Environmental
Laws applicable in that area which relate to the Vessel or its operation
or its carriage of cargo;
|
(d)
|
The
Borrower upon the request of the Bank, conduct and complete all reasonably
necessary investigations, studies, sampling, audits and testing required
in connection with any known (or threatened) Release of Materials of
Environmental Concern which would have a Material Adverse Effect;
and
|
(e)
|
The
Borrower shall, promptly upon the occurrence of any of the following
events, provide to the Bank a certificate specifying in detail the nature
of such event and the proposed response of the Borrower or the
Environmental Affiliate concerned:
|
|
(i)
|
the
receipt by the Borrower or any Environmental Affiliate of any
Environmental Claim which would have a Material Adverse Effect;
or
|
|
(ii)
|
any
(or any threatened) Release of Materials of Environmental Concern which
would have a Material Adverse
Effect,
|
and
upon the written request by the Bank, the Borrower shall submit to the Bank, at
reasonable intervals, a report updating the status of any occurrence of an
Environmental Claim or a Release of Materials of Environmental Concern, which
would have a Material Adverse Effect.
As
regards the Vessel, and as from the date of her delivery to the Borrower, the
Borrower shall procure that any Security Party shall:
(a)
|
at
all times comply, and be responsible for compliance by itself and by the
Vessel, with the ISM Code;
|
(b)
|
at
all times ensure that:
|
|
(i)
|
the
Vessel has a valid Safety Management
Certificate;
|
|
(ii)
|
the
Vessel is subject to a safety management system which complies with the
ISM Code; and
|
|
(iii)
|
it
has a valid Document of Compliance on board the Vessel to which the
Documents of Compliance relates,
|
and
shall deliver to the Bank a copy of a valid Safety Management Certificate and a
valid Document of Compliance in respect of the Vessel in each case duly
certified by an officer of the Borrower;
(c)
|
promptly
notify the Bank of any actual or threatened withdrawal of an applicable
Safety Management Certificate or Document of
Compliance;
|
(d)
|
promptly
notify the Bank of the identity of the person ashore designated for the
purposes of paragraph 4 of the ISM Code and of any change in the identity
of that person; and
|
(e)
|
promptly
notify the Bank of the occurrence of any accident or major
nonconformity requiring action under the ISM
Code.
|
As
regards the Vessel, and as from the date of her delivery to the Borrower, the
Borrower shall procure that any Security Party shall:
(a)
|
at
all times comply, and be responsible for compliance by the Vessel with the
ISPS Code;
|
(b)
|
at
all times ensure that:
|
|
(i)
|
the
Vessel has a valid Ship Security
Certificate;
|
|
(ii)
|
the
Vessel is subject to a security system and any associated security
equipment of the Vessel which comply with the ISPS Code;
and
|
|
(iii)
|
it
has an approved Ship Security Plan on board the
Vessel
|
and
shall deliver to the Bank a copy of a valid Ship Security Certificate in respect
of the Vessel duly certified by an officer of the Borrower;
As
regards the Vessel, and as from the date of her delivery to the Borrower, the
Borrower shall procure that any Security Party shall:
(a)
|
for
the duration of the Facility Period comply with Annex VI in relation to
the Vessel and procure that the Vessel’s master and crew are familiar
with, and that the Vessel complies with, Annex
VI;
|
(b)
|
obtain,
following its drydocking in 2008, and maintain thereafter a valid and
current IAPPC for the Vessel throughout the Facility Period and provide a
copy to the Bank; and
|
(c)
|
immediately
notify the Bank in writing of any actual or threatened withdrawal,
suspension, cancellation or modification of the IAPPC of the
Vessel.
|
4.8
|
Repetition
of representations and warranties
|
On
the Drawdown Date and on each Interest Payment Date the Borrower unless it
states otherwise in writing to the Bank, shall be deemed to further represent
and warrant to the Bank (a) that the then latest audited and/or not audited (as
the case may be) financial statements delivered to the Bank have been prepared
in accordance with generally accepted accounting principles and practices which
have been consistently applied and present fairly and accurately the financial
position of the Borrower and the Corporate Guarantor as at the end of the
financial period to which the same relate and the results of their operations
and, as at the end of such financial period, the Borrower and the Corporate
Guarantor did not have any significant liabilities (contingent or otherwise) or
any unrealised or anticipated losses which are not disclosed by, or reserved
against or provided for in, such financial statements and (b) that the
representations and warranties contained in Clauses 4.1. to 4.6. are true and
correct on and as of the Drawdown Date and on each Interest Payment Date, as if
each representation and warranty was made at such time.
5.
ARRANGEMENT FEE
The
Borrower shall pay to the Bank a non-refundable Arrangement Fee in the amount of
United States Dollars seventy thousand (USD 70,000), payable on the Drawdown
Date of the Loan.
5.2
|
The
Arrangement Fee shall be payable to the Bank whether or not any part of
the Commitment is ever advanced.
|
6.
EVIDENCE
It
is hereby agreed that abstracts or photocopies or other reproductions of the
Loan Account and/or from the books and/or records of the flank certified by of
the Bank as well as statements of accounts or a certificate signed by two
authorised officers of the Bank shall be, in the absence of a manifest error,
conclusive evidence and binding on the Borrower and on the other Security
Parties as to the existence and/or the amount of the Indebtedness, of any amount
due under this Agreement, of the applicable Interest Rate or Default Rate or any
other rate referred to in this Agreement, the Interest Period, the value of
additional securities under Clause 13.5., the payment or non payment of any
amount and/or the occurrence of any other Event of Default.
7.
REPAYMENT AND PREPAYMENT
7.1
|
The
Borrower hereby absolutely and unconditionally covenants and agrees to
repay the Loan to the Bank in freely transferable Dollars by twelve (12)
consecutive quarterly principal
instalments,
|
the
first four such instalments, amounting to United States Dollars one million
eight hundred and fifty thousand (USD 1,850,000) each, the following four such
instalments amounting to United States Dollars seven hundred and fifty thousand
(USD 750,000) each, the following four such instalments amounting to United
States Dollars five hundred and fifty thousand (USD 550,000) each, plus a
balloon payment of United States Dollars two million four hundred thousand (USD
2,400,000) payable together the twelfth (12th) instalment at final
maturity.
The
time, the amount and the balance of the Loan following the payment of each such
instalment are specified for convenience purposes in Schedule IV. In case the
Bank shall advance a sum of less than United States Dollars fifteen million (USD
15,000,000) the Repayment Instalments will be reduced accordingly pro-rata. Each
such instalment together with interest as hereinafter set forth shall be
correspondingly payable on each of the Repayment Dates. The first Repayment Date
shall be the day falling three (3) months after the Drawdown Date of the
Commitment and each of the subsequent Repayment Dates shall fall at consecutive
intervals of three (3) months thereafter.
The
Final Repayment Date of the Loan shall be the day falling 36 months after the
Drawdown Date of the Commitment and it must coincide with the last day of the
final Interest Period to be adjusted accordingly.
|
7.2.1
|
The
Borrower may prepay part or all of the Loan at any Interest Payment Date
relating to the whole of the Loan provided that it will have given a ten
(10) days prior written notice to the Bank, specifying the amount to be
prepaid on such date.
|
|
7.2.2
|
The
Borrower may also at any other time prepay the Loan or a part thereof upon
ten (10) days prior written notice provided that it will also prepay all
sums that the Bank shall determine to be its loss and cost sustained
because of the prepayment within an Interest Period or Periods including
but not limited to payment of interest Break Costs (if any) and of such
additional amounts (if any) to compensate the Bank for the cost of
redeploying funds as a result of such prepayment as well as any loss of
Interest up to the end of the then current Interest Period or Periods in
respect of the whole amount of the Loan
outstanding
|
All
prepayments shall be conditional to the prior fulfillment of the following
prerequisites:
|
7.3.1
|
The
interest accrued on the Loan to the date of prepayment and any other
additional sums due hereunder and/or under any of the other Security
Documents will be paid to the Bank.
|
|
7.3.2
|
Every
notice of prepayment shall be effective on actual receipt by the Bank,
shall be irrevocable, shall oblige the Borrower to make such prepayment on
the date specified and shall specify the amount to be prepaid, which shall
be not less than United States Dollar five hundred fifty thousand (USD
550,000) or a higher integral multiple therof. Any amount so prepaid may
not be re-borrowed under this
Agreement.
|
|
7.3.3
|
Any
prepayment of less than the whole of the Loan will be applied by the Bank
towards repayment of the Repayment Instalments in inverse order of
maturity or any other way determined by the Bank at its
discretion.
|
7.4
|
Compulsory
Prepayment
|
Unless
the Bank agrees to accept substitute security in form and substance satisfactory
to the Bank, in line with Clauses 13.5.2 and 13.5.3 hereof, the Borrower shall,
within one hundred eighty (180) days of the Vessel becoming a Total Loss or such
other later day as may be agreed in writing by the Bank, or upon the Vessel
being sold, prepay the Loan together with accrued interest to the date of
prepayment and all other sums payable by the Borrower to the Bank pursuant to
this Agreement and the other Security Documents (and if the Commitment or any
portion thereof has not been drawn yet, it shall be reduced to
zero).
7.5
|
Unwinding of Designated
Transactions.
|
On
or prior to any repayment or prepayment under this Clause 7 or any other
provision of this Agreement, the Borrower shall either:
(a) wholly
or partially reverse, offset, unwind or otherwise terminate one or more of the
continuing Designated Transactions so that the notional principal amount of the
continuing Designated Transactions thereafter remaining does not and will not in
the future (taking into account the scheduled amortisation) exceed the amount of
the Loan as reducing from time to times thereafter pursuant to Clause 7.1;
or
(b) provide
the Bank with additional security in all respects acceptable to the Bank to
secure the amount determined by the Bank to be equal to the difference between
the notional principal amount of the continuing Designated Transactions and the
amount of the Loan as reducing from time to time thereafter pursuant to Clause
7.1
Provided that
in the case of a
prepayment made pursuant to the sale of the Vessel, the Borrower may only carry
out any of the matters referred to in this Clause 7.5 after (and not on or prior
to) the prepayment is made due to the sale of the Vessel.
8.
INTEREST AND INTEREST
PERIODS
The
Borrower shall pay, on each Interest Payment Date, interest on the Loan (or as
the case may be on each part thereof to which a different Interest Period
relates) at the rate applicable in respect of each Interest Period. Interest
shall accrue on the Loan (or as the case may be on each portion thereof to which
a different Interest Period relates) during each Interest Period from and
including the first day of that Interest Period, to but excluding the last day
thereof. The rate of the interest shall be the rate per annum determined by the
Bank to be the aggregate of (a) the Margin and (b) the LIBOR unless there is an
Agreed Rate in which case the rate for the calculation of interest shall be the
rate per annum determined by the Bank to be the aggregate of: (a) the Margin and
(b) the Agreed Rate.
The
Borrower may by written notice to be received by the Bank not later than 10 a.m.
on the second Banking Day before the beginning of each Interest Period specify
whether such next Interest Period shall have a duration of one (1), three (3) or
six (6) months or other period subject to the availability which shall be
determined solely by the Bank.
8.3
|
Determination
of Interest Periods
|
Every
Interest Period shall be of the duration specified by the Borrower pursuant to
Clause 8.2. but so that:
(a)
|
the
first Interest Period shall commence on the Drawdown Date of the
Commitment and each subsequent Interest Period in respect thereof shall
commence on the last day of the immediately preceding Interest Period in
question
|
(b)
|
if
the last Interest Period would overrun the last Repayment Date, such
Interest Period shall end on such Repayment Date. Should an Interest
Period determined in accordance with the provisions of this Clause overrun
one or more Repayment Dates, so many additional Interest Periods will be
specified as the number of the Repayment Dates being overrun by the above
Interest Period. Each of such additional Interest Periods will be of a
duration ending at the corresponding Repayment Date and for an amount
equal to the instalment due on such Date, while the above overrunning
Interest Period shall be for the remaining balance of the Loan after the
deduction of the amount(s) of the additional Interest Period(s) ending on
the Repayment Date(s) falling within the said over-running Interest
Period.
|
(c)
|
if
the Borrower fails to specify the duration of an Interest Period in
accordance with the provisions of Clause 8.2. and this Clause 8.3 such
Interest Period shall have a duration of three months or such other period
as shall comply with this Clause
8.3.;
|
(d)
|
if
the Bank determines that the duration of an Interest Period specified by
the Borrower in accordance with Clause 8.2. is not readily available, then
that Interest Period shall have such duration as the Bank after having
consulted with the Borrower may
determine.
|
If
the Borrower fails to pay any sum (including, without limitation, any sum
payable pursuant to this clause 8.4.) on its due date for payment under any of
the Security Documents, the Borrower shall pay interest on such sum (Default
Rate) from the due date up to the date of actual payment (as well after as
before judgment) at a rate determined by the Bank to be the aggregate of (a) two
per cent (2%) per annum, (b) the Margin and (c) the LIBOR for periods of not
more than three (3) Month duration as selected by the Bank. The first of the
above periods shall commence on the due date for payment, while each one of the
subsequent periods shall commence on the last day of the preceding such period.
Such interest shall be compounded and shall be due and payable on the last day
of each such period as determined by the Bank and each such day shall, for the
purposes of this Agreement, be treated as an Interest Payment Date. If; for the
reasons specified in Clause 8.6.(a), the Bank is unable to determine a rate in
accordance with the foregoing provisions of this clause, interest on any sum not
paid on its due date for payment shall be calculated at a rate determined by the
Bank to be two per cent (2%) per annum above the aggregate of the Margin and the
cost of funds to the Bank.
The
Bank shall notify the Borrower of the duration of each Interest Period and of
each rate of interest determined by it under this Clause 8.
