UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
[ ]
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (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,
2009
OR
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _________________ to _________________
OR
[ ]
|
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 _________________
Commission
file number
SCORPIO
TANKERS INC.
|
(Exact
name of Registrant as specified in its charter)
|
|
(Translation
of Registrant's name into English)
|
|
Republic
of The Marshall Islands
|
(Jurisdiction
of incorporation or organization)
|
9,
Boulevard Charles III Monaco 98000
|
(Address
of principal executive offices)
Mr.
Emanuele Lauro,
+377-9898-5716
9,
Boulevard Charles III Monaco 98000
|
(Name,
Telephone Number and Address of Company Contact
Person)
|
Securities
registered or to be registered pursuant to section 12(b) of the
Act.
|
Name
of each exchange
|
Title
of each class
|
on
which registered
|
Common
Stock, par value of $0.01 per share
|
New
York Stock Exchange
|
Securities
registered or to be registered pursuant to section 12(g) of the
Act.
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.
Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report.
As of
December 31, 2009, there were 1,500 outstanding common shares with a par value
$1.00 per share
.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined by Rule 405 of the Securities Act.
|
Yes [ ] No [
X ]
|
If
this report is an annual or transitional report, indicate by check mark if
the registrant is not required to file reports pursuant to section 13 or
15(d) of the Securities Exchange Act of
1934.
|
Yes [ ] No [
X ]
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90
days.
|
Yes [
X ] No [ ]
|
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
|
Yes [ ] 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" in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer [ ]
Accelerated
filer [ ]
Non-accelerated
filer [ X ]
|
Indicate
by check mark which basis of accounting the registrant has used to prepare
the financial statements included in this filing:
|
U.S.
GAAP [ ]
International
Financial Reporting Standards as issued by the International Accounting
Standards Board [ X ]
Other [ ]
|
If
"Other" has been checked in response to the previous question, indicate by
check mark which financial statement item the registrant has elected to
follow.
|
Item
17 [ ]
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).
|
Yes [ ]
No [ X ]
|
SCORPIO
TANKERS INC.
INDEX TO
REPORT ON FORM 20-F
|
|
Page
|
|
|
|
PART
I.
|
|
|
|
|
|
ITEM
1.
|
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
3
|
ITEM
2.
|
OFFER
STATISTICS AND EXPECTED TIMETABLE
|
3
|
ITEM
3.
|
KEY
INFORMATION
|
3
|
A.
|
Selected
Financial Data
|
3
|
B.
|
Capitalization
and Indebtedness
|
6
|
C.
|
Reasons
for the Offer and Use of Proceeds
|
6
|
D.
|
Risk
Factors
|
6
|
ITEM
4.
|
INFORMATION
ON THE COMPANY
|
20
|
A.
|
History
and Development of the Company
|
20
|
B.
|
Business
Overview
|
20
|
C.
|
Organizational
Structure
|
30
|
D.
|
Property,
Plant and Equipment
|
30
|
ITEM
4A.
|
UNRESOLVED
STAFF COMMENTS
|
30
|
ITEM
5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
30
|
A.
|
Operating
Results
|
30
|
B.
|
Liquidity
and Capital Resources
|
37
|
C.
|
Research
and Development, Patents and Licenses, Etc.
|
40
|
D.
|
Trend
Information
|
41
|
E.
|
Off
Balance Sheet Arrangements
|
41
|
F.
|
Tabular
Disclosure of Contractual Obligations
|
41
|
G.
|
Safe
Harbor
|
42
|
ITEM
6.
|
DIRECTORS,
SENIOR MANAGEMENT and EMPLOYEES
|
43
|
A.
|
Directors
and Senior Management
|
43
|
B.
|
Compensation
|
46
|
C.
|
Board
Practices
|
47
|
D.
|
Employees
|
47
|
E.
|
Share
Ownership
|
47
|
ITEM
7.
|
MAJOR
SHAREHOLDERS AND CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
|
48
|
A.
|
Major
Shareholders
|
48
|
B.
|
Related
Party Transactions
|
48
|
C.
|
Interests
of Experts and Counsel
|
52
|
ITEM
8.
|
FINANCIAL
INFORMATION
|
52
|
A.
|
Consolidated
Statements and Other Financial Information
|
52
|
B.
|
Significant
Changes
|
53
|
ITEM
9.
|
THE
OFFER AND LISTING
|
53
|
ITEM
10.
|
ADDITIONAL
INFORMATION
|
53
|
A.
|
Share
Capital
|
53
|
B.
|
Memorandum
and Articles of Association
|
53
|
C.
|
Material
Contracts
|
53
|
D.
|
Exchange
Controls
|
54
|
E.
|
Taxation
|
54
|
F.
|
Dividends
and Paying Agents
|
60
|
G.
|
Statement
by Experts
|
61
|
H.
|
Documents
on Display
|
61
|
I.
|
Subsidiary
Information
|
61
|
ITEM
11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
61
|
ITEM
12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
62
|
|
|
|
PART
II.
|
|
|
|
|
|
ITEM
13.
|
DEFAULTS,
DIVIDENDS ARREARAGES AND DELINQUENCIES
|
62
|
ITEM
14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
62
|
ITEM
15T.
|
CONTROLS
AND PROCEDURES
|
62
|
A.
|
Disclosure
Controls and Procedures
|
62
|
B.
|
Management's
annual report on internal control over financial reporting
|
62
|
C.
|
Changes
in internal control over financial reporting
|
63
|
ITEM
16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
63
|
ITEM
16B.
|
CODE
OF ETHICS
|
63
|
ITEM
16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
63
|
A.
|
Audit
Fees
|
63
|
B.
|
Audit-Related
Fees
|
63
|
C.
|
Tax
Fees
|
63
|
D.
|
All
Other Fees
|
63
|
E.
|
Audit
Committee's Pre-Approval Policies and Procedures
|
63
|
F.
|
Audit
Work Performed by Other Than Principal Accountant If Greater Than
50%
|
63
|
ITEM
16D.