(a)
|
If
and whenever, at any time prior to the commencement of any Interest
Period, the Bank shall have determined any of the following facts (which
determination shall be conclusive):
|
|
(i)
|
that
adequate and fair means do not exist for ascertaining LIBOR during such
Interest Period; or
|
|
(ii)
|
that
deposits in Dollars are not available to the Bank in the London InterBank
Market in the ordinary course of business in sufficient amounts or it is
impracticable for the Bank to fund or to continue to fund the Loan in
Dollars.
|
|
(iii)
|
that
LIBOR for that Interest Period will not adequately reflect the cost of
funding the Loan for that Interest
Period.
|
the
Bank shall forthwith give notice (a “Determination Notice”) thereof to the
Borrower. A Determination Notice shall contain particulars of the relevant
circumstances giving rise to this issue. After the giving of any Determination
Notice the undrawn amount of the Loan shall not be borrowed until notice to the
contrary is given to the Borrower by the Bank.
(b)
|
During
the period of 30 Banking nays after any Determination Notice has been
given by the Bank under Clause 8.6.(a), the Bank shall certify an
alternative basis (the “Substitute Basis”) for maintaining the Loan. The
Substitute Basis may (without limitation) include alternative interest
periods, alternative currencies or alternative rates of interest but shall
include a margin above the cost of funds to the Bank equivalent to the
Margin. Each Substitute Basis so certified shall be binding upon the
Borrower and shall take effect in accordance with its terms from the date
specified in the Determination Notice until such time as the Bank notifies
the Borrower that none of the circumstances specified in Sub-clause
8.6.(a) continues to exist whereupon the normal interest rate fixing
provisions of the Agreement shall
apply.
|
(c)
|
In
any event, during the thirty (30) days following the giving of a
Determination Notice, the Borrower and the Bank shall negotiate in good
faith in order to arrive at the Substitute Basis for the Bank to fund or
continue to fund the Loan (or the relevant part thereof) during such
Interest Period. If within such thirty (30) day period the Substitute
Basis to fund or to continue to fund the Loan (or the relevant part
thereof) is agreed upon, then such Substitute Basis shall take effect in
accordance with its terms. If the Borrower and the Bank fails to agree on
such Substitute Basis within such thirty (30) day period and such
circumstances are continuing at the end of such thirty day period, then
the Bank shall set a Substitute Basis as per Clause 8.6. (b). If the
circumstance shall continue at the end of such interest period, the
procedure in this Clause 8.6 (c) shall be repeated. If the Borrower shall
not agree with such rate then the Borrower may give not less than fifteen
(15) Business Days irrevocable notice of prepayment to the Bank in which
case the commitment hereunder of the Bank shall thereupon be cancelled
and, if the Loan is outstanding, the Borrower shall prepay the Loan on the
first Business Day after such period in accordance with the terms of this
Agreement and the obligations of the Bank shall thereupon
terminate.
|
9.
THE MASTER SWAP AGREEMENT
9.1
|
Purpose
The Bank and the
Borrower have entered, and/or may during the Facility Period enter, into
one or more Transactions pursuant to a Master Swap Agreement, the terms
and conditions of each of which are or will be specified in a Confirmation
sent by the Bank to the Borrower.
|
9.2
|
Additional Termination
Event
If the Loan is for any reason not advanced to the Borrower on
or before the Latest Permissible Drawdown Date, and the Bank and the
Borrower has entered into any Transactions on or before the Latest
Permissible Drawdown Date, for the purposes of the Master Swap Agreement
an Additional Termination Event (with the Bank as the Affected Party)
shall be deemed to have occurred on the Latest Permissible Drawdown
Date.
|
9.3
|
Adjustment of Notional
Amounts
If the aggregate amount of the Loan actually advanced by
the Bank to the Borrower is less than the Notional Amount (or the
aggregate Notional Amounts) of the Transactions entered into on or before
the Drawdown Date, the obligations of the Borrower in respect of those
Transactions shall, unless otherwise agreed by the Bank, be calculated, so
far as the Bank considers it practicable to do so, by reference to a
Notional Amount (or aggregate Notional Amounts) equal to the amount of the
Loan actually advanced, reduced on each Repayment Date by the amount of
the Repayment Instalment due on that Repayment Date, adjusted if necessary
in accordance with Clause 7.1.
|
9.4
|
Effect of prepayment
If
the Borrower, subject always to Clause 7, prepay part of the Loan (whether
pursuant to Clause 7, Clause 13.5.2 or any other provision of this
Agreement), and the amount of the Loan remaining outstanding after
application of that prepayment is less than the Notional Amount (or the
aggregate Notional Amounts) of the Transactions then in effect (reduced,
if appropriate, in accordance with the Confirmations relating to those
Transactions), the obligations of the Borrower in respect of those
Transactions shall, unless otherwise agreed by the Bank, be calculated, so
far as the Bank considers it practicable to do so, by reference to a
Notional Amount (or aggregate Notional Amounts) equal to the amount of the
Loan remaining outstanding after application of the prepayment in
question, reduced on each Repayment Date by the Repayment Instalment due
on that Repayment Date after taking into account the application of the
prepayment.
|
9.5
|
Authority
In order to
give effect to Clauses 9.3 and 9.4, or in the event of voluntary or
compulsory prepayment by the Borrower of the whole of the Loan, the
Borrower and the Bank will agree to amend, restructure, unwind, cancel,
net out, terminate, liquidate, transfer or assign any of the rights and/or
obligations created pursuant to the Master Swap Agreement in respect of
those Transactions, and/or to enter into any other interest rate exchange
and/or hedging transaction or commitment with the Borrower or with any
other counterparty approved by the
Bank.
|
9.6
|
Termination of
Transactions
If the exercise of the Bank’s rights under Clause 9.5
results in the termination of any Transaction (save in the case
termination takes place due to voluntary prepayment), that Transaction
shall, for the purposes of the Master Swap Agreement (including, without
limitation, section 6(e)(i) of the Master Swap Agreement) be treated as a
Terminated Transaction resulting from an Event of Default by the
Borrower.
|
9.7
|
Indemnity
The Borrower
will indemnify the Bank from time to time on demand in respect of all
liabilities, losses, costs or expenses suffered, incurred or sustained by
the Bank arising in any way
|
in
relation to the exercise by the Bank of its rights under this Clause, or arising
in any way from any other termination, cancellation, unwinding or restructuring
of any Transaction, together (in each case) with interest at the Default Rate
from the date of the Bank’s demand until the date on which the Bank receives
payment or reimbursement, before or after any relevant judgment.
9.8
|
Transaction under the Master
Swap Agreement
. The Borrower on the date hereof is signing the
Master Swap Agreement with the Bank. At any time during the Facility
Period the Borrower may request the Bank to conclude Transactions for the
purpose of swapping its interest payment obligations under this Agreement.
Signature of the Master Swap Agreement does not commit the Bank to
conclude Transactions, or even to offer terms for doing so, but does
provide a contractual framework within which Transactions may be concluded
and secured, assuming that the Bank is willing to conclude any
Transactions at the relevant time and that, if that is the case, mutually
acceptable terms can then be agreed at the relevant
time.
|
|
9.8.1
|
In
relation to the Master Swap Agreement, the Borrower hereby agrees and
undertakes with the Bank throughout the Facility
Period:-
|
|
9.8.1.1
|
at
the Borrower’s option to use Transactions concluded under the Master Swap
Agreement for the purpose of (inter alia) swapping its interest payment
obligations under Clause 8 from LIBOR-based funding to longer-term fixed
rate funding;
|
|
9.8.1.2
|
at
the Borrower’s option to not to conclude Transactions which would result,
at any time during the Facility Period, in the notional principal amount
of all Transactions then remaining exceeding the amount of the Loan, as
reduced from time to time under Clause
7.1.
|
|
9.8.2
|
The
Borrower gives the Bank a right of first refusal in relation to any
proposed swap or other Transactions relative to the Loan so that (subject
only to the rates quoted by the Bank being competitive with other banks
quoting on the same basis), any swap or other Transactions concluded by
the Borrower shall be concluded with the Bank under the Master Swap
Agreement.
|
|
9.8.3
|
The
Bank agrees that, to enable the Borrower to secure its obligations to the
Bank under the Master Swap Agreement, the security of the Security
Documents shall be held by the Bank not only to secure the Borrower’s
obligations under this Agreement but also the Borrower’s obligations under
the Master Swap Agreement.
|
10.
PAYMENTS ACCOUNTS & CALCULATIONS
10.1
|
Not
set off or counterclaim and no
deductions.
|
(a)
|
The
Borrower acknowledges that in performing its obligations under this
Agreement, the Bank will be incurring liabilities to third parties in
relation to the funding of amounts to the Borrower, such liabilities
matching the liabilities of the Borrower to the Bank and that it is
reasonable for the Bank to be entitled to receive payments from the
Borrower gross on the due date in order that the Bank is put in a position
to perform its matching obligations to the relevant third parties.
Accordingly, all payments to be made by the Borrower under any of the
Security Documents shall be made in full, without any set-off or
counterclaim whatsoever and free and clear of any deductions or
withholdings, in Dollars on the due date (for value on the day on which
payment is due) to the account of the Bank (with a direct tested telex
advise to the Bank) or to such
other
|
account
at such other bank in such place as the Bank may from time to time specify for
this purpose.
(b)
|
If
at any time the Borrower is required to make any deduction or withholding
in respect of Taxes or otherwise from any payment due under any of the
Security Documents the sum due from the Borrower in respect of such
payment shall be increased to the extent necessary to ensure that after
the making of such deduction or withholding the Bank receives on the due
date for such payment a net sum equal to the sum which it would have
received had no such deduction or withholding been required to be made.
The Borrower shall indemnify the Bank against any losses or costs incurred
by the Rank by reason of any failure of the Borrower to make any such
increased payment to the Bank on account of any deduction or withholding
or by reason of any increased payment not being made on the due date for
such payment. The Borrower shall promptly forward to the Bank official
receipts and any other proof evidencing the amounts paid or payable in
respect of any deduction or withholding as aforesaid. The obligations of
the Borrower under this provision shall remain in force notwithstanding
the repayment of the Loan.
|
(c)
|
Payments
by the Borrower shall be considered to be made as of the date on which the
Bank receives correctly authenticated advice of the credit of such account
provided that such advice is received at a time of day when the Bank is
able in accordance with its usual practice to process and utilize such
funds on such day, failing which such payment shall be considered to be
made as of the next Banking Day following receipt of such
advice.
|
10.2
|
Payments
by the Bank.
|
A
sums to be advanced by the Bank to the Borrower under this Agreement in respect
of the Loan shall be remitted in Dollars on the Drawdown Date to the account
specified in the Drawdown Notice.
All
interest and other payments periodic or payable by reference to a rate per annum
under this Agreement shall accrue from day to day and be calculated on the basis
of actual number of days elapsed and a 360 day year.
11.
UNLAWFULNESS AND INCREASED COSTS
(a)
|
If
it is or becomes contrary to any law or regulation for the Bank to
disburse the Loan or to maintain the Commitment or the Loan, or to fund
the Loan or to claim or receive any amount payable to it hereunder, the
Bank shall give notice to the Borrower whereupon (a) the Commitment shall
be reduced to zero and (b) the Borrower shall be obliged to prepay the
Loan on a future specified date not being later than the latest
date
|
(b)
|
permitted
by the relevant law or regulation, or, if such date is not provided,
within 40 days from the notice of the Bank, together with interest accrued
to the date of prepayment and all other sums payable by the Borrower under
the Security Documents.
|
(c)
|
If
circumstances arise which would result in a Notification under Clause
11.1. then, without in any way limiting the rights of the Bank under
Clause 11.1., the Bank shall use reasonable endeavours to transfer each
obligations, liabilities and rights under the Security Documents to
another office nr financial institution not affected by the
circumstances.
|
If,
as a result of (a) any change in or in the interpretation of any law, regulation
e.t.c. by any governmental authority in any country the laws of which are
applicable on the Bank, or (b) compliance by the Bank with any requirement of
any authority (whether or not having the force of law) but which the Bank
usually complies with or any other set of circumstances including any type of
liquidity, stock, or capital adequacy controls or other Banking or monetary
controls or requirements connected with the manner in which the Bank allocates
capital resources to its obligations hereunder:
(a)
|
The
cost to the Bank of making available the Commitment or any part thereof or
maintaining or funding the Loan is increased;
or
|
(b)
|
The
amount payable to the Bank or the effective return to the Bank under any
of the Security Documents, is reduced;
or
|
(c)
|
The
basis of taxation of payments to the Bank of principal or of interest on
any amounts advanced by it is
changed;
|
then
the Borrower shall pay to the Bank on account of the Bank, from time to time,
upon demand, such additional moneys as shall indemnify the Bank for any
increased cost, reduction in principal or interest receivable or other foregone
return whatsoever. The Bank will notify the Borrower in writing of any intention
to claim indemnification and such notification, made in line with the provision
of Clause 6, which will be a conclusive evidence binding on the Borrower as to
the amount of any increased cost or reduction and the method of calculating the
same. Such claim may be made at any time and must be discharged by the Borrower
within fifteen (15) days of demand. It shall not be a defence to a claim by the
Bank hereunder that any increased cost or reduction could have been avoided by
the Bank. Any amount due from the Borrower hereunder shall be due as a separate
debt and shall not be affected by judgement being obtained for any other sums
due under or in respect of this Agreement or of any other Security
Document.
12.
SECURITY
As
security for the due repayment of all sums from time to time payable to the
Bank, the Borrower shall ensure and procure that the following Security
Documents are duly executed and, where required properly registered in favour of
the Bank at the time specified herein or otherwise as required by the Bank and
ensure that such security, apart from this Agreement, consists of
(a)
|
A
Master Swap Agreement and the relevant Schedule attached thereto (the
“
Master Swap
Agreement
”) executed by the Borrower in form and substance
satisfactory to the Bank;
|
(b)
|
A
Master Agreement Security Deed (the “
Master Agreement Security
Deed
”) executed or (as the context may require) to be executed by
the Borrower in favour of the Bank;
|
(c)
|
A
Corporate Guarantee from the Corporate Guarantor in form and substance
satisfactory to the Bank (the “
Corporate
Guarantee
”);
|
(d)
|
A
duly registered First Preferred Mortgage over the Vessel providing on the
basis of the provisions of the applicable law the highest degree of
security for the Bank (the “
Mortgage
”);
|
(e)
|
A
first Priority General Assignment of all the Insurances, Earnings, Charter
Rights and Requisition Compensation for the Vessel in form and substance
satisfactory to the Bank and respective notices of assignment and
acknowledgements thereof (the “
General
Assignment
”);
|
(f)
|
Specific
assignments of the benefit of the Charter and of any other charter of more
than twelve (12) calendar months’ duration in respect of the Vessel
chartered and respective notices and acknowledgements thereof (the “
Specific
Assignment
”).
|
(g)
|
Pledge
agreement(s) in form and substance satisfactory to the Bank executed or
(as the context may require) to be executed by the Borrower or by the
Corporate Guarantor in favour of the Bank creating security in respect of
the Operating Account for the Vessel (the “
Operating Account
Pledge(s)
”)
|
(h)
|
A
pledge agreement in form and substance satisfactory to the Bank executed
or (as the context may require) to be executed by the Borrower in favour
of the Bank in respect of the Retention Account (the “
Retention Account
Pledge
”);
|
(i)
|
Manager’s
undertaking in form and substance satisfactory to the Bank pursuant to
which the Manager will subrogate its rights to the Loan throughout the
Facility Period (the “
Manager’s
Undertaking
”).
|
13.
COVENANTS
The
Borrower covenants with the Bank that, from the date of this Agreement and as
long as any sums are due and/or owing and/or outstanding under this Agreement or
any of the other Security Documents, the Borrower will:
13.1
|
Information
Covenants.
|
13.1.1
|
Furnish
the Bank, in form and substance satisfactory to the Bank, with annual,
consolidating and consolidated financial statements of the Borrower, the
Corporate Guarantor and of any other of the companies of the Group within
180 days after the end of the financial year concerned, and prepared in
accordance with generally accepted accounting principles consistently
applied;
|
13.1.2
|
Provide
the Bank from time to time as the Bank may reasonably request and in form
and substance satisfactory to the Bank with any information on the
financial conditions commitments and operations of the Borrower and of any
other of the companies of the
Group.
|
13.1.3
|
Promptly
inform the Bank of any occurrence which came to the knowledge of the
Borrower which might adversely affect the ability of the Borrower or any
other Security Party to perform its respective obligations under this
Agreement and/or any of the other Security Documents and of any Event of
Default forthwith upon becoming aware
thereof;
|
13.1.4
|
Promptly
inform the Bank of all major financial developments in the Group such as
new loans, refinancing/restructuring of existing loans, new acquisitions
and sales, contracts for term employment of Vessel
e.t.c.
|
13.2
|
Banking
Arrangements.
|
13.2.1
|
Use
the Loan exclusively for the purpose specified in this
Agreement;
|
13.2.2
|
Ensure
that all obligations under this Agreement and the other Security Documents
will be duly and punctually
performed.
|
13.2.3
|
Pay
to the Bank on demand any sum of money which is payable to the Bank under
this Agreement and the other Security Documents but in respect of which it
is not specified in any other Clause when it is due and
payable;
|
13.2.4
|
Accept
that a Certificate of any of the Bank or a statement of account executed
by two authorised officers of any of the Bank or an Extract of the Books
of any of the Bank certified by an officer of the Bank shall (save for
manifest error) be conclusive evidence of the amount due under this
Agreement and shall be final and binding on all parties
hereto;
|
13.2.5
|
Upon
request by the Bank from time to time provide such information and
evidence to the Bank as the Bank would require to demonstrate compliance
with the covenants and warranties set forth in this Agreement and any
other Security Document.
|
13.3.1
|
Incur
no debt and grant no guarantee to and/or in favour of anybody except in
the ordinary course of business, without the prior written consent of the
Bank, which shall not be unreasonably
withheld.
|
13.3.2
|
Not
give any loans or credits or advances to any person, or entity without the
previous consenting opinion of the Bank which shall not be unreasonably
withheld;
|
13.3.3
|
Not
declare or pay any dividends or other distribution in case of an Event of
Default without the prior written consent of the
Bank;
|
13.3.4
|
Not
transfer, sell or otherwise dispose any of its real or personal property,
assets or rights, whether present or future, without the prior written
consent of the Bank or allow any part of its undertaking, property, assets
or rights, whether present or future, to be mortgaged, charged, pledged,
used as a lien (except for lien created by law) or otherwise encumbered
without the prior written consent of the
Bank;
|
13.3.5
|
Ensure
that the Indebtedness of the Borrower to the Bank hereunder will not be
subordinated in priority of payment to any other present or future
claim.
|
13.3.6
|
Ensure
that the Borrower or the Corporate Guarantor will maintain throughout the
Facility Period in an account with the Bank free and unencumbered (save in
favour of the
|
Bank)
minimum liquidity balances equal to United States Dollars three thousand
(USD300,000).
13.3.7
|
Ensure
that the aggregate debt to equity ratio of the vessels owned by the
Corporate Guarantor will not exceed 75% of their aggregate current market
values obtained on a charter free basis by a broker appointed by and
reporting to the Bank, the latter having the right to obtain such
valuations on a quarterly basis
|
13.3.8
|
Ensure
that the minimum Net Worth of the Corporate Guarantor listed in Nasdaq
will be United States Dollars fifteen million
(USD15,000,00)
|
13.3.9
|
Not
without the Bank’s prior written consent assign, novate or in any other
way transfer any of its rights or obligations under or pursuant to the
Master Swap Agreement, nor enter into any interest rate exchange or
hedging agreement with anyone other than the Bank, nor any other agreement
or commitment the effect of which is, in the opinion of the Bank,
materially to prejudice the hedging of the Borrower’s interest rate risk
effected by the Transaction from time to time entered into between the
Borrower and the Bank.
|
13.4
|
Business
and Corporate Structure.
|
13.4.1
|
Not
change the nature, organisation and conduct of the business of the
Borrower and/or the Corporate Guarantor as shipowner and/or Manager of the
Vessel as the case may be;
|
13.4.2
|
Not
merge or consolidate with any other company or other legal
entity;
|
13.4.3
|
On
demand and in any event on the thirty-first day of May in each year
deliver or cause to be delivered to the Bank official certificates from
the relevant authority confirming that the Borrower and any other
corporate Security Party is in good standing in its country of
incorporation;
|
13.4.4
|
Ensure
that there is no change in the Directors and Officers of the Borrower and
of any other corporate Security Party and moreover ensure that no change
shall be made directly or indirectly in the ownership, beneficial
ownership, control or management of the Borrower without the prior written
consent of the Bank, which shall not be unreasonably
withheld.
|
13.5
|
Obligation
to maintain the Security Value.
|
13.5.1
|
At
all times the Borrower will procure that the value of the Vessel and other
security to be granted to the Bank pursuant to this Clause (the “Security
Value”) is not less ‘amp! the Minimum Value at any
time.
|
13.5.2
|
If
the Security Value is less than the Minimum Value at any time, the
Borrower will within thirty (30) days of a request by the Bank and in
order to secure the Indebtedness on such terms as may be acceptable to the
Bank:
|
|
i.
|
prepay
a proportionate part of the Loan and of the Swap Exposure;
and/or
|
|
ii.
|
procure
for or grant to the Bank such other security as the Bank shall expressly
approve for the purpose of this Clause
13.5.
|
so
that after such prepayment or grant of other security, the Security Value is not
less than the Minimum Value.
13.5.3
|
As
far as clause 13.5.2.(ii) is concerned
:
|
|
i.
|
cash
provided by way of security shall be valued in Dollars at its principal
amount;
|
|
ii.
|
any
other security shall be valued on such basis as the Bank shall reasonably
determine in its discretion from time to time;
and
|
|
iii.
|
there
shall be deducted from any value or valuation the amount which is owing
and might become owing and which is secured on the asset concerned by any
prior or equal ranking Security Interest (other than in favour of the Bank
to secure the Indebtedness).
|
|
iv.
|
cash
deposits and/or any other security acceptable to the Bank it will be
provided in a way and manner also acceptable to the
Bank.
|
13.5.4
|
At
least once every year and/or at any time that the Bank might consider it
useful and reasonably request the Borrower to undertake to have at its own
cost the Vessel valued with or without physical inspection (as the Bank
may require) in Dollars, on the basis of sale for prompt delivery free of
Encumbrances in favour of the Bank for cash at arm’s length on normal
commercial terms as between a willing seller and a willing buyer by an
independent shipbroker selected by or acceptable to the Bank and reporting
to the Bank. Such valuation shall be made on the basis of the value of the
Vessel charter free. The Borrower agrees to accept the valuation made as
aforesaid as conclusive evidence of the market value of the Vessel at the
date of valuation. The Borrower will supply to the Bank and to the above
shipbrokers such information as such shipbrokers shall
require.
|
13.6
|
Covenants
concerning the Vessel.
|
13.6.1
|
Ensure
that the Vessel will maintain its present ownership, management, control
and ultimate beneficial ownership;
|
13.6.2
|
Ensure
that the Vessel is and will remain properly certified in respect with the
ISM Code and in compliance with the ISO 9001 and the ISPS code when
applicable and moreover that it will remain in class free of
recommendations, notations or average damage affecting class and provide
the Bank on demand with copies of all ISM and/or all class and/or trading
certificates of the Vessel.
|
13.6.3
|
Ensure
that at all times the Vessel is managed by the Manager or by such company
as may be approved in writing by the Bank and that such company is and
will remain ISM certified and in compliance with the ISO 9001 and the ISPS
Code when applicable and that it shall maintain at all times an
organisation and personnel which in the opinion of the Bank is adequate to
provide sufficient management, agency, financial, secretarial and other
services for the Vessel.
|
13.6.4
|
Maintain
all Insurances of the Vessel and comply with all insurance requirements
specified in this Agreement (including in particular Schedule II) and in
case it fails to maintain the Vessel and/or such other property so
insured, the Borrower hereby, for the purpose of serving the interest of
the Bank, irrevocably authorises the Bank and grant to it the right to
effect the insurances of the Vessel and/or of the property as provided for
in Schedule II in the amount and in terms acceptable to the Bank from time
to time at the cost and on behalf of the Borrower. The Bank will have the
right but not the obligation to effect all or any of such insurances at
the cost of the Borrower and such cost shall consist Expenses in the
meaning of the Clause 1;
|
13.6.5
|
Supply
copies of all cover notes, certificates of entry, insurance policies and
documents and furnish details of all insurances contemplated by Schedule
II and/or contracted to the Bank. The Bank may submit all such insurance
documents for examination to an insurance consultant nominated by the
Bank. The Bank will be at liberty to decide on the adequacy and the
compliance of the cover with the provisions of the Security Documents
including Schedule H and its decision shall be final and binding on the
Borrower. The cost including Value Added Tax of such insurance consultant
shall be considered as Expenses;
|
13.6.6
|
The
Bank will be at liberty to conduct at the Borrower’s cost physical
condition survey of the Vessel and a comprehensive record inspection by a
surveyor appointed by the Bank.
|
13.6.7
|
At
the Bank’s reasonable request, promptly provide a consultant nominated and
appointed by the Bank to monitor the collection of claims of whatsoever
nature with whatever information and documentation the Bank shall require.
All the cost including Value Added Tax in respect of the appointment of
such consultant shall be considered as
Expenses;
|
13.6.8
|
Not
grant or permit any charge, lien (except for lien created by law)or other
encumbrance to be imposed upon the Vessel or otherwise dispose of any of
its rights under any charterparty or contract of affreightment relating to
the Vessel or any other earnings of the
Vessel;
|
13.6.9
|
Ensure
that the Vessel is maintained and trade in conformity with the laws of its
flag, of its owning company or of the nationality of the officers, or
crew, and in conformity with the requirements of the Insurances and
nothing is done or permitted to be done which could endanger the flag of
the Vessel, or its free ownership and operation or its
Insurances;
|
13.6.10
|
Always
comply with all the covenants provided for in the mortgage on the
Vessel
|
13.6.11
|
Not
without the prior written consent of the Bank enter into a charterparty,
contract of affreightment, agreement or related document in respect of the
employment of the Vessel other than the Charter (i) for a period of more
than twelve (12) months or (ii) below the market rate prevailing at the
time when the Vessel is fixed in or on terms which are not in accordance
with the commercial practice prevailing at the relevant time or (iii) on
demise charterparty;
|
13.6.12
|
Execute
and deliver to the Bank (a) a specific assignment of the Charter in form
and substance satisfactory to the Bank and (b) a notice of any such
assignment addressed to the Charterer and endorsed with an acknowledgement
of receipt by the Charterer all in form and substance satisfactory to the
Bank;
|
13.6.13
|
Execute
and deliver to the Bank within fifteen (15) days of signing of any
charter, the duration of which is to be for a period, directly or by
extension of more than twelve (12) months, (a) a specific assignment of
such charter in form and substance satisfactory to the Bank and (b) a
notice of any such assignment addressed to the relevant charterer and
endorsed with an acknowledgement of receipt by the relevant charterer all
in form and substance satisfactory to the
Bank;
|
13.6.14
|
The
Borrower undertakes to notify the Bank
forthwith:
|
|
(a)
|
of
any Environmental claim for an amount exceeding USD 300,000 made against
the Vessel and/or its owner.
|
|
(b)
|
upon
becoming aware of any incident which may give rise to an Environmental
Claim and to keep the Bank advised in writing of the owners’ response to
such Environmental claim on such regular basis and in such detail as the
Bank shall require.
|
13.7
|
Validity
of securities
|
13.7.1
|
Ensure
and procure that all approvals or consents and/or any other steps required
for the validity, enforceability and legality of this Agreement and the
other Security Documents and for the performance thereof by the Borrower
and any other Security Party are appropriately taken and are maintained in
full force and effect.
|
13.7.2
|
Ensure
and procure that, unless and until directed by the Bank otherwise (i) all
the Earnings of the Vessel shall be paid to the Operating Account and (ii)
the persons from whom the Earnings are from time to time due are
irrevocably instructed to pay them to the Operating Account in accordance
with the provisions hereof and of the relevant Security
Documents;
|
13.7.3
|
Pay
all Taxes, and other governmental charges when the same fall due, except
to the extent that the same are being contested in good faith by
appropriate proceedings and adequate reserves have been set aside for
their payment if such proceedings
fail;
|
13.7.4
|
From
time to time at the request of the Bank execute and deliver to the Bank or
procure the execution and delivery to the Bank of all such documents as
shall be deemed desirable at the sole discretion of the Bank for giving
full effect to this Agreement, and for perfecting, protecting the value of
or enforcing any rights or securities granted to the Bank under the
Security Documents and any other documents executed pursuant hereto or
thereto.