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
63
|
ITEM
16E
|
PURCHASE
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
|
63
|
ITEM
16F.
|
CHANGE
IN REGISTRANT'S CERTIFYING ACCOUNTANT
|
63
|
ITEM
16G.
|
CORPORATE
GOVERNANCE
|
64
|
|
|
|
PART
III.
|
|
|
|
|
|
ITEM
17.
|
FINANCIAL
STATEMENTS
|
64
|
ITEM
18.
|
FINANCIAL
STATEMENTS
|
64
|
ITEM
19.
|
EXHIBITS
|
64
|
|
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-1
|
|
|
|
SIGNATURE
|
|
|
Cautionary Statement
Regarding Forward-Looking Statement
Matters
discussed in this report may constitute forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to provide
prospective information about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements, which are other
than statements of historical facts. 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. The words "believe," "anticipate," "intends," "estimate,"
"forecast," "project," "plan," "potential," "may," "should," "expect," "pending"
and similar expressions identify forward-looking statements.
The
forward-looking statements in this report are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including without
limitation, our management's examination of historical operating trends, data
contained in our records and other data available from third parties. Although
we believe that these assumptions were reasonable when made, because these
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond our
control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.
In
addition to these important factors, other important factors that, in our view,
could cause actual results to differ materially from those discussed in the
forward-looking statements include the failure of counterparties to fully
perform their contracts with us, the strength of world economies and currencies,
general market conditions, including fluctuations in charter rates and vessel
values, changes in demand for tanker vessel capacity, changes in our operating
expenses, including bunker prices, drydocking and insurance costs, the market
for our vessels, availability of financing and refinancing, charter counterparty
performance, ability to obtain financing and comply with covenants in such
financing arrangements, changes in governmental rules and regulations or actions
taken by regulatory authorities, potential liability from pending or future
litigation, general domestic and international political conditions, potential
disruption of shipping routes due to accidents or political events, vessels
breakdowns and instances of off-hires and other factors. Please see our Risk
Factors in Item 3 of this report for a more complete discussion of these and
other risks and uncertainties.
In this
annual report, "we", "us", "our", and the "Company", all refer to Scorpio
Tankers Inc.
ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not
applicable.
ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not
applicable.
ITEM
3. KEY INFORMATION
|
A.
|
Selected
Financial Data
|
The
following table sets forth our selected consolidated financial data and other
operating data. The selected financial data in the tables as of December 31,
2009 and 2008 and for each of the three years in the period ended December 31,
2009 are derived from our audited consolidated financial statements, which have
been presented herein, and which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). This data should be read in
conjunction with the consolidated financial statements and the notes thereto
included in "ITEM 18. Financial Statements" in this annual report and "ITEM 5.
Operating and Financial Review and Prospects."
The
selected financial data as of December 31, 2007 are derived from our audited
consolidated financial statements, which have been prepared in accordance with
IFRS as issued by the IASB, and which are not presented herein. The selected
financial data for 2006 has not been derived from audited financial statements
as consolidated financial statements of the Company for 2006 do not exist.
Rather, the selected financial data for 2006 has been prepared by aggregating
the historical stand alone IFRS financial information of each of the three
subsidiaries which were transferred to us. In accordance with Item 3.A.1 of
Form 20-F, we are omitting fiscal year 2005 from the selected financial data as
we did not prepare consolidated financial statements for this period and such
information cannot be provided without unreasonable effort and
expense.
Prior to
October 1, 2009, our historical consolidated financial statements were prepared
on a carve-out basis from the financial statements of our parent company,
Liberty Holding Company Ltd., or Liberty. These carve-out financial
statements include all assets, liabilities and results of operations of the
three vessel-owning subsidiaries owned by us, formerly subsidiaries of Liberty,
for the periods presented. For the periods presented, certain of the expenses
incurred by these subsidiaries for commercial, technical and administrative
management services were under management agreements with other Scorpio Group
entities, which are parties related to us, consisting of Scorpio Ship Management
S.A.M., or SSM; and Scorpio Commercial Management S.A.M., or SCM; which provide
us and third parties with technical and commercial management services,
respectively; Liberty, which provides us with administrative services; and other
affiliated entities. Since agreements with related parties are by definition not
at arms length, the expenses incurred under these agreements may have been
different than the historical costs incurred if the subsidiaries had operated as
unaffiliated entities during prior periods. Our estimates of any differences
between historical expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed in the notes to the
historical consolidated financial statements included elsewhere in this annual
report.