|
13.7.5
|
The
covenants specified in this Clause are inserted solely for the benefit of
the Bank and may be waived in whole or in part and with or without
conditions by the Bank without prejudicing the right of the Bank to
require fulfillment of such covenants at such time and manner as specified
by the Bank.
|
13.8
|
Admission,
and warranties of the Security Parties as regards their
liability.
|
(a)
|
The
giving of the Corporate Guarantee by the Guarantor is to the commercial
benefit of such Guarantor in that the Guarantor has close financial
cooperation and mutual assistance with the Borrower and that by lending
its support to the Borrower through such Guarantee it further its own
business interests within the scope of its constitutional
documents;
|
(b)
|
The
liability of the Borrower and of the other Security Parties shall in all
cases, whether so expressed to be or not, be joint and several and each
representation and warranty and each covenant and agreement made or given
or to be made or given by any one of them will be considered as made or
given by them all jointly and
severally;
|
(c)
|
The
Borrower further represents that none of the Security Parties shall be
exonerated and its liability hereunder shall not be lessened or impaired
by any time, indulgence or relief being given by the Bank to any other
Security Party or by the variation, compromise, renewal or release of or
refusal or neglect to perfect or enforce any right, remedies or securities
against the Borrower or any other Security Party, by anything done or
omitted which but for this provision might operate to exonerate any other
Security Parties;
|
(d)
|
The
obligations of the Borrower shall not be affected by any legal limitation,
disability, incapacity or other circumstances relating to any other
Security Party, whether or not known to the Bank, by any invalidity in or
irregularity or unenforceability of the obligations of such other Security
Party under any of the Security Documents or otherwise or by any change in
the constitution of, or any amalgamation or reconstruction of any Security
Party or of the Bank.
|
14. EVENTS
OF DEFAULT
The
following events shall constitute an Event of Default (whether or not caused by
any reason whatsoever outside the control of the Borrower or whether such Event
shall occur or come about by operation of Law or regulation or pursuant to, or
in compliance with any judgment, decree or order of any Court or other
authority):
14.1
|
Non
Performance of Obligations.
|
14.1.1
|
If
the Borrower and/or any other Security Party fail to pay any sum due
hereunder and/or under the other Security Documents when due, or in the
case of any sum payable on demand, within seven (7) Banking Days of such
demand;
|
14.1.2
|
If
the Borrower and/or any other Security Party fail to obtain and/or
maintain the Insurances (as defined in Schedule II) or if any insurer in
respect of such Insurances becomes entitled to cancel the insurances or to
disclaim liability;
|
14.1.3
|
If
the Borrower and/or any other Security Party default in the due
performance and/or observance of any covenant, term, obligation or
undertaking under this Agreement and/or any of the other Security
Documents (other than those referred to in sub-Clauses 14.1.1. and 14.1.2.
hereinabove). In case such default is in the opinion of the Bank, capable
of remedy, if it will continue unremedied for seven (7) Banking Days after
its occurrence.
|
14.2
|
Representations
incorrect
|
If
any representation or warranty explicitly made or implied by or in respect of
the Borrower pursuant to the Security Documents proves to have been incorrect or
misleading in a material way when made or at any time during the currency of
this Agreement.
14.3
|
Events
affecting the Borrower and/or any other Security
Party
|
14.3.1
|
If
a creditor of the Borrower attaches or takes possession of, or a distress
execution, sequestration or other process is levied or enforced upon or
sued against the whole or any part of the property of the Borrower and/or
any other Security Party and it is not discharged within fifteen (15)
Banking days;
|
14.3.2
|
If
the Borrower and/or any other Security Party is found bankrupt or
insolvent or any order is made by any competent court or resolution passed
by the Borrower and/or any other Security Party or petition presented for
the winding-up or dissolution of the Borrower and/or any other Security
Party or for the appointment of a liquidator, trustee, receiver,
administrator or conservator of any part of the undertakings, assets,
rights or revenues of the Borrower and/or any other Security
Party;
|
14.3.3
|
If
the Borrower and/or any other Security Party suspend payment of their
debts or are (or are reasonably deemed to be) unable to or admit inability
to pay their debts as they fall due or propose or enter into any
composition or other arrangement for the benefit of creditors generally or
proceedings are commenced in relation to the Borrower and/or any other
Security Party relating to reconstruction or readjustment of
debts;
|
14.3.4
|
If
a meeting is convened by any Security Party for the purpose of passing any
resolution to purchase, reduce or redeem any of its share
capital;
|
14.3.5
|
If
a material part of the undertakings, assets, rights or revenues of the
Borrower and/or any other Security Party are seized, nationalised,
expropriated or compulsorily acquired by or under the authority of any
government;
|
14.3.6
|
If
any event occurs or proceeding is taken with respect to the Borrower
and/or any other Security Party in any jurisdiction to which anyone of
them is subject which has an effect equivalent or similar to any of the
events mentioned in Clauses 14.3.1. to
14.3.5.;
|
14.3.7
|
If
the Borrower and/or any other Security Party suspend or threaten to
suspend or cease to carry on its
business;
|
14.3.8
|
If
there occurs, in the opinion of the Bank, a materially adverse change in
the financial condition of the Borrower and/or any Security
Party;
|
14.3.9
|
If
any other event occurs not mentioned in this Clause 14.3. or circumstances
arise which, in the reasonable opinion of the Bank, is likely adversely to
affect either (i) the ability of the Borrower and/or any other Security
Party to perform all or any of their obligations under or otherwise to
comply with the terms of this Agreement and/or any of the other Security
Documents, or (ii) the security created by this Agreement and/or any of
the other Security Documents;
|
14.3.10
|
If
there is any change in the beneficial ownership of the shares in the
Borrower and/or any other Security Party as declared to the Bank prior to
the execution hereof or as represented to the Bank in the Certificate of
beneficial shareholding given to the Bank pursuant to Schedule I, Part
1.
|
14.3.11
|
If
any debt of any Security Party is not paid when due or any debt of any
Security Party becomes due and payable prior to the date when it would
otherwise have become due (unless as a result of the exercise by the
relevant Security Party of a voluntary right of prepayment), or any
creditor of any Security Party becomes entitled to declare its claim due
and payable, or any facility or commitment available to any Security Party
is withdrawn, suspended or cancelled by reason of any default (however
described) of such Security Party;
|
14.4
|
Events
affecting the Security Documents
|
14.4.1
|
If
this Agreement or any of the other Security Documents shall at any time
and for any reason become invalid or unenforceable or otherwise cease to
remain in full force and effect, or if the validity or enforceability of
any of the Security Documents shall at any time and for any reason be
contested by any party thereto (other than the Bank), or if any such party
shall deny that it has any, or any further, liability thereunder or shall
otherwise repudiate any of the Security Documents or do or cause or permit
to be done any act or thing evidencing an intention to repudiate this
Agreement or any of the other Security Documents or it becomes impossible
or unlawful for the Borrower and/or any other Security Party to fulfill
any of its covenants and obligations contained in this Agreement or any of
the other Security Documents or for the Bank to exercise the rights or any
of them vested in them thereunder or
otherwise;
|
14.4.2
|
If
any Encumbrance in respect of any of the properties (or part thereof)
which belongs to the Security Parties (or any of them) becomes
enforceable.
|
14.4.3
|
If
a notice is sent by the Bank under section 6(a) of the Master Swap
Agreement, or by any person under section 6(b)(iv) of the Master Swap
Agreement, in either case designating an Early Termination date for the
purpose of the Master Swap Agreement, or if the Master Swap Agreement is
for any other reason terminated, cancelled, suspended, rescinded, revoked
or otherwise ceases to remain in full force and effect;
or
|
14.5
|
Events
concerning the Vessel
|
14.5.1
|
if
the Vessel fails to be delivered to, or accepted by, the Charterer under
the Charter in question and/or the Charter is terminated, revoked,
cancelled, or repudiated or otherwise ceases to remain in full force and
effect, unless either the Charter is substituted by any other Charter
acceptable to the Bank in all respects in its sole discretion or
additional security is provided for, or if, due to Borrower’s default, any
other charter or contract of affreightment relating to the Vessel for the
time being mortgaged to the Bank hereunder ceases for more than thirty
(30) days (other than complete performance in accordance with its terms)
to be in full force and effect.
|
14.5.2
|
If
the Vessel either:
|
|
(a)
|
becomes
a Total Loss or
|
|
(b)
|
suffers
damage or is involved in an accident which in the opinion of the Bank may
result in being subsequently considered to be a Total Loss or which may
otherwise reduce the security of the
Bank.
|
14.5.3
|
If
the registration of the Vessel under the laws and flag of the Flag State
is cancelled or terminated without the prior written consent of the
Bank.
|
14.5.4
|
If
the Flag State of the Vessel becomes involved in hostilities or civil war
if, in any such case, such event could in the opinion of the Bank
reasonably be expected to have a material adverse effect on the security
constituted by any of the Security Documents and Borrower fails to comply
with the Bank’s request to change flag acceptable to the Bank within
fifteen (15) Banking Days.
|
14.6
|
Environmental
Events.
|
If
the Borrower and/or any other Security Party and/or any other Relevant Party
and/or any of their respective Environmental Affiliates fails to comply with any
Environmental Law or any Environmental Approval or any of the Vessel or any
other Relevant Ship is involved in any incident which gives rise or which may
give rise to any Environmental Claim if, in any such case, such non-compliance
or incident, or the consequences thereof could, in the opinion of the Bank, be
expected to have a Material Adverse Effect on the business assets, operations,
property or financial condition of the Borrower or any other Security Party or
on the security created by any of the Security Documents.
14.7
|
Consequences
of Default
|
14.7.1
|
At
any time after the occurrence of any Event of Default, the Bank may,
without prejudice to any other of its
rights,
|
|
(a)
|
by
notice to the Borrower declare that the obligation of the Bank to make the
Commitment available shall be terminated, whereupon the Commitment shall
be reduced to zero forthwith and/or
|
|
(b)
|
by
notice to the Borrower declare that the Loan and interest and all sums
payable under this Agreement and the other Security Documents have become
due and payable, or payable on demand, whereupon the same shall
immediately, or in accordance with the terms of such notice, become due
and payable jointly and severally by the Borrower and the other Obligors,
without any further demand protest or notice or any other procedure from
the Bank,
|
|
(c)
|
put
into force and exercise all or any of the rights, powers and remedies
possessed by it under this Agreement and/or under any other Security
Document.
|
14.7.2
|
If
an event occurs in respect of the Borrower or any of the other Security
Parties of the type described in Clauses 14.3.2. to 14.3.6. the obligation
of the Bank to make the Commitment available shall terminate immediately
and all amounts under sub-clause
|
14.7.1.(b)
above shall become immediately due and payable without the need for any demand
from the Bank or any notice to the Borrower or other action of any kind
whatsoever.
15.
APPLICATION OF RECEIPTS
15.1
|
Normal order of
application.
Except as any Security Document may otherwise provide,
any sums which are received or recovered by the Bank under or by virtue of
any Security Document after the service of notice on the Borrower shall be
applied:
|
FIRST:
in or towards satisfaction of any amounts then due and payable under the
Security Documents or the Master Swap Agreement in the following
proportions:
(i) firstly,
in or towards satisfaction pro rata of all amounts then due and payable to the
Bank under the Security Documents and the Master Swap Agreement (in respect of
Designated Transaction) other than those amounts referred to at (ii) and (iii)
below;
(ii) secondly,
in or towards satisfaction pro rata of any and all amounts of interest or
default interest payable to the Bank under the Security Documents and the Master
Swap Agreement (in respect of Designated Transaction) (and, for this purpose,
the expression “interest” shall include any net amount which the Borrower shall
have become liable to pay or deliver under section 2(e) (Obligations) of the
Master Swap Agreement (in respect of Designated Transaction) but shall have
failed to pay or deliver to the Bank at the time of application or distribution
under this Clause 15); and
(iii) thirdly,
in or towards satisfaction pro rata of the Loan and the Swap Exposure (in the
case of the latter, calculated as at the actual Early Termination Date applying
to each particular Designated Transaction, or if no such Early Termination Date
shall have occurred, calculated as if an Early Termination Date occurred on the
date of application or distribution hereunder);
SECONDLY:
in retention of an amount equal to any amount not then due and payable under any
Security Document or the Master Swap Agreement (in respect of Designated
Transaction) but which the Bank, by notice to the Borrower and the Security
Parties, states in its reasonable opinion will or may become due and payable in
the future and, upon those amounts becoming due and payable, in or towards
satisfaction of them in accordance with the foregoing provisions of this Clause
15.1(a); and
THIRDLY:
any surplus shall be paid to the Borrower or to any other person appearing to be
entitled to it.
15.2
|
Variation of order of
application
. The Bank may (following the occurrence of an Event of
Default or a Potential Event of Default which is continuing), by notice to
the Borrower and the Security provide for a different manner of
application from that set out in Clause 15.1 either as regards a specified
sum or sums or as regards sums in a specified category or
categories.
|
15.3
|
Notice of variation of order of
application.
The Bank may give notices under Clause 15.2 from time
to time in respect of sums which may be received or recovered in the
future.
|
15.4
|
Appropriation rights
overridden.
This Clause 15 and any notice which the Bank gives
under Clause 15.2 shall override any right of appropriation possessed, and
any appropriation made, by the Borrower or any Security
Party.
|
15.5
|
Application of Earnings
-Payment of Earnings
. The Borrower undertakes with the Bank to
ensure that, throughout the Facility Period (and subject only to the
provisions of the General Assignment for the Vessel) all the Earnings of
the Vessel are paid to the Operating Account for the Vessel and subject to
no Event of Default having occurred which is continuing at the relevant
time, all credit balances on the Operating Account shall be freely
available to the Borrower.
|
16.
ACCOUNTS
The
Bank shall maintain in accordance with its usual practice, an account evidencing
the amounts from time to time lent by, owing to and paid to it under the
Security Documents. Such account confirmed by the Bank as per Clause 6 hereof
shall, be conclusive as to the amount from time to time owing by the Borrower
under the Security Documents.
16.2.1
|
Upon
the occurrence of any Event of Default, the Borrower authorises the Bank,
without notice to the Borrower, to apply any credit balance to which the
Borrower is then entitled and/or to whatever currency standing upon any
such account of the Borrower with any branch of the in or towards
satisfaction of the Indebtedness. For this purpose, the Bank is authorised
to purchase with the moneys standing to the credit of such account such
other currencies as may be necessary to effect such application. The Bank
shall not be obliged to exercise any right given to it by this clause. The
Bank shall notify the Borrower without delay upon the exercise or
purported exercise of any right of set-off giving details in relation
thereto.
|
16.2.2
|
The
rights conferred on the Bank by this Clause shall be in addition to, and
without prejudice to or limitation of, the rights of netting and set off
conferred on the Bank by the Master Swap Agreement. The Borrower
acknowledges that the Bank shall be under no obligation to make any
payment to the Borrower under or pursuant to the Master Swap Agreement if,
at the time that payment becomes due, there shall have occurred an Event
of Default or Potential Event of Default, or an Event of Default or
Termination Event (as those terms are respectively defined in the Master
Swap Agreement).
|
16.3.1
|
The
Borrower undertakes with the Bank that it
will:
|
|
(a)
|
on
or before the Drawdown Date open with the Bank the Operating Account;
and
|
|
(b)
|
procure
that all moneys payable to the Borrower in respect of the Earnings or
other receivables regarding the Vessel shall, unless and until the Bank
directs to the contrary be paid to the Operating Account free from
Encumbrances (save for Encumbrances in favour of the Bank); Provided
however that if any moneys paid to the Operating Account
are
|
payable
in a currency other than Dollars, the Bank shall convert such moneys into
Dollars at the Bank spot rate of exchange at the relevant time for the purchase
of Dollars with such currency and the term “spot rate of exchange” shall include
any premium and costs of exchange payable in connection with the purchase of
Dollars with such currency.
|
(c)
|
The
Operating Account shall bear interest at the rate quoted by the Bank to
its customers for comparable deposits in Dollars and for such periods as
the Bank may determine, such interest to be credited to the Operating
Account at intervals the Bank usually pays interest on
deposits.
|
|
(d)
|
The
Borrower hereby assigns to the Bank as a continuing security for the
payment of the Indebtedness the Operating Account and all moneys from time
to time standing to the credit thereof including any interest from time to
time accrued and accruing thereon, such assignment to take effect
immediately upon the occurrence of an Event of
Default.
|
So
long as no Default shall have occurred the Borrower shall be entitled to
withdraw from the Operating Account any amount. Provided however that if in the
opinion of the Bank there will be insufficient sums standing to the credit of
the Operating Account to meet principal falling due on the next Repayment Date
or interest due on the next Interest Payment Date or any other moneys which are
due and payable to the Bank, the Bank shall be entitled to refuse any withdrawal
from the Operating Account.
16.3.3
|
Application
of Operating Account
|
|
(a)
|
The
Bank shall be entitled (but not obliged) at any time to deduct from the
balance for the time being standing to the credit of the Operating Account
all other moneys vvhich may fall due to be paid to the Dank under the
terms of the Security Documents or otherwise howsoever in connection with
the Loan.
|
|
(b)
|
At
any time after the occurrence of an Event of Default, the Bank may,
without notice to the Borrower, apply all moneys then standing to the
credit of the Operating Account (together with interest from time to time
accruing or accrued thereon) in or towards satisfaction of any sums due to
the Bank under the Security Documents in the manner specified in Clause
15.
|
16.3.4
|
Relocation
of Operating Account
|
The
Borrower, at its own costs and expenses, undertake to comply with any written
requirement of the Bank from time to time as to the location or relocation of
the Operating Account and will from time to time enter into such documentation
as the Bank may require in order to create or maintain a security interest in
the Operating Account.
16.4.1
|
The
Borrower on or before the Drawdown Date will open with the Bank the
Retention Account.
|
|
(a)
|
For
so long as any moneys are owing under the Security Documents, the Borrower
shall pay to the Retention Account, at monthly intervals commencing with a
first payment on
|
the
date falling one Month after the Drawdown Date and at monthly intervals
thereafter (each such day being hereinafter called “Monthly Retention Date”)
such sum (each sum being hereinafter called “Monthly Retention Amount”) as shall
be the aggregate of:
|
(i)
|
the
quotient of the Repayment Instalment amount from time to time falling due
on the each time next Repayment Date divided by the number of the months
intervening between the immediately previous and the such next Repayment
Date, pursuant to Clause 7 hereof;
and
|
|
(ii)
|
the
quotient of the amount of interest from time to time falling due in
respect of the Loan or each part thereof on the each time next Interest
Payment Date divided by the number of months of the relevant Interest
Period.
|
|
(b)
|
The
Bank is hereby irrevocably authorised by the Borrower to debit at every
Monthly Retention Date the Operating Account with the Monthly Retention
Amounts and to credit them to the Retention
Account.
|
|
(c)
|
In
case that any Earnings paid to the Operating Account relate to a period of
employment of the Vessel longer than one (1) Month, then upon receipt of
such Earnings the Retention Account shall be funded by an amount equal to
so many Monthly Retention Amounts or part thereof as shall correspond to
the longer period to which the said Earnings relate or any amount as may
be determined by the Bank.
|
16.4.2
|
Unless
and until there shall occur an Event of Default all Monthly Retention
Amounts credited to the Retention Account together with interest from time
to time accruing or at any time accrued thereon shall be set off and
applied by the Bank (and express and irrevocable authority is hereby given
by the Borrower to the Bank so to set off and apply the same) upon each
Repayment Date and upon each Interest Payment Date in or towards payment
of the Repayment Instalment then falling due and/or (as the case may be)
the amount of interest then due. Each such set off and application by the
Bank shall constitute a payment in or towards satisfaction of the
corresponding payment obligations of the Borrower under this Agreement but
shall be strictly without prejudice to the obligations of the Borrower to
make any such payment to the extent that the aforesaid set off application
by the Bank is insufficient to meet the
same.
|
16.4.3
|
Any
amount for the time being standing to the credit of the Retention Account
shall bear interest at the rate quoted by the Bank to its customers for
deposits in Dollars for such period as the Bank may determine and for an
amount comparable with the amount for the time being standing to the
credit of the Retention Account.
|
16.4.4
|
Upon
the occurrence of an Event of Default or at any time thereafter the Bank
will set off and apply all sums standing to the credit of the Retention
Account including accrued interest (if any) in the manner specified in
Clause 15 without notice to the
Borrower.
|
17.
INDEMNITY
17.1
|
Miscellaneous
Indemnities
|
The
Borrower will indemnify the Bank against any and all expenses, claims, losses or
liabilities sustained or incurred by the Bank as a result of
(a)
|
The
Loan not being drawdown hereunder whether before or after the giving of
the Drawdown Notice in accordance with the provisions of Clause 2.2.
hereof for any reason whatsoever including but not limited to the refusal
of the Bank to allow the disbursement of the Commitment because of the non
fulfillment of the Conditions Precedent contained in Schedule I or any of
them;
|
(b)
|
any
default in payment by the Borrower of any sum under any of the Security
Documents;
|
(c)
|
the
occurrence of any other Event of
Default;
|
(d)
|
the
prepayment or repayment of the Loan or part thereof being made otherwise
than on an Interest Payment Date relating to the part of the Loan prepaid
or repaid.
|
including
in any such case, but not limited to, any loss or expense suffered as a result
of reemploying deposits acquired by the Bank (or any person to whom the Bank
have sold a participation in the Loan) for the purpose of funding the Loan at a
rate of return lower than the cost of acquiring the deposits or any expense
incurred by the Bank (or such, person) in liquidating the deposits as defined as
“Break Costs” in Clause 1 hereof.
If,
any payment by any of the Security Parties under any of the Security Documents
is made or falls to be satisfied in a currency (the “payment currency”) other
than the currency in which such payment is due under or in connection with such
Security Documents (the “contractual currency”), then, to the extent that the
amount of such payment actually received by the Bank, when converted into the
contractual currency at the rate of exchange, falls short of the amount due
under the Security Documents, the Borrower, as a separate and independent
obligation, shall indemnify and hold harmless the Bank against the amount of
such shortfall. For the purposes of the present Clause “rate of exchange” means
the rate at which the Bank is able on or about the date of such payment to
purchase the contractual currency with the payment currency and shall take into
account any premium and other costs of exchange with respect
thereto.
17.3
|
Environmental
Indemnity
|
The
Borrower shall indemnify the Bank on demand and hold the Bank harmless from and
against all costs, losses, liabilities, actions, proceedings, penalties, fines,
sanctions or other outgoings of whatever nature which may be suffered, or
asserted against the Bank at any time, whether before or after the repayment in
full of principal and interest under this Agreement, relating to, or arising
directly or indirectly for any cause or reason whatsoever out of an
Environmental Claim made or asserted against the Bank if such Environmental
Claim would not have been made or asserted against the Bank if it had not
entered into any of the Security Documents and/or exercised any of its rights,
powers and discretions thereby conferred and/or performed any of its obligations
thereunder and/or been involved in any of the transactions contemplated by the
Security Documents.
17.4
|
Communications
Indemnity
|
Express
authority is hereby given by the Borrower to the Bank to accept (at the sole
discretion of the Bank) all tested or untested communications given by
facsimile, telex cable or e-mail, regarding any or all of the notices, requests,
instructions or other communications under this Agreement.
The
Borrower hereby assumes promises and recognises that the Bank shall not be held
responsible for any loss, liability or expense that may result from the Bank’s
compliance with such communications and the Borrower undertakes to indemnify the
Bank from all actions, proceedings, damages, claim expenses and any and all
direst.
With
regard to the above communications issued by electronic and/or mechanical
processes (e.g. by facsimile, telex or e-mail), the risk of equipment
malfunction, including, without limitation, paper shortage, transmission errors,
omissions and distortions of Borrower’s mechanical equipment is assumed fully
and accepted by the Borrower.
The
risks of misunderstandings and errors of communications being given as mentioned
above, are for the Borrower and the Bank will be indemnified in full pursuant to
this Clause.
Notwithstanding
the above, the Bank may at any time, (and such discretion of the Bank is
expressly admitted by the Borrower hereby) refuse to execute the notices,
requests, instructions or communications of the Borrower, or any part thereof
given by telex or fax if not confirmed in a manner acceptable to the Bank,
without incurring any responsibility for loss, liability or expense arising out
of such refusal.
18.
REMEDIES AND WAIVERS
18.1
|
Remedies
Modifications
|
The
Borrower shall not be released from the obligations contained herein by the
granting of time or any other indulgence to the Borrower or by any other act or
thing whatsoever or whereby the Borrower is and has been so released and no
failure to exercise nor any delay in exercising on the part of the Bank any
right or remedy hereunder and/or the other Security Documents or by law shall
operate as a waiver thereof nor shall any single or partial exercise of any
right or remedy prevent any further or other exercise thereof or the exercise of
any other rights or remedy. No modification or waiver by the Bank of any
provision of this Agreement or of any of the other Security Documents nor any
consent by the Bank to any departure therefrom by the Borrower shall be
effective unless the same shall be in writing and then shall only be effective
in the specific case and for the specific purpose for which given. No notice to
or demand on any such party in any such case shall entitle such party to any
other or further notice or demand in similar or other
circumstances.
The
rights and remedies provided herein and/or in any other Security Document are
cumulative and not exclusive of each other nor of any other rights or remedies
provided by law.
The
Borrower accepts that upon an Event of Default occurring the Bank has an
absolute right to take immediate steps to realize its security and recover all
and any sums due to it (including but not limited to the Loan remaining
outstanding and any other moneys which may then be due and owing under this
Agreement and/or any of the other Security Documents) exercising all powers
available to it by law and/or set forth in the Security Documents or otherwise
and nothing contained in the Security Documents shall be construed to the
contrary.
19.
LEGAL IMMINENCE
This
Agreement and the other Security Documents contain the entire agreement of the
parties and their provisions supersede theprovisions of the Commitment Letter
addressed by the Bank to the Borrower and others (save for the provisions
thereof which relate to fees) and any and all other prior correspondence and
oral negotiation by the parties in respect of the matters regulated by this
Agreement.
19.1
|
Over
Other Security Documents
|
In
the event of any inconsistency between the provisions of this Agreement and the
provisions of any other Security Document the provisions of this Agreement shall
prevail.
19.2
|
Contracts (Rights of Third
Parties) Act 1999
Notwithstanding the provisions of the Contracts
(Rights of Third Parties) Act 1999, no term of this Agreement is
enforceable by a person who is not a party to
it.
|
20.
COUNTERPARTS
This
Agreement may be executed in any number of counterparts each of which when
executed and delivered shall constitute an original but all the counterparts
shall together constitute both one and the same instrument.
21.
INVALIDITY
If
al: any time any one or more provisions of any Security Document and/or any
Security Document or any other documents executed pursuant hereto or thereto is
or becomes invalid illegal or unenforceable in any respect under any applicable
law in any jurisdiction whatsoever, the validity legality and enforceability of
the remaining provisions hereof or thereof shall not in any way be affected or
impaired thereby. If, however, this event becomes known to the Bank prior to the
drawdown of the Commitment the Bank shall be entitled to refuse drawdown until
this discrepancy is remedied. Where, however, the provisions of any such
applicable law may be waived, they are hereby waived by the parties hereto to
the full extent permitted by that law to the intent that this Agreement, the
other Security Documents and any other documents executed pursuant hereto or
thereto shall be deemed to be valid binding and enforceable in accordance with
their respective terms.
22.
ASSIGNMENT
This
Agreement shall constitute continuing and primary obligations of the Borrower
and shall be binding on and inure to the benefit of the Borrower the Bank and
their respective successors and assigns provided that:
22.1
|
Assignment
by the Borrower
|
The
Borrower and any other parties to the Security Documents may not assign any
rights and/or indirect losses which the Bank may suffer, by reason of the Bank
following such communications.