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income
Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
revenue
|
|
$
|
27,619,041
|
|
|
$
|
39,274,196
|
|
|
$
|
30,317,138
|
|
|
$
|
35,751,632
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charterhire
|
|
|
(3,072,916
|
)
|
|
|
(6,722,334
|
)
|
|
|
-
|
|
|
|
-
|
|
Vessel
operating costs
|
|
|
(8,562,118
|
)
|
|
|
(8,623,318
|
)
|
|
|
(7,600,509
|
)
|
|
|
(7,061,514
|
)
|
General
and administrative expenses
|
|
|
(416,908
|
)
|
|
|
(600,361
|
)
|
|
|
(590,772
|
)
|
|
|
(376,338
|
)
|
Depreciation
|
|
|
(6,834,742
|
)
|
|
|
(6,984,444
|
)
|
|
|
(6,482,484
|
)
|
|
|
(7,058,093
|
)
|
Impairment
of vessels
(1)
|
|
|
(4,511,877
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
(23,398,561
|
)
|
|
|
(22,930,457
|
)
|
|
|
(14,673,765
|
)
|
|
|
(14,495,945
|
)
|
Operating
income
|
|
|
4,220,480
|
|
|
|
16,343,739
|
|
|
|
15,643,373
|
|
|
|
21,255,687
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense - bank loan
|
|
|
(699,115
|
)
|
|
|
(1,710,907
|
)
|
|
|
(1,953,344
|
)
|
|
|
(3,041,684
|
)
|
Gain/(loss)
on derivative financial instruments
|
|
|
148,035
|
|
|
|
(2,463,648
|
)
|
|
|
(1,769,166
|
)
|
|
|
816,219
|
|
Interest
income
|
|
|
4,929
|
|
|
|
35,492
|
|
|
|
142,233
|
|
|
|
152,066
|
|
Other
expenses, net
|
|
|
(256,292
|
)
|
|
|
(18,752
|
)
|
|
|
(9,304
|
)
|
|
|
(24,034
|
)
|
Total
other expenses, net
|
|
$
|
(802,443
|
)
|
|
$
|
(4,157,815
|
)
|
|
$
|
(3,589,581
|
)
|
|
$
|
(2,097,433
|
)
|
Net
income
|
|
$
|
3,418,037
|
|
|
$
|
12,185,924
|
|
|
$
|
12,053,792
|
|
|
$
|
19,158,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
and earnings per common share
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
5,589,147
|
|
|
|
5,589,147
|
|
|
|
5,589,147
|
|
|
|
5,589,147
|
|
Basic
earnings per share
|
|
$
|
0.61
|
|
|
$
|
2.18
|
|
|
$
|
2.16
|
|
|
$
|
3.43
|
|
Diluted
earnings per share
|
|
$
|
0.61
|
|
|
$
|
2.18
|
|
|
$
|
2.16
|
|
|
$
|
3.43
|
|
Dividends
per share
|
|
$
|
1.55
|
|
|
$
|
3.36
|
|
|
$
|
1.27
|
|
|
$
|
2.01
|
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
444,496
|
|
|
$
|
3,607,635
|
|
|
$
|
1,153,743
|
|
|
$
|
6,016,470
|
|
Vessels
and drydock
|
|
$
|
99,594,267
|
|
|
$
|
109,260,102
|
|
|
$
|
116,244,546
|
|
|
$
|
122,727,030
|
|
Total
assets
|
|
$
|
104,423,386
|
|
|
$
|
117,111,827
|
|
|
$
|
122,555,022
|
|
|
$
|
137,728,758
|
|
Total
debt - bank loan
|
|
$
|
39,800,000
|
|
|
$
|
43,400,000
|
|
|
$
|
47,000,000
|
|
|
$
|
50,600,000
|
|
Shareholder
payable
(3)
|
|
$
|
-
|
|
|
$
|
22,028,323
|
|
|
$
|
19,433,097
|
|
|
$
|
27,612,576
|
|
Related
party payable
(3)
|
|
$
|
-
|
|
|
$
|
27,406,408
|
|
|
$
|
27,406,408
|
|
|
$
|
34,338,356
|
|
Total
shareholder's equity
|
|
$
|
61,328,542
|
|
|
$
|
20,299,166
|
|
|
$
|
26,897,242
|
|
|
$
|
21,936,949
|
|
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by/(used by):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
9,305,851
|
|
|
$
|
24,837,892
|
|
|
$
|
5,830,773
|
|
|
$
|
13,226,007
|
|
Financing
activities
|
|
$
|
(12,468,990
|
)
|
|
$
|
(22,384,000
|
)
|
|
$
|
(10,693,500
|
)
|
|
$
|
(14,850,000
|
)
|
|
(1)
|
In
the year ended December 31, 2009, we recorded an impairment of two vessels
for $4.5 million, see ITEM 5. "Operating and Financial Review and
Prospects".
|
|
(2)
|
Basic
earnings per share is calculated by dividing the net income attributable
to equity holders of the common shares by the weighted average number of
common shares outstanding assuming that the transfer of the vessel owning
subsidiaries was effective during the period. In addition, the stock split
described in Note 10 in the consolidated financial statements as of and
for the year ended December 31, 2009 has been given retroactive effect for
all periods presented herein. Diluted earnings per share are calculated by
adjusting the net income attributable to equity holders of the common
shares and the weighted average number of common shares used for
calculating basic earnings per share for the effects of all potentially
dilutive shares. Such potentially dilutive common shares are excluded when
the effect would be to increase earnings per share or reduce a loss per
share. For the periods presented, we had no potentially dilutive
common shares.
|
|
(3)
|
On
November 18, 2009, the shareholder payable and the related party
payable balances, as of that date, were converted to equity as a capital
contribution. See Note 11 in the consolidated financial statements as of
and for the year ended December 31,
2009.
|
Other
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Average
Daily Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
charter equivalent per day
(4)
|
|
$
|
23,423
|
|
|
$
|
29,889
|
|
|
$
|
27,687
|
|
|
$
|
33,165
|
|
Vessel
operating costs per day
(5)
|
|
$
|
7,819
|
|
|
$
|
7,875
|
|
|
$
|
6,941
|
|
|
$
|
6,449
|
|
TCE
per revenue day - pool revenue
|
|
$
|
21,425
|
|
|
$
|
36,049
|
|
|
$
|
29,848
|
|
|
$
|
33,165
|
|
TCE
per revenue day - time charters
|
|
$
|
24,825
|
|
|
$
|
24,992
|
|
|
|
24,382
|
|
|
$
|
-
|
|
Expenditures
for drydock
|
|
$
|
1,680,784
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
805,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
Data
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of owned vessels
|
|
|
3.00
|
|
|
|
3.00
|
|
|
|
3.00
|
|
|
|
3.00
|
|
Average
number of time chartered-in vessels
|
|
|
0.33
|
|
|
|
0.59
|
|
|
|
-
|
|
|
|
-
|
|
|
(4)
|
Freight
rates are commonly measured in the shipping industry in terms of Time
charter equivalent per day (or TCE per day), which represent subtracting
voyage expenses, including bunkers and port charges, from vessel revenue
and dividing the net amount (time charter equivalent revenues) by the
number of days revenue days in the period. Revenue days are the number of
days the vessel is owned less the number of days the vessel is offhire for
drydock. Since our vessels are on time charter and operate in the pool, we
do not have voyage expenses.
|
|
(5)
|
Vessel
operating costs per day represent vessel operating costs divided by the
number of days the vessel is owned during the
period.
|
|
(6)
|
For
a definition of items listed under "Fleet Data," please see the section of
this annual report entitled ITEM 5. "Operating and Financial Review and
Prospects". We do not currently have any time chartered-in vessels and do
not intend to time charter-in any vessels into our fleet in the
future.
|
|
B.
|
Capitalization
and indebtedness
|
Not
applicable.
|
C.
|
Reasons
for the offer and use of proceeds
|
Not
applicable.