The
Borrower and any other parties to the Security Documents may not assign any
rights and/or obligations hereunder and/or any other Security Document or any
documents executed pursuant thereto without the prior written consent of the
Bank and
22.2
|
Assignment
by the Bank
|
The
Bank may at any time assign, transfer or offer participations to any affiliated
company of the EFG Group or, with the prior written consent of the Borrower,
such consent not to be unreasonably withheld, to other banks or financial
institutions in whole or in part, or in any manner dispose of all or any of its
rights and/or obligations arising or accruing under this Agreement or under any
of the other Security Documents or any documents executed pursuant to this
Agreement and/or the other security Documents. The Bank may disclose to a
potential assignee, transferee or participant or to any other person who may
propose entering into a contractual relations with the Bank in relation this
Agreement such information about the Borrower and the Security Parties as the
Bank shall reasonably consider appropriate.
23.
EXPENSES
(a)
The
Borrower shall reimburse the Bank immediately upon demand for all expenses
including but not limited to the fees and expenses of the Legal Counsels of the
Insurance Experts and/or any other Experts the Bank may use e.t.c. as well as
all legal fees and disbursements printing costs and other out of pocket expenses
of whatsoever nature incurred by the Bank
(i)
in
the negotiation preparation execution and where relevant registration of any of
the Security Documents and of any amendment or extension of or granting of any
waiver or consent hereunder and/or any other Security Document
(ii)
in
contemplation of, or the enforcement of or preservation of any rights under any
of the Security Documents or otherwise in respect of moneys owing under any of
the Security Documents
(iii)
all
fees and expenses payable pursuant to the present Clause shall be paid together
with value added tax or any other tax (if any) properly chargeable thereon. Any
value added tax or other tax chargeable in respect of any services supplied by
the Bank under this Agreement shall be paid in addition to any sum agreed to be
paid hereunder.
(b)
The
Borrower shall pay all Taxes, the Security Documents are or at any time may be
subject and shall indemnify the Bank against any liabilities costs claims and
expenses resulting from any omission to pay or delay in paying any such duties
levies, dues and/or taxes.
23.1
If
the Bank pays any of the amounts mentioned above as payable by the Bank, the
Borrower shall reimburse same to the Bank together with interest at the rate
referred to in Clause 8.4. from the date of Bank’s actual disbursement or loss
to the date of payment to the Bank. The expenses are payable on
demand.
24. NOTICE
Each
notice, request, demand or other communication to be given or made hereunder
and/or any, other Security Document shall he given in writing addressed to the
Borrower c/o Eurobulk Ltd. at 40, Agiou Konstantinou Str., 151 24 Maroussi,
Greece, fax no 0030 2111 804097 who is hereby irrevocably appointed by the
Borrower as its agent and who is empowered by it to receive and take delivery on
Borrower’s behalf and account all documents and/or instruments addressed to the
Borrower of whatever nature, and the Borrower hereby confirms and warrants that
all such notifications, notices, or other
communications
e.t.c. delivered to its above agent will be considered by it as having been
delivered to and received by itself. All such notifications notices, requests
demands or other communications if addressed to the Bank shall he delivered or
mailed to the Bank at No 83, Akti Miaouli Street, Piraeus Greece or to such
other address as is notified by one party to the other party hereunder in
writing.
Any
notice, request, demand or other communication to be given or made to the
Borrower shall be deemed to have been delivered three (3) Banking Days after
having been sent to its agent appointed by them in the preceding Clause, by
first - class registered post prepaid in an envelope addressed as aforesaid but
in the case of a telex facsimile transmission or other means of
telecommunication in permanent written form or delivery by hand, such notice
shall be deemed to have been delivered at the time of dispatch. If the day of
dispatch is not a Banking Day it shall be deemed to have been received at the
opening of business on the next such Banking Day.
25.
GOVERNING LAW AND
JURISDICTION
(a)
|
This
Agreement and the Security Documents unless otherwise provided for herein,
shall be governed by and construed in accordance with English Law. The
Mortgage shall be governed by the law of the Flag State of the Vessel. The
Pledges, the Corporate Guarantee shall be governed by the laws of
Greece
|
(b)
|
For
the exclusive benefit of the Bank, the Borrower hereby irrevocably submits
itself to the non-exclusive jurisdiction of the Courts of England.
Further, the Borrower agrees that any summons, writ or other legal process
issued against any of the Security Parties either in England or Greece or
in any other country as the case may be, shall be served upon the Borrower
in Greece c/o Hill Taylor Dickinson at 2, II Merarchias Street 185 35
Piraeus Greece, fax no 0030 210 4284777), or in England c/o Messrs Hill
Taylor Dickinson at Irongate House, Duke’s Place, London EC3A 7LP, England
or to their successors, who are hereby authorised by the Borrower, acting
on its own behalf to accept such service, which shall be deemed to be good
service on the Borrower. The foregoing shall not limit the right of the
Bank to start proceedings in any other country or to serve process in any
other manner permitted by law. The Borrower hereby waives any objections
as to the inconvenience of any forum elected by the
Bank.
|
(c)
|
If
it is decided by the Bank that any such proceedings should be commenced in
any other country, then any objections as to the jurisdiction or any claim
as to the inconvenience of the forum is hereby, waived by the Borrower all
of whom the Borrower confirms that they are representing and binding, and
it is agreed and undertaken by the Borrower to accept service of legal
process and not to contest the validity of such proceedings as far as the
jurisdiction of the court or courts involved is
concerned.
|
Schedule
I
Documents
and evidence required as conditions precedent to the Loan being
made
Part 1
(a) Constitutional
documents
copies,
legalized by a lawyer and certified by an officer of the Borrower as true,
complete and up to date copies of all documents which contain or establish or
relate to the constitution and organization of the Borrower and of any corporate
shareholder of the Borrower. In case of a Liberian or Marshall Island Company,
copies of
|
(i)
|
the
transfer of subscription
|
|
(ii)
|
the
Organizational Meeting
|
|
(iii)
|
the
first Meeting of
Directors
|
|
(iv)
|
all
resolutions regarding election and resignation of Directors (if any) from
the first meeting till today.
|
(b) Corporate
authorisations
copies
of the relevant minutes containing the resolutions of the directors and
shareholders of each Security Party approving the Security Documents to which
such Security Party is, or is to be, party and authorizing the signature,
delivery and performance of such Security Party’s obligations thereunder, as
well as copies of the resolutions of the Corporate Shareholders to participate
at the relative meeting of the shareholders of the respective Security Party.
All copies of the meetings and resolutions of the Directors and Shareholders of
each such Security Party to be certified (in a certificate dated not earlier
than five Banking Days prior to the date of this Agreement) by the Secretary of
such Security Party as:
|
(i)
|
being
complete true and correct;
|
|
(ii)
|
being
duly passed at meetings duly convened and held of the directors of such
Security Party where the directors were present in person at and
throughout the said meetings and the resolutions were passed
unanimously;
|
|
(iii)
|
not
having been amended, modified or revoked;
and
|
|
(iv)
|
being
in full force and effect
|
and
duly notarised and legalised by the appropriate consul as well as the originals
or certified copies of any Powers of Attorney issued by any Security Party
pursuant to such resolutions duly notarised and legalized by the appropriate
consul.
(c)
Official
Certificates of Good Standing of the Borrower.
(d)
|
Certificate of
Incumbency:
a list of directors and officers of each Security Party
and of every corporate shareholder specifying the names and positions of
such persons, certified (in a certificate dated not earlier than five
Banking Days prior to the date of this Agreement) by an appropriate
government authority, or if this is not possible, by the Secretary of such
Security
|
Party,
or of the corporate shareholder to be true, complete and up to date and duly
notarised and legalised by the appropriate consul.
(e)
|
A
certificate, on behalf of the Borrower, by a Director having been
authorised to execute same, on which the documents mentioned sub-sections
(a), (b), (c), (d) and (e) of this Part 1 of Schedule I will lave been
attached, reading substantially as
follows:
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CERTIFICATE
“
|
I,
the undersigned,
the Secretary of (name of the Borrower or of the other
Security
|
“
|
Party)
(“the Company”), a company duly organized and existing under the laws
of
|
“
|
hereby certify that:
|
“
|
|
“
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1.
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Attached
hereto and marked “A” is a true and complete copy of the Articles of
Incorporation
|
“
|
|
and
of all documents relating to the constitution of the Company (and of all
amendments
|
“
|
|
thereof)
which are in full force and effect as of the date
hereof.
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“
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|
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“
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2.
|
Attached
hereto and marked “B” is a true and complete copy of the Minutes of a
Meeting of
|
“
|
|
the
Directors of the Company held in
on the day of
2007 at which
|
“
|
|
Meeting
all the Directors of the Company were present in person and acted
throughout and
|
“
|
|
the
Resolutions passed at the Meeting were passed unanimously and have not
been varied or
|
“
|
|
revoked
and remain in full force and effect as of the date
hereof.
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“
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|
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“
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3.
|
Attached
hereto and marked “C” is a true and complete copy of the Minutes of the
meeting
|
“
|
|
of
the Shareholders of the Company held in on the day
of
2007 at
|
“
|
|
which
meeting bearer share certificates representing all of the authorised and
issued shares of
|
“
|
|
the
Company were tabled and voted throughout by the holders thereof (or, as
the case may
|
“
|
|
be,
the registered shareholders of all of the authorised and issued shares of
the Corporation
|
“
|
|
were
present in person or by proxy and acted throughout) such meeting having
been convened
|
“
|
|
and
notice thereof having been duly waived by all persons entitled thereto and
the Resolutions
|
“
|
|
passed
at such meeting remain in full force and effect and unamended as of the
date hereof.
|
“
|
|
|
“
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4.
|
Attached
hereto marked “D” is a true and complete copy of the Power of Attorney
approved by
|
“
|
|
the
Directors and Shareholders of the Company at the Meetings described in
paragraphs, 2 and
|
“
|
|
3
above, a copy of which Power of Attorney has been attached to the Minutes
of the said
|
“
|
|
Meetings.
|
“
|
|
|
“
|
5.
|
The
Directors and Officers of the Company are, as at the date hereof, and
were, as at the date
|
“
|
|
of
the Meeting of the Directors, the following, being all the Directors and
Officers of the
|
“
|
|
Company:
|
“
|
|
|
“
|
|
|
|
Director/President
|
“
|
|
|
|
Director/Secretary
|
“
|
|
|
|
Director/Treasurer
|
“
|
|
|
“
|
6.
|
The
legal shareholder(s) of the Company is/are, as the date hereof, and
was/were, as at the date
|
“
|
|
of
the Meetings of the Directors and shareholders, that referred to in the
copy of the Minutes
|
“
|
|
of
the Meeting of Shareholders attached hereto and marked
C.
|
|
|
|
“
|
7.
|
The
name, title and specimen signature of each person who has executed or will
execute
|
“
|
|
any
of the Security Documents (as such term is defined in the Loan Agreement
referenced in
|
“
|
|
the
Resolutions certified in item 2 above) and/or any other document
incidental hereto and
|
“
|
|
thereto
on behalf of our Company are as set forth below, and each such person is
on the date
|
“
|
|
hereof
and thereunto duly authorised.
|
|
|
Name
and Title
|
|
Specimen
Signature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
I
confirm that I am duly authorised by the Company to execute this
certificate. If any
|
|
|
certification
contained herein ceases to be true and correct at any time prior to the
execution
|
|
|
and
delivery of the documentation referenced in the Resolutions in paragraph 2
above,
|
|
|
I
will immediately give to the Bank notice to that
effect.
|
|
|
|
|
|
All
terms defined in the Loan Agreement and used but not defined herein have
the meanings given to them in such Agreement.
|
|
|
|
|
|
IN
WITNESS WHEREOF, this certificate has been executed on and as of
2007
|
|
|
|
|
|
(name
of the Security Party)
|
|
|
|
|
|
by:
|
|
|
|
|
Title:
|
|
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(f) Opinions
an
opinion on the validity of the Security Documents addressed to the Bank by
special legal advisers approved by it and having particular knowledge of the
national law by which the validity of the relative Security Document may be
affected.
(g) Further
opinions
an
opinion of the legal adviser to the Borrower as to all matters of law as the
Bank shall deem relevant to the Loan Agreement as it may require.
(h) Borrower’s
process agent
a
copy, certified as a true copy by the Borrower’s solicitors of a letter from the
Borrower’s agent for receipt of service of proceedings accepting its appointment
under the Security Documents in which it is or is to be appointed as such agent;
and
(i) Insurance
Opinion
an
opinion from insurance consultants approved by the Bank, on the insurances
effected in respect of the Vessel.
(j) Arrangement
Fee
Evidence
that the Arrangement Fee has been paid in full up to the date.
Documents
and evidence required as conditions precedent and (where the context permits)
subsequent:
Part
2
Evidence
concerning the Vessel
(a)
|
Charter
free valuation and preparation of insurance report of the Vessel as at the
date determined by the Bank prior to the drawdown prepared on the basis
specified in the Agreement.
|
(b)
|
Evidence
that the Vessel has been duly registered in the ownership of its owner
under the laws and flag of its chipping registry free from any
Encumbrances (including those on its earnings, insurances, charter rights
and requisition compensation) save for those in favour of the Bank and
that the Mortgage on the Vessel has been recorded in the respective
Registry with first priority.
|
(c)
|
Evidence
that the Vessel has been surveyed at the cost of the Borrower by surveyors
appointed and/or approved by the Bank and a copy of the surveyors’ report
has been delivered to it.
|
(d)
|
Certificate
of Confirmation of Class for hull and machinery confirming that the Vessel
is classed in the highest Class of a Classification Society acceptable to
the Bank and remains free of recommendations notations affecting class.