Some
of the following risks relate principally to the industry in which we operate
and our business in general. Other risks relate principally to the securities
market and ownership of our common stock. The occurrence of any of the events
described in this section could significantly and negatively affect our
business, financial condition, operating results or cash available for dividends
or the trading price of our common stock.
Risks
Related to Our Industry
If
the tanker industry, which historically has been cyclical, continues to be
depressed in the future, our earnings and available cash flow may be adversely
affected.
The
tanker industry is both cyclical and volatile in terms of charter rates and
profitability. The recent global financial crisis may adversely affect our
ability to charter or recharter our vessels or to sell them on the expiration or
termination of their charters and the rates payable in respect of our one vessel
currently operating in a tanker pool, or any renewal or replacement charters
that we enter into may not be sufficient to allow us to operate our vessels
profitably. Fluctuations in charter rates and tanker values result from changes
in the supply and demand for tanker capacity and changes in the supply and
demand for oil and oil products. The factors affecting the supply and demand for
tankers are outside of our control, and the nature, timing and degree of changes
in industry conditions are unpredictable.
The
factors that influence demand for tanker capacity include:
|
·
|
demand
for oil and oil products;
|
|
·
|
supply
of oil and oil products;
|
|
·
|
regional
availability of refining capacity;
|
|
·
|
global
and regional economic and political
conditions;
|
|
·
|
the
distance oil and oil products are to be moved by
sea;
|
|
·
|
changes
in seaborne and other transportation
patterns;
|
|
·
|
environmental
and other legal and regulatory
developments;
|
|
·
|
currency
exchange rates;
|
|
·
|
competition
from alternative sources of energy;
and
|
|
·
|
international
sanctions, embargoes, import and export restrictions, nationalizations and
wars.
|
The
factors that influence the supply of tanker capacity include:
|
·
|
the
number of newbuilding deliveries;
|
|
·
|
the
scrapping rate of older vessels;
|
|
·
|
conversion
of tankers to other uses;
|
|
·
|
the
number of vessels that are out of service;
and
|
|
·
|
environmental
concerns and regulations.
|
Historically,
the tanker markets have been volatile as a result of the many conditions and
factors that can affect the price, supply and demand for tanker capacity. The
recent global economic crisis may further reduce demand for transportation of
oil over longer distances and supply of tankers to carry that oil, which may
materially affect our revenues, profitability and cash flows. Four of our six
vessels operate on long-term time charters, while the remaining two vessels
operate in the Scorpio Panamax Tanker Pool and Scorpio Handymax Tanker Pool,
which are spot-market oriented. Where we plan to employ a vessel in the spot
charter market, we intend to generally place such vessel in a tanker pool
managed by our commercial manager that pertains to that vessel's size class. If
time charter or spot charter rates decline, we may be unable to achieve a level
of charterhire sufficient for us to operate our vessels profitably.
We
are partially dependent on spot charters and any decrease in spot charter rates
in the future may adversely affect our earnings.
We
currently operate a fleet of six vessels. Of those, two are employed in spot
market-oriented tanker pools, partially exposing us to fluctuations in spot
market charter rates.
We may
employ additional vessels that we may acquire in the future in the spot charter
market. Where we plan to employ a vessel in the spot charter market, we intend
to generally place such vessel in a tanker pool managed by our commercial
manager that pertains to that vessel's size class. Although spot chartering is
common in the tanker industry, the spot charter market may fluctuate
significantly based upon tanker and oil supply and demand. The successful
operation of our vessels in the competitive spot charter market, including
within Scorpio Group pools, depends upon, among other things, obtaining
profitable spot charters and minimizing, to the extent possible, time spent
waiting for charters and time spent traveling unladen to pick up cargo. The spot
market is very volatile, and, in the past, there have been periods when spot
rates have declined below the operating cost of vessels. If future spot charter
rates decline, then we may be unable to operate our vessels trading in the spot
market profitably, meet our obligations, including payments on indebtedness, or
to pay dividends in the future. Furthermore, as charter rates for spot charters
are fixed for a single voyage which may last up to several weeks, during periods
in which spot charter rates are rising, we will generally experience delays in
realizing the benefits from such increases.
Our
ability to renew the charters on our vessels on the expiration or termination of
our current charters, or on vessels that we may acquire in the future, the
charter rates payable under any replacement charters and vessel values will
depend upon, among other things, economic conditions in the sectors in which our
vessels operate at that time, changes in the supply and demand for vessel
capacity and changes in the supply and demand for the seaborne transportation of
energy resources.
Declines
in charter rates and other market deterioration could cause us to incur
impairment charges.
We
evaluate the carrying amounts of our vessels to determine if events have
occurred that would require an impairment of their carrying amounts. The
recoverable amount of vessels is reviewed based on events and changes in
circumstances that would indicate that the carrying amount of the assets might
not be recovered. The review for potential impairment indicators and projection
of future cash flows related to the vessels is complex and requires us to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically volatile.
We
evaluate the recoverable amount as the higher of fair value less costs to sell
and value in use. If the recoverable amount is less than the carrying amount of
the vessel, the vessel is deemed impaired. The carrying values of our vessels
may not represent their fair market value at any point in time because the new
market prices of second-hand vessels tend to fluctuate with changes in charter
rates and the cost of newbuildings. For the year ended December 31, 2009,,
charter rates in the oil and petroleum products charter market declined
significantly and Panamax vessel values also declined, both as a result of a
slowdown in the availability of global credit and the significant deterioration
in charter rates. Due to these indicators of potential impairment, in the year
ended December 31, 2009, we evaluated the recoverable amount of our vessels, and
we recognized a total impairment loss of $4.5 million for two of our vessels.
Any additional impairment charges incurred as a result of further declines in
charter rates could negatively affect our business, financial condition,
operating results or the trading price of our common shares.
An
over-supply of tanker capacity may lead to reductions in charter rates, vessel
values, and profitability.
The
market supply of tankers is affected by a number of factors such as demand for
energy resources, oil, and petroleum products, as well as strong overall
economic growth in parts of the world economy including Asia. If the capacity of
new ships delivered exceeds the capacity of tankers being scrapped and lost,
tanker capacity will increase. In addition, the newbuilding order book which
extends to 2014 equaled approximately 28% of the existing world tanker fleet and
the order book may increase further in proportion to the existing fleet. If the
supply of tanker capacity increases and if the demand for tanker capacity does
not increase correspondingly, charter rates could materially decline. A
reduction in charter rates and the value of our vessels may have a material
adverse effect on our results of operations and available cash.
Acts
of piracy on ocean-going vessels have recently increased in frequency, which
could adversely affect our business.
Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008 and 2009 and continuing through the first half of 2010,
the frequency of piracy incidents against commercial shipping vessels has
increased significantly, particularly in the Gulf of Aden off the coast of
Somalia. For example, in November 2008, the M/V
Sirius Star
, a tanker vessel
not affiliated with us, was captured by pirates in the Indian Ocean while
carrying crude oil estimated to be worth $100 million. If these pirate attacks
result in regions in which our vessels are deployed being characterized as "war
risk" zones by insurers, as the Gulf of Aden temporarily was in May 2008,
premiums payable for insurance coverage could increase significantly and such
coverage may be more difficult to obtain. In addition, crew costs, including
costs in connection with employing onboard security guards, could increase in
such circumstances. We may not be adequately insured to cover losses from these
incidents, which could have a material adverse effect on us. In addition, any of
these events may result in loss of revenues, increased costs and decreased cash
flows to our customers, which could impair their ability to make payments to us
under our charters.
If
the contraction of the global credit markets and the resulting volatility in the
financial markets continues or worsens that could have a material adverse impact
on our results of operations, financial condition and cash flows, and results of
operation.
Recently,
a number of major financial institutions have experienced serious financial
difficulties and, in some cases, have entered into bankruptcy proceedings or are
in regulatory enforcement actions. These difficulties have resulted, in part,
from declining markets for assets held by such institutions, particularly the
reduction in the value of their mortgage and asset-backed securities portfolios.
These difficulties have been compounded by a general decline in the willingness
by banks and other financial institutions to extend credit, particularly in the
shipping industry due to the historically low asset values of ships. As the
shipping industry is highly dependent on the availability of credit to finance
and expand operations, it has been negatively affected by this decline. If we
are unable to obtain additional credit or draw down upon borrowing capacity, it
may negatively impact our ability to fund current and future
obligations.
If
further emergency governmental measures are implemented in response to the
economic downturn, that could have a material adverse impact on our results of
operations, financial condition and cash flows.
Since
2008, global financial markets have experienced extraordinary disruption and
volatility following adverse changes in the global credit markets. The credit
markets in the United States have experienced significant contraction,
deleveraging and reduced liquidity, and governments around the world have taken
significant measures in response to such events, including the enactment of the
Emergency Economic Stabilization Act of 2008 in the United States, and may
implement other significant responses in the future. Securities and futures
markets and the credit markets are subject to comprehensive statutes,
regulations and other requirements. The U.S. Securities and Exchange Commission,
or the SEC, other regulators, self-regulatory organizations and exchanges have
enacted temporary emergency regulations and may take other extraordinary actions
in the event of market emergencies and may effect permanent changes in law or
interpretations of existing laws. We cannot predict what, if any, such measures
would be, but changes to securities, tax, environmental, or the laws of
regulations, could have a material adverse effect on our results of operations,
financial condition or cash flows.
Changes
in fuel, or bunkers, prices may adversely affect profits.
Fuel, or
bunkers, is a significant, if not the largest, expense in our shipping
operations for our vessels employed on the spot market and can have a
significant impact on pool earnings. With respect to our vessels employed on
time charter, the charterer is generally responsible for the cost of fuel,
however such cost may affect the charter rates we are able to negotiate for our
vessels. Changes in the price of fuel may adversely affect our profitability.
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. Further, fuel may become much more expensive in the
future, which may reduce the profitability and competitiveness of our business
versus other forms of transportation, such as truck or rail.
We
are subject to complex laws and regulations, including environmental laws and
regulations, that can adversely affect our business, results of operations, cash
flows and financial condition, and our available cash.
Our
operations are subject to numerous laws and regulations in the form of
international conventions and treaties, national, state and local laws and
national and international regulations in force in the jurisdictions in which
our vessels operate or are registered, which can significantly affect the
ownership and operation of our vessels. These requirements include, but are not
limited to, the U.S. Oil Pollution Act of 1990, or OPA, the International
Maritime Organization, or IMO, International Convention on Civil Liability for
Oil Pollution Damage of 1969 (as from time to time amended and generally
referred to as CLC), the IMO International Convention for the Prevention of
Pollution from Ships of 1973 (as from time to time amended and generally
referred to as MARPOL), the IMO International Convention for the Safety of Life
at Sea of 1974 (as from time to time amended and generally referred to as
SOLAS), the IMO International Convention on Load Lines of 1966 (as from time to
time amended) and the U.S. Maritime Transportation Security Act of 2002.
Compliance with such laws and regulations, where applicable, may require
installation of costly equipment or operational changes and may affect the
resale value or useful lives of our vessels. We may also incur additional costs
in order to comply with other existing and future regulatory obligations,
including, but not limited to, costs relating to air emissions including
greenhouse gases, the management of ballast waters, maintenance and inspection,
elimination of tin-based paint, development and implementation of emergency
procedures and insurance coverage or other financial assurance of our ability to
address pollution incidents. The recent oil spill in the Gulf of Mexico may also
result in additional regulatory initiatives or statutes that may affect our
operations or require us to incur additional expenses to comply with such
regulatory initiatives or statues.