The Bank should be notified of the Classification Society with which the
Vessel will be or is (as the case may be) classed at least fifteen days
prior to the Drawdown Date.
|
(e)
|
Due
authorisation enabling the Bank to obtain copies of class records or other
information at its discretion from the Classification Society regarding
the Vessel and a confirmation from the classification Society that it will
forward to the Bank all the quarterly listings issued in respect with that
Vessel’s condition.
|
(f)
|
Photocopies
of the Vessel’s current and unexpired trading
certificates.
|
(g)
|
Evidence
that the Vessel has been or will -on drawdown- be insured in accordance
with the insurance requirements provided for in the Schedule of this
Agreement with Underwriters, Insurance Companies, P & I and War Risks
Associations which meet with the approval of the Bank. Such evidence shall
include Hull and Machinery Marine risks full cover notes, stating all
terms and conditions listing the security involved and incorporating the
Loss Payable Clause and in the case of War Risks and Protection and
Indemnity cover the Certificate of Entry and/or cover notes if
appropriate.
|
(h)
|
Letters
of Undertaking for the Vessel acceptable to the Bank and issued by Hull
and Machinery brokers and/or War Risks Associations or brokers and
Protection & Indemnity Associations approved by the Bank for the
Vessel acceptable to the Bank.
|
(i)
|
Certified
true photocopies of the Charter or any charterparty or other contract of
employment of the Vessel which will be in force on the Drawdown
Date.
|
(j)
|
Certified
true photocopies of the management agreement relating to the Vessel and
the Manager’s Undertaking duly executed by the Manager confirming that it
will throughout the Facility Period manage the Vessel on behalf of its
Owner and subordinate all its rights against the Owner or the Vessel to
those of the Bank.
|
(k)
|
Evidence
that the Manager and the Vessel has obtained certification of compliance
with ISM Code and/or ISPS Code.
|
(l)
|
Documentary
evidence as to the light displacement tonnage of the
Vessel.
|
(m)
|
Photocopy
of the MOA in respect of the Vessel and any Addenda thereto certified as
true and complete by the legal counsel of the
Borrower.
|
(n)
|
Photocopy
of the Bill of Sale transferring title in the Vessel to the Borrower free
of all encumbrances, maritime liens and other debts whatsoever notarially
certified and legalized as well as a copy of the Protocol of Delivery and
acceptance of the Vessel and of the Commercial
Invoice.
|
(o)
|
Confirmations
by the Insurers of the Vessel addressed to the Bank that they will issue
letters of undertaking and endorse notices of assignment and loss payable
Clauses on the Insurances, as soon as they receive the respective notices
of assignment.
|
(p)
|
Evidence,
in the form of a certificate from the Vessel’s Registry proving the
Sellers’ title to the Vessel free of any Encumbrances, debts or claims of
any nature whatsoever;
|
(q)
|
Duly
certified copies of the corporate documentation of the Seller proving the
legal existence of the Seller and the due authorization of the sale of the
Vessel.
|
(r)
|
Evidence
that the ten per cent (10%) deposit in respect of the Vessel and all other
sums of money (other than the Loan) required to be paid by the Borrower to
the Seller pursuant to the M.O.A. have been duly
paid.
|
(s)
|
As
a condition subsequent authenticated copy of a Transcript of Registry
issued by the Registrar of Ships proving the registration of the Vessel in
the ownership of the Borrower and the recording of the Mortgage on first
priority. Such evidence must be produced to the Bank not later than three
(3) Banking Days after the Drawdown
Date.
|
Schedule
II
INSURANCE
REQUIREMENTS
A.
PREAMBLE
This
Schedule is an integral part of the above Agreement to which it is attached. All
the terms and conditions hereinbelow and/or any other provision concerning
Insurance in any Clause of the Security Documents form the Insurance
requirements thereof.
All
the words and expressions used in this Schedule shall have the meaning stated in
the Agreement and the following expressions shall he interpreted as
follows:
“
Approved Brokers
”: Insurance
Broker(s) and/or firm of Insurance Brokers, appointed by the Owner, as may from
time to time be approved by the Bank in writing arid/or appointed by the Bank
for the purposes of this Agreement;
“
Excess Risks
”: The proportion
(if any) of claims for general average, salvage and salvage charges and under
the standard collision clause which will not be recoverable, in consequence of
the value at which the Vessel is assessed for the purpose of such claims
exceeding its insured value;
“
Insurances
”: All the policies
and contracts of insurance as set forth under paragraph B hereinbelow which are
taken out or entered into by or for the benefit of the Owners (whether in the
sole name of the Owners or, if required by the Bank, in the joint names of the
Owners and the Bank) in respect of the Vessel and its earnings or otherwise
howsoever in connection with the Vessel and all benefits of such policies and/or
contracts (including all claims of whatsoever nature and return of
premiums);
“
Insurers
” means the
underwriters or insurance companies with whom any insurance is effected and the
associations of any protection and indemnity, FD & D or war risks or the
managers of such associations in which the Vessel may at any time be entered.
All Insurances must be contracted with Insurers approved by the
Bank;
“
Loss Payable Clause
”: The
provisions regulating the manner of payment of sums receivable under the
Insurance which are to be incorporated in the relevant insurance document, such
Loss Payable Clauses to be in the forms set out in Paragraph D (1) hereinbelow,
or such other form as may from time to time be approved in writing by the
Bank;
“
Owners
”: The owners of the
Vessel referred to in the Loan Agreement as Borrower;
“
Protection and Indemnity
Risks
”: The usual risks covered by a Protection and Indemnity Association
(whether actually covered by Protection & Indemnity Association(s) and/or
underwriters) and/or insurance companies), including the proportion (if any)
which is not recoverable in the case of collision under the standard collision
clause;
“
Required Amount
” means the
aggregate of the insured amounts on the Vessel referred to in the Loan
Agreement, which Required Amount can not be less than 120 per cent of the amount
of the Loan;
“
War Risks
”: Risks including
the risk of mines and all risks excluded from the standard form of marine policy
by the free of capture and seizure clause;
B.
INSURANCES TO BE EFFECTED AND
MAINTAINED
The
Insurance must be effected and maintained according to the provisions of the
Loan Agreement, including this Schedule and the risks set forth in this as
follows:
a. Hull
and Machinery
Insurance
against fire and usual marine risks (including Excess Risks if so required by
the Bank) on an agreed value basis, on a full cover and all risks basis
according to English or American or similar Hull Clauses, for the Required
Amount, with such reasonable deductible and upon such terms as shall from time
to time be approved in writing by the Bank;
b. Increased
Value
(if
required by the Bank) Insurance of increased value (Total Loss only, Excess
Liabilities included) as per the applicable English or American Institute
Clauses or similar clauses (Disbursement/Increased Value/Excess Liabilities) up
to an amount no less than the Required Amount, as shall from time to time be
approved in writing by the Bank;
c. War
Risks
Insurance
against War Risks according to London Institute War Clauses or similar, on an
agreed value basis, for the Required Amount upon such terms as shall from time
to time be approved in writing by the Bank, attaching also the so-called War
Protection and Indemnity Clauses. If not fully covered by these insurances, crew
war liabilities insurance shall have to be effected separately;
d. Protection
and Indemnity
Insurance
against Protection and Indemnity Risks for the full value and tonnage of the
Vessel insured (as approved in writing by the Bank) in accordance with the
relevant Rules/Protection and Indemnity Institute Clauses and deductibles
provided thereof and/or agreed for all risks including Pollution with Excess
Liability insured by P&I Club(s) and/or underwriter(s) and/or insurance
company(ies) approved in writing by the Bank. No risks will be excluded and no
deductibles provided for in the rules and/or agreed will be altered, without the
written consent of the Bank having been previously obtained. If crew liabilities
(inductively, loss of life, injury or illness) have been excluded from the
insurance cover or insured on a deductible excess basis, such liabilities shall
be further insured separately with other underwriters, always acceptable to the
Bank and upon such terms as shall from time to time be approved in writing by
the Bank;
e. Pollution
Liability
Supplementary
insurance of oil pollution liability including full cover of pollution risks for
the amount up to the maximum commercially available limit and upon such terms as
shall be commercially available and approved in writing by the
Bank;
f. USA
Pollution Risk
Supplementary
insurance of oil pollution liability (in the event the Vessel insured is
scheduled to operate within or nearby USA jurisdiction) for an amount and upon
such terms as shall from time to time be approved in writing by the
Bank
g. FD
& D Cover
Insurance
of Freight, Demurrage and Defence upon such terms and conditions as shall from
time to time be approved in writing by the Bank;
h. Mortgagee’s
Interest
Insurance
of the mortgagee’s interest, to be effected and maintained by the Bank, in the
name of the Bank, but at the expenses of the Owner, or Borrower including (if
required by the Bank at its sole discretion) Mortgagee’s Asset Protection
(Pollution) coverage and/or additional perils pollution in the event the Vessel
insured trades in the United States waters or in the Exclusive Economic Zone of
the United States (as such term is used in the United States Oil Pollution Act
of 1990) or other similar insurance in respect of any pollution claim(s) against
such Vessel insured, for the Required Amount, calculated at the last Interest
Payment Date, under the “german wording” or similar, for 360 days (or less) or
upon such terms as shall from time to time be determined by the
Bank;
i. Other
Insurance
of such other matters of whatsoever nature and howsoever arising in respect of
which the Bank would at any time reasonably require the Vessel to be
insured;
j. Port
Risks
(in
the event the Vessel insured is laid up for an extended period) Insurance
effected and maintained with prior written consent of the Bank instead of the
insurances required under the provisions of sub-clauses a, e, f, and k above,
against Hull and Machinery Risks, Protection and Indemnity Risks, subject to the
conditions of “Institute Time Clauses Hulls, Port Risks”, or similar, including
War Risks subject to the conditions of “Institute War and Strikes Clauses,
Hulls, Time”, or similar, extended to include War Protection and Indemnity Risks
or other such similar insurance clauses or contact the terms of which shall be
approved in writing by the Bank.
C.
TERMS AND OBLIGATIONS FOR EFFECTING AND
MAINTAINING INSURANCES
It
is hereby undertaken by the Owner and/or any other person which is obliged under
the Security Documents, that until all moneys payable to the Bank (whether
actually or contingently) pursuant to the Loan Agreement and the other Security
Documents have been paid in full, the Owner shall comply with the following
undertaking:
1.
To
effect and maintain at all timers the Insurances in form and substance and under
terms satisfactory to the Bank.
2.
To
effect the Insurances in Dollars or such other currency as the Bank may approve
and through the Approved Brokers (other than the said mortgagee’s interest
insurance which shall be effected through
brokers
nominated by the Bank) and with such Insurers as shall from time to time be
appointed and/or be approved in writing by the Bank.
3.
To
effect and maintain the Insurances free of cost and expense to the Bank in the
sole name of the Owner or, if so required by the Bank, in the joint names of the
Owner and the Bank (but without liability on the part of the Bank for premiums
or calls).
4.
Unless
otherwise agreed in writing by the Bank, the amount in respect of which the
Insurances should be effected shall be equal to at least the market value of the
Vessel and shall at least be 120% of the amount of the Loan and the Swap
Exposure.
5.
Any
person which is obliged under the Loan Agreement to which these Insurance
Requirements arc attached to effect and maintain the Insurances, it will be
obliged and hereby undertakes, jointly and severally with any other person
having the same obligation to (and will ensure that the Owner, if they are
different persons shall):
(a)
|
procure
and ensure that the Approved Brokers and/or Insurers as the case may be,
shall send to the Bank a Letter of Undertaking in respect of the
Insurances in form and substance satisfactory to the Bank and a Notice of
Cancellation as Paragraph D hereinbelow. Said Letter of
Undertaking shall be in accordance with the form recommended by Lloyd’s
Insurance Brokers Committee, or any subsequent LIBC form, or any other
similar form, which is approved by the Bank and shall include a further
undertaking to give immediate notice of any insurance being subject to the
Condition Survey Warranty (J.H. 115) and/or structural Conditions Warranty
(J.H. 722) and/or the Classification Clause (Hulls) dated 29/6/89, fifteen
days prior to the attachment date of any insurance bearing any of these
warranties, or in such shorter time as the Bank may
agree.
|
(b)
|
If
any of the Insurances form part of a fleet cover, procure that the Vessel
shall be considered by insurers as separately insured and further procure
that the Approved Brokers and/or Insurers as the case may be, shall
undertake to the Bank that they shall neither set off against any claims
in respect of the Vessel any premiums due in respect of other vessels
under such fleet cover or any premiums due for other insurances, nor
cancel the insurance of the Vessel for reason of non-payment of premiums
for other vessels under such fleet cover or of premiums for such other
insurances, and shall undertake to issue a separate policy in respect of
the Vessel if and when so requested by the
Bank;
|
(c)
|
punctually
pay all premiums, calls, contributions or other sums payable in respect of
all Insurances and produce all relevant receipts and details or other
evidence of payment when so required by the
Bank;
|
(d)
|
notify
the Bank of the names of the brokers and/or all of the Insurers proposed
to be employed by the Owners for the purposes of the renewal of such
Insurances and of the amounts and terms in which such Insurances are
proposed to be renewed and the risks to be covered at least twenty one
(21) days before the relevant policies, contracts or entries, expire, (or
in such shorter period as the Bank may agree), and, subject to compliance
with any requirements of the Bank under these Insurance Requirements,
procure that appropriate instructions for the renewal of such Insurances
on the terms so specified are given to the Approved Brokers and/or to the
approved Insurers at least fourteen (14) days before the relevant
policies, contracts or entries expire, and that the Approved Brokers
and/or the approved Insurers will at least seven (7) days before such
expiry (or within such shorter period as the Bank may from time to time
agree) confirm in writing to the Bank as and when such renewals have been
effected in accordance with the instructions so
given
|
and
to procure that a Cancellation Clause shall be endorsed on the relevant
policies, contracts or entries for a Notice of Cancellation to the Bank on the
terms set out in Paragraph D of this Schedule.
(e)
|
arrange
for the execution and delivery of such guarantees or indemnities as may
from time to time be required by any protection and indemnity or war risks
association;
|
(f)
|
deposit
with the Approved Brokers (procure the deposit of) all slips, cover notes,
policies, certificates of entry or other instruments of insurance from
time to time issued and procure that the interest of the Bank shall be
endorsed thereon by incorporation of the relevant Loss Payable Clause and
by means of a Notice of Assignment (signed by the Owners) in the form set
out in Paragraph D hereinbelow or in such other form as may from time to
time be agreed in writing by the Bank, and that the Bank shall be
furnished with pro forma copies
thereof.
|
(g)
|
procure
that the Insurers shall note the Bank’s interest and endorse the relevant
Loss Payable Clause on the relevant certificates of entry or policies and
shall furnish the Bank with a copy of such certificates of entry or
policies;
|
(h)
|
do
all other necessary things and provide all such documents, evidence and
information, so as to enable the Bank to collect and recover any moneys
which shall at any time become due in respect of the
Insurances;
|
(i)
|
not
employ or permit the Vessel to be employed in any other way than in
conformity with the terms of the Insurances (including any warranties
express or implied therein) and with any applicable law without first
obtaining the consent of the Insurers to such employment and complying
with such requirements as to extra premium or otherwise as the Insurers
may prescribe;
|
(j)
|
apply
all sums receivable under the Insurances which are paid to the Owner in
accordance with the Loss Payable Clauses in repairing all damage and/or in
discharging the liability in respect of which such sums shall have been
received;
|
(k)
|
in
case that the Vessel is scheduled to operate or operates within or nearby
USA, make all the Protection & Indemnity Club US Voyage Quarterly
Declarations for each quarter in time and/or obtain prior to the Vessel’s
arrival in US territorial waters all relevant certificates as from time to
time may be required, such as COFR, or any other similar, and forward
copies of same to the Bank;
|
(l)
|
not
without the prior consent of the Bank alter any insurance nor make,
consent or agree to any act or omission which would or might render any
insurance invalid, void, voidable or unenforceable or render any sum paid
out under any insurance repayable in whole or in
part.
|
(m)
|
reimburse
the Bank for any premiums paid by the Bank or pay to the Bank the amount
of any premiums to be paid by the Bank in order to effect and maintain a
policy of Mortgagee’s Interest Insurance or any other additional insurance
that the Bank decides to take at its discretion as well as reimburse the
Bank for all expenses and premiums paid by the Bank in order to effect
insurances that the Owner failed to
effect.
|
(6)
Fleet
cover is permitted only subject to the prior written approval of the Bank under
the conditions set out in Paragraph 5(b) above and the Bank prior express
written approval of fleet aggregate deductibles.
D.
FORMS AND WORDING
(a)
Loss payable clause
The
Loss Payable Clauses to be attached to the Insurances should be substantially in
the following form:
(1)
Hull and Machinery (Marine
& War Risks)
: It is hereby noted that by an assignment dated
the Owner
(insert name)
has assigned to EFG EUROBANK ERGASIAS S.A (the Mortgagees) all rights title and
interest in and to all policies and contracts of insurance from time to taken
out or entered into by or for the benefit of the Owner in respect of
(insert name of Vessel)
and all benefits arising thereof including all claims of whatsoever nature
(including return of premiums) thereunder and accordingly:
Save
as hereinafter provided, all claims arising under the Insurances, whether in
respect of an actual, constructive, compromised or arranged Total Loss of the
Vessel or otherwise howsoever, shall be payable to the Mortgagees or as it may
direct, (provided that the written consent of the Mortgagees shall be obtained
prior to a compromised or arranged Total Loss being agreed with the Insurers)
and provided always that unless and until written notice to the contrary has
been received from the Mortgagees, claims (other than Total Loss claims) not
exceeding USD three hundred United States Dollars (USD 300,000) or its
equivalent in any other currency (inclusive of any deductible) in respect of any
one claim may be paid to the Owner or its order.
(2)
Protection and Indemnity
Risks
: Payment of any recovery in respect of protection and indemnity
risks which
(the “Owner”) is entitled to make out of the funds of the Insurers in respect of
any liability, costs or expenses incurred by the Owner, shall be made to the
Owner or to its order unless and until the Insurer receives notice to the
contrary from EFG EUROBANK ERGASIAS S.A (the Mortgagees) in which event all
recoveries shall thereafter be paid to the Mortgagees or to its order; provided
that no liability whatsoever shall attach to the Insurers or its agents for
failure to comply with the latter obligation until the expiry of two clear
business days from the receipt of such notice.
(b)
Notice of Assignment.
The
notice of assignment shall be in the following form:
(For
attachment by way of endorsement to the Policy)
the Owner of M/V (the “Vessel”) , HEREBY GIVE NOTICE that by an assignment of
even date herewith and entered into by us with EFG EUROBANK ERGASIAS S.A there
have been assigned by us to the said Bank, as Mortgagees of the Vessel, all
insurances in respect thereof and all benefits arising under the insurances
taken or entered into from time to time by the Owners or for the benefit of the
Owners in respect
thereof
including but not limited to the insurances constituted by the policy whereon
this notice is endorsed or shall be endorsed.
Signed
|
|
For
and behalf of
|
|
Owner
|
|
Dated
|
|
(c)
Notice of Cancellation
Owners
to procure that Notices of Cancellation of Insurances be given by the Insurers
and/or by the brokers to EFG EUROBANK ERGASIAS S.A. at its branch office at 83.
Akti Miaouli street, Piraeus, 185 38, Greece (and such Notices of Cancellation
be endorsed on the Insurances) providing that the same will be given to the Bank
in the following cases:
(1)
immediately
in the event of any material changes affecting the insurances.
(2)
not
later than ten days prior to the expiry of any of the insurances, if
instructions have not been received for the renewal thereof and; in the event of
instructions being received to renew, of the details thereof;
(3)
immediately
if the underwriters give notice of their intention to cancel the Insurances
provided that the underwriters will not exercise any rights of cancellation by
reason of unpaid premiums without giving the Bank fourteen (14) days from the
receipt of such notice in which to remit the sums due.
Schedule
III
Notice
of Drawdown
To:
EFG
EUROBANK ERGASIAS S.A
83,
Akti Miaouli street
Piraeus
Dear
Sirs,
NOTICE
OF DRAWDOWN
We
refer to the Loan Agreement dated 29 October 2007 made between the Bank and the
Borrower (“
the Loan
Agreement
”).
Words
and phrases defined in the Agreement shall have the same meanings when used
herein.
Pursuant
to Clause 2.2 of the Loan Agreement we hereby irrevocably request that you
advance the amount of
Dollars
representing the Loan to us on
2007,
which is a Business Day, by paying the said sum as to
We
hereby warrant that the representations and warranties contained in Clause 4 of
the Agreement are true and correct at the date hereof and will be true and
correct on
2007
and that no Event of Default nor any event which would with the giving of notice
and/or the passage of time and/or the satisfaction of any materiality test
constitute an Event of Default has occurred or is continuing, and that no Event
of Default will result from the drawdown of the Loan.
We
select the period of [ ] months as the first interest period for the whole of
the said amount.
|
Yours
faithfully,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
and on behalf of
|
|
|
Trust
Navigation Corp.
|
|
Schedule
IV
PAYMENT
SCHEDULE
Instalment
No
|
Payment
Date
|
Repayment
Instalment
|
Total
Principal Amount
|
|
|
|
|
1
|
3
months after the Drawdown Date
|
USD
1,850,000
|
USD
13,150,000
|
2
|
6
months after the Drawdown Date
|
USD
1,850,000
|
USD
11,300,000
|
3
|
9
months after the Drawdown Date
|
USD
1,850,000
|
USD
9,450,000
|
4
|
12
months after the Drawdown Date
|
USD
1,850,000
|
USD
7,600,000
|
5
|
15
months after the Drawdown Date
|
USD
750,000
|
USD
6,850,000
|
6
|
18
months after the Drawdown Date
|
USD
750,000
|
USD
6,100,000
|
7
|
21
months after the Drawdown Date
|
USD
750,000
|
USD
5,350,000
|
8
|
24
months after the Drawdown Date
|
USD
750,000
|
USD
4,600,000
|
9
|
27
months after the Drawdown Date
|
USD
550,000
|
USD
4,050,000
|
10
|
30
months after the Drawdown Date
|
USD
550,000
|
USD
3,500,000
|
11
|
33
months after the Drawdown Date
|
USD
550,000
|
USD
2,950,000
|
12
|
36
months after the Drawdown Date
|
USD
550,000
|
USD
2,400,000
|
|
Plus
Balloon Payment payable together with the 12
th
Instalment
|
USD2,400,000
|
|
Schedule
V
DESIGNATION
NOTICE
To:
EFG EUROBANK ERGASIAS S.A.
83,
Akti Miaouli Street
185
38 Piraeus
Greece
For
the attention of Mr Sissy Hydreou
[date]
Dear
Sirs
Loan
Agreement dated 29 October 2007 made between (i) ourselves as Borrower and (ii)
yourselves as Lender and Swap Bank (the “Loan Agreement”).
We
refer to:
1. The
Loan Agreement;
2. the
Master Swap Agreement; and
3. a
Confirmation delivered pursuant to the said Master Swap Agreement
dated
[].
In
accordance with the terms of the Loan Agreement, we hereby give you notice of
the said Confirmation and hereby confirm that the Transaction evidenced by it
will be designated as a “Designated Transaction” for the purposes of the Loan
Agreement and the Finance Documents.
Yours
faithfully,
Stefania
Karmiri
for
and on behalf of
TRUST
NAVIGATION CORP.
IN
WITNESS whereof the parties hereto have caused this Agreement to be executed the
day and year first above written.
SIGNED
and DELIVERED
|
)
|
|
By
Stefania Karmiri
|
)
|
|
the
duly appointed Attorney for and on
|
)
|
|
behalf
of
TRUST NAVIGATION
CORP.
|
)
|
|
in
the presence of Katerina Avramidou
|
)
|
|
|
|
|
|
|
|
SIGNED
and DELIVERED
|
)
|
|
by
Mrs. Stavroula-Sotiria Hydreou and Mr John Tsirikos
|
)
|
|
the
duly authorised attorneys
|
)
|
|
for
and on behalf of
|
)
|
|
EFG EUROBANK ERGASIAS
S.A
.
|
)
|
|
in
the presence of Katerina Avramidou
|
|
|
Registrant’s Subsidiaries
|
Jurisdiction of
Organization
|
|
|
Alcinoe
Shipping Limited
|
Republic
of Cyprus
|
Allendale
Investments S.A.
|
Republic
of Panama
|
Alterwall
Business Inc.
|
Republic
of Panama
|
Diana
Trading Ltd.
|
Republic
of the Marshall Islands
|
Manolis
Shipping Ltd.
|
Republic
of the Marshall Islands
|
Oceanpride
Shipping Limited
|
Republic
of Cyprus
|
Oceanopera
Shipping Limited
|
Republic
of Cyprus
|
Prospero
Maritime Inc.
|
Republic
of the Marshall Islands
|
Salina
Shipholding Corp.
|
Republic
of the Marshall Islands
|
Searoute
Maritime Limited
|
Republic
of Cyprus
|
Xenia
International Corporation
|
Republic
of the Marshall Islands
|
Xingang
Shipping Ltd.
|
Republic
of Liberia
|
Exhibit
12.1
CERTIFICATION OF THE
PRINCIPAL EXECUTIVE OFFICER
I,
Aristides J. Pittas, certify that:
1. I have
reviewed this annual report on Form 20-F of Euroseas Ltd.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4. The
Company's other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financing reporting (as
defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Company and
have:
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
evaluated
the effectiveness of the Company’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation;
and
|
d)
|
disclosed
in this report any change in the Company’s internal control over financial
reporting that occurred during the period covered by this annual report
that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
|
5. The
Company's other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent function):
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial information;
and
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control
over financial
reporting.
|
Date: May
12, 2008
/s/ Aristides J.
Pittas
Aristides
J. Pittas
Chief
Executive Officer
Exhibit
12.2
CERTIFICATION OF THE
PRINCIPAL FINANCIAL OFFICER
I,
Anastasios Aslidis, certify that:
1. I have
reviewed this annual report on Form 20-F of Euroseas Ltd.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financing reporting (as
defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Company and
have:
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
evaluated
the effectiveness of the Company’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
|
d)
|
disclosed
in this report any change in the Company’s internal control over financial
reporting that occurred during the period covered by this annual report
that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
|
5. The
Company's other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company’s
auditors and the audit committee of the Company’s board of directors (or persons
performing the equivalent function):
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial information; and
|
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control
over financial reporting.
|
Date: May
12, 2008
/s/ Anastasios
Aslidis
Anastasios
Aslidis
Chief
Financial Officer
Exhibit
13.1
CHIEF
EXECUTIVE OFFICER CERTIFICATION
PURSUANT
TO 18 U.S.C. SECTION 1350
In
connection with this Annual Report of Euroseas Ltd. (the “Company”) on Form 20-F
for the year ended December 31, 2007 as filed with the Securities and Exchange
Commission (the “SEC”) on or about the date hereof (the “Report”), I, Aristides
J. Pittas, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
A signed
original of this written statement has been provided to the Company and will be
retained by the Company and furnished to the SEC or its staff upon
request.
Date: May
12, 2008
/s/ Aristides J.
Pittas
Chief
Executive Officer
Exhibit
13.2
CHIEF
FINANCIAL OFFICER CERTIFICATION
PURSUANT
TO 18 U.S.C. SECTION 1350
In
connection with the Annual Report of Euroseas Ltd. (the “Company”) on Form 20-F
for the year ended December 31, 2007 as filed with the Securities and Exchange
Commission (the “SEC”) on or about the date hereof (the “Report”), I, Anastasios
Aslidis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1)
|
The
Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
A signed
original of this written statement has been provided to the Company and will be
retained by the Company and furnished to the SEC or its staff upon
request.
Date: May
12, 2008
/s/ Anastasios
Aslidis
Chief
Financial Officer
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statements No. 333
-142794 on Form F-3 and No. 333-148124 on Form S-8 of our reports dated May 8,
2008, relating to the consolidated financial statements of Euroseas Ltd. and
subsidiaries (the “Company”) and the effectiveness of the Company’s internal
control over financial reporting, appearing in this Annual Report on Form 20-F
of the Company for the year ended December 31, 2007.
Deloitte.
Hadjipavlou,
Sofianos & Cambanis S.A.
Athens,
Greece
May
12, 2008