These
costs could have a material adverse effect on our business, results of
operations, cash flows and financial condition and our available cash. A failure
to comply with applicable laws and regulations may result in administrative and
civil penalties, criminal sanctions or the suspension or termination of our
operations. Environmental laws often impose strict liability for remediation of
spills and releases of oil and hazardous substances, which could subject us to
liability without regard to whether we were negligent or at fault. Under OPA,
for example, owners, operators and bareboat charterers are jointly and severally
strictly liable for the discharge of oil in U.S. waters, including the
200-nautical mile exclusive economic zone around the United States. An oil spill
could also result in significant liability, including fines, penalties, criminal
liability and remediation costs for natural resource damages under other
international and U.S. federal, state and local laws, as well as third-party
damages, and could harm our reputation with current or potential charterers of
our tankers. We are required to satisfy insurance and financial responsibility
requirements for potential oil (including marine fuel) spills and other
pollution incidents. Although we have arranged insurance to cover certain
environmental risks, there can be no assurance that such insurance will be
sufficient to cover all such risks or that any claims will not have a material
adverse effect on our business, results of operations, cash flows and financial
condition and available cash.
If
we fail to comply with international safety regulations, we may be subject to
increased liability, which may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain ports.
The
operation of our vessels is affected by the requirements set forth in the IMO's
International Management Code for the Safe Operation of Ships and Pollution
Prevention, or the ISM Code. The ISM Code requires shipowners, ship managers 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. If we fail to comply with
the ISM Code, we may be subject to increased liability or our existing insurance
coverage may be invalidated or decreased for our affected vessels. Such failure
may also result in a denial of access to, or detention in, certain ports. Each
of our vessels, as well our technical manager, SSM, is currently ISM
Code-certified.
The
market values of our vessels may decrease, which could cause us to breach
covenants in our credit facilities and adversely affect our operating
results.
The
market values of tankers have generally experienced high volatility. The market
prices for tankers declined significantly from historically high levels reached
in early 2008 and remain at relatively low levels. You should expect the market
value of our vessels to fluctuate depending on general economic and market
conditions affecting the shipping industry and prevailing charterhire rates,
competition from other shipping companies and other modes of transportation,
types, sizes and ages of vessels, applicable governmental regulations and the
cost of newbuildings. If the market value of our fleet declines, we may not be
able to obtain other financing or incur debt on terms that are acceptable to us.
Further, while we believe that the current aggregate market value of our vessels
will be in excess of loan to value amounts required under our credit facility,
which requires that the fair market value of the vessels pledged as collateral
never be less than 150% of the aggregate principal amount outstanding. A
decrease in these values could cause us to breach certain covenants that are
contained in our credit facility and in future financing agreements that we may
enter into from time to time. If the recoverable amounts of our vessels further
decline and we do breach such covenants and we are unable to remedy the relevant
breach, our lenders could accelerate our debt and foreclose on vessels in our
fleet. If we sell any vessel at any time when vessel prices have fallen and
before we have recorded an impairment adjustment to our financial statements,
the sale may be at less than the vessel's carrying amount on our financial
statements, resulting in a loss and a reduction in earnings. Please see the
section of this annual report entitled "The International Tanker Industry" in
Item 4.B. for information concerning historical prices of tankers.
If
our vessels suffer damage due to the inherent operational risks of the tanker
industry, we may experience unexpected drydocking costs and delays or total loss
of our vessels, which may adversely affect our business and financial
condition.
Our
vessels and their cargoes will be at risk of being damaged or lost because of
events such as marine disasters, bad weather, business interruptions caused by
mechanical failures, grounding, fire, explosions and collisions, human error,
war, terrorism, piracy and other circumstances or events. For example, our
vessel,
Senatore,
suffered damage to one of its ballast tanks in April 2010, which required a
repair. Changing economic, regulatory and political conditions in some
countries, including political and military conflicts, have from time to time
resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor
strikes and boycotts. These hazards may result in death or injury to persons,
loss of revenues or property, environmental damage, higher insurance rates,
damage to our customer relationships, market disruptions, delay or rerouting. In
addition, the operation of tankers has unique operational risks associated with
the transportation of oil. An oil spill may cause significant environmental
damage, and the associated costs could exceed the insurance coverage available
to us. Compared to other types of vessels, tankers are exposed to a higher risk
of damage and loss by fire, whether ignited by a terrorist attack, collision, or
other cause, due to the high flammability and high volume of the oil transported
in tankers.
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 in full. The loss
of revenues while these vessels are being repaired and repositioned, as well as
the actual cost of these repairs, may adversely affect our business and
financial condition. In addition, space at drydocking facilities is sometimes
limited and not all drydocking facilities are conveniently located. We may be
unable to find space at a suitable drydocking facility or our vessels may be
forced to travel to a drydocking facility that is not conveniently located to
our vessels' positions. The loss of earnings while these vessels are forced to
wait for space or to travel to more distant drydocking facilities may adversely
affect our business and financial condition. Further, the total loss of any of
our vessels could harm our reputation as a safe and reliable vessel owner and
operator. If we are unable to adequately maintain or safeguard our vessels, we
may be unable to prevent any such damage, costs, or loss which could negatively
impact our business, financial condition, results of operations and available
cash.
We
operate our vessels worldwide and as a result, our vessels are exposed to
international risks which may reduce revenue or increase expenses.
The
international shipping industry is an inherently risky business involving global
operations. Our vessels are at a risk of damage or loss because of events such
as mechanical failure, collision, human error, war, terrorism, piracy, cargo
loss and bad weather. In addition, changing economic, regulatory and political
conditions in some countries, including political and military conflicts, have
from time to time resulted in attacks on vessels, mining of waterways, piracy,
terrorism, labor strikes and boycotts. These sorts of events could interfere
with shipping routes and result in market disruptions which may reduce our
revenue or increase our expenses.
International
shipping is subject to various security and customs inspection and related
procedures in countries of origin and destination and trans-shipment points.
Inspection procedures can result in the seizure of the cargo and/or 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, results of
operations, cash flows, financial condition and available cash.
Political
instability, terrorist or other attacks, war or international hostilities can
affect the tanker industry, which may adversely affect our
business.
We
conduct most of our operations outside of the United States, and our business,
results of operations, cash flows, financial condition and available cash may be
adversely affected by the effects of political instability, terrorist or other
attacks, war or international hostilities. Terrorist attacks such as the attacks
on the United States on September 11, 2001, the bombings in Spain on
March 11, 2004 and in London on July 7, 2005 and the continuing
response of the international community to these attacks, as well as the threat
of future terrorist attacks, continue to contribute to world economic
instability and uncertainty in global financial markets. As a result of the
above, insurers have increased premiums and reduced or restricted coverage for
loses caused by terrorist acts generally. Future terrorist attacks could result
in increased volatility of the financial markets and negatively impact the U.S.
and global economy. These uncertainties could also adversely affect our ability
to obtain additional financing on terms acceptable to us or at all.
In the
past, political instability has also resulted in attacks on vessels, such as the
attack on the M/T
Limburg
in October 2002, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts of
terrorism and piracy have also affected vessels trading in regions such as the
South China Sea and the Gulf of Aden off the coast of Somalia. Any of these
occurrences could have a material adverse impact on our business, financial
condition, results of operations and available cash.
If
our vessels call on ports located in countries that are subject to restrictions
imposed by the U.S. government, that could adversely affect our reputation and
the market for our common stock.
From time
to time, vessels in our fleet may call on ports located in countries subject to
sanctions and embargoes imposed by the U.S. government and countries identified
by the U.S. government as state sponsors of terrorism. Although these sanctions
and embargoes do not prevent our vessels from making calls to ports in these
countries, potential investors could view such port calls negatively, which
could adversely affect our reputation and the market for our common stock. In
addition, certain institutional investors may have investment policies or
restrictions that prevent them from holding securities of companies that have
contracts with countries identified by the U.S. government as state sponsors of
terrorism. The determination by these investors not to invest in or to divest
our common shares may adversely affect the price at which our common shares
trade. Investor perception of the value of our common stock may be adversely
affected by the consequences of war, the effects of terrorism, civil unrest and
governmental actions in these and surrounding countries.
Maritime
claimants could arrest our vessels, which would have a negative effect on our
cash flows.
Crew
members, suppliers of goods and services to a vessel, shippers of cargo and
other parties may be entitled to a maritime lien against a vessel for
unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien
holder may enforce its lien by arresting or attaching a vessel through
foreclosure proceedings. The arrest or attachment of one or more of our vessels
could interrupt our business or require us to pay large sums of money to have
the arrest lifted, which would have a negative effect on our cash
flows.
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 vessel in our fleet for claims relating to another
of our ships.
Governments
could requisition our vessels during a period of war or emergency, which may
negatively impact our business, financial condition, results of operations and
available cash.
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
may negatively impact our business, financial condition, results of operations
and available cash.
Technological
innovation could reduce our charterhire income and the value of our
vessels.
The
charterhire rates and the value and operational life of a vessel are determined
by a number of factors including the vessel's efficiency, operational
flexibility and physical life. Efficiency includes speed, fuel economy and the
ability to load and discharge cargo quickly. Flexibility includes the ability to
enter harbors, utilize related docking facilities and pass through canals and
straits. The length of a vessel's physical life is related to its original
design and construction, its maintenance and the impact of the stress of
operations. If new tankers are built that are more efficient or more flexible or
have longer physical lives than our vessels, competition from these more
technologically advanced vessels could adversely affect the amount of
charterhire payments we receive for our vessels once their initial charters
expire and the resale value of our vessels could significantly decrease. As a
result, our available cash could be adversely affected.
If
labor interruptions are not resolved in a timely manner, they could have a
material adverse effect on our business, results of operations, cash flows,
financial condition and available cash.
We,
indirectly through SSM, employ masters, officers and crews to man our vessels.
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
as we expect and could have a material adverse effect on our business, results
of operations, cash flows, financial condition and available cash.
Risks
Related To Our Business
We
have a limited history of operations on which investors may assess our
performance.
We were
formed on July 1, 2009, and our initial three vessel-owning subsidiaries
were transferred to us on October 1, 2009. We have a limited performance
record and operating history, and, therefore, limited historical financial
information, upon which you can evaluate our operating performance, ability to
implement and achieve our business strategy or ability to pay dividends in the
future. We cannot assure you that we will be successful in implementing our
business strategy. We have recently acquired additional vessels but our initial
fleet was composed of only three vessels with a relatively short operating
history. As a newly formed company, we will face certain operational challenges
not faced by companies with a longer operating history.
We
have a limited history operating as a publicly traded entity and will incur
increased costs in 2010 as a result of being a publicly traded
corporation.
We have
only operated as a public company since April 2010. As a public company, we will
incur significant legal, accounting and other expenses that we did not incur as
a private company. Our incremental general and administrative expenses as a
publicly traded corporation will include costs associated with annual reports to
shareholders, tax returns, investor relations, registrar and transfer agent's
fees, incremental director and officer liability insurance costs and director
compensation.
Obligations
associated with being a public company require significant company resources and
management attention.
We have
recently become subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and the other rules and
regulations of the SEC, 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 controls over financial reporting.
If we have a material weakness in our internal control over financial reporting,
we may not detect errors on a timely basis and our financial statements may be
materially misstated. We will need to dedicate a significant amount of time and
resources to ensure compliance with these regulatory requirements.
We will
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 will 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. Our incremental general and
administrative expenses as a publicly traded corporation will include costs
associated with annual reports to shareholders, tax returns, investor relations,
registrar and transfer agent's fees, incremental director and officer liability
insurance costs and director compensation
.
We cannot 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.
If
we do not identify suitable tankers for acquisition or successfully integrate
any acquired tankers, we may not be able to grow or to effectively manage our
growth.
One of
our principal strategies is to continue to grow by expanding our operations and
adding to our fleet. Our future growth will depend upon a number of factors,
some of which may not be within our control. These factors include our ability
to:
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identify
suitable tankers and/or shipping companies for acquisitions at attractive
prices;
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obtain
required financing for our existing and new
operations;
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identify
businesses engaged in managing, operating or owning tankers for
acquisitions or joint ventures;
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integrate
any acquired tankers or businesses successfully with our existing
operations;
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hire,
train and retain qualified personnel and crew to manage and operate our
growing business and fleet;
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identify
additional new markets; and
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improve
our operating, financial and accounting systems and
controls.
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Our
failure to effectively identify, purchase, develop and integrate any tankers or
businesses could adversely affect our business, financial condition and results
of operations. The number of employees that perform services for us and our
current operating and financial systems may not be adequate as we implement our
plan to expand the size of our fleet, and we may not be able to effectively hire
more employees or adequately improve those systems. Finally, acquisitions may
require additional equity issuances or debt issuances (with amortization
payments), both of which could lower available cash. If we are unable to execute
the points noted above, our financial condition may be adversely
affected.
Growing
any business by acquisition presents numerous risks such as undisclosed
liabilities and obligations, difficulty in obtaining additional qualified
personnel and managing relationships with customers and suppliers and
integrating newly acquired operations into existing infrastructures. The
expansion of our fleet may impose significant additional responsibilities on our
management and staff, and the management and staff of our commercial and
technical managers, and may necessitate that we, and they, increase the number
of personnel. We cannot give any assurance that we will be successful in
executing our growth plans or that we will not incur significant expenses and
losses in connection with such growth plans.
Delays
in deliveries of additional vessels, our decision to cancel an order for
purchase of a vessel or our inability to otherwise complete the acquisitions of
additional vessels for our fleet, could harm our operating results.
We expect
to purchase additional vessels from time to time. For example, since our initial
public offering in April 2010, we agreed to purchase an additional six vessels,
of which three have been delivered and three are scheduled to be delivered by
September 2010. The delivery of these vessels could be delayed, not completed or
cancelled, which would delay or eliminate our expected receipt of revenues from
the employment of these vessels. The seller could fail to deliver these vessels
to us as agreed, or we could cancel a purchase contract because the seller has
not met its obligations.
If the
delivery of any vessel is materially delayed or cancelled, especially if we have
committed the vessel to a charter for which we become responsible for
substantial liquidated damages to the customer as a result of the delay or
cancellation, our business, financial condition and results of operations could
be adversely affected.
We
will not be able to take advantage of favorable opportunities in the current
spot market with respect to vessels employed on medium- to long-term time
charters.
As of the
date of this annual report, we employed four tankers under fixed rate long-term
time charter agreements with an average remaining duration of approximately
eight months.
Vessels committed to medium- and long-term charters may not be available for
spot charters during periods of increasing charterhire rates, when spot charters
might be more profitable. Where we plan to employ a vessel in the spot charter
market, we intend to generally place such vessel in a tanker pool managed by our
commercial manager that pertains to that vessel's size class.
If
we purchase and operate secondhand vessels, we will be exposed to increased
operating costs which could adversely affect our earnings and, as our fleet
ages, the risks associated with older vessels could adversely affect our ability
to obtain profitable charters.
Our
current business strategy includes additional growth through the acquisition of
new and secondhand vessels. While we typically inspect secondhand vessels prior
to purchase, this does not provide us with the same knowledge about their
condition that we would have had if these vessels had been built for and
operated exclusively by us. Generally, we do not receive the benefit of
warranties from the builders for the secondhand vessels that we
acquire.
In
general, the costs to maintain a vessel in good operating condition increase
with the age of the vessel. Older vessels are typically less fuel-efficient than
more recently constructed vessels due to improvements in engine technology.
Cargo insurance rates increase with the age of a vessel, making older vessels
less desirable to charterers.
Governmental
regulations, safety or other equipment standards related to the age of vessels
may require expenditures for alterations, or the addition of new equipment, to
our vessels and may restrict the type of activities in which 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.
An
increase in operating costs would decrease earnings and available
cash.
Under the
charter agreements for four of our vessels, the charterer is responsible for
voyage costs and we are responsible for the vessel operating costs. Under the
tanker pool agreement for two of our vessels, the pool is responsible for the
voyage expenses and we are responsible for vessel costs. Our vessel operating
costs include the costs of crew, fuel (for spot chartered vessels), provisions,
deck and engine stores, insurance and maintenance and repairs, which depend on a
variety of factors, many of which are beyond our control. Some of these costs,
primarily relating to insurance and enhanced security measures implemented after
September 11, 2001, have been increasing. If our vessels suffer damage,
they may need to be repaired at a drydocking facility. The costs of drydocking
repairs are unpredictable and can be substantial. Increases in any of these
expenses would decrease earnings and available cash.
If
we are unable to operate our vessels profitably, we may be unsuccessful in
competing in the highly competitive international tanker market, which would
negatively affect our financial condition and our ability to expand our
business.
The
operation of tanker vessels and transportation of crude and petroleum products
is extremely competitive, in an industry that is capital intensive and highly
fragmented. The recent global financial crisis may reduce the demand for
transportation of oil and oil products which could lead to increased
competition. Competition arises primarily from other tanker owners, including
major oil companies as well as independent tanker companies, some of whom have
substantially greater resources than we do. Competition for the transportation
of oil and oil products can be intense and depends on price, location, size,
age, condition and the acceptability of the tanker and its operators to the
charterers. We will have to compete with other tanker owners, including major
oil companies as well as independent tanker companies.
Our
market share may decrease in the future. We may not be able to compete
profitably as we expand our business into new geographic regions or provide new
services. New markets may require different skills, knowledge or strategies than
we use in our current markets, and the competitors in those new markets may have
greater financial strength and capital resources than we do.
If
we do not set aside funds and are unable to borrow or raise funds for vessel
replacement, at the end of a vessel's useful life our revenue will decline,
which would adversely affect our business, results of operations, financial
condition, and available cash.
If we do
not set aside funds and are unable to borrow or raise funds for vessel
replacement, we will be unable to replace the vessels in our fleet upon the
expiration of their remaining useful lives, which we expect to occur from 2026
to 2033, depending on the vessel. Our cash flows and income are dependent on the
revenues earned by the chartering of our vessels. If we are unable to replace
the vessels in our fleet upon the expiration of their useful lives, our
business, results of operations, financial condition, and available cash per
share would be adversely affected. Any funds set aside for vessel replacement
will reduce available cash.
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 capital resources
that we will require to purchase additional vessels or may significantly
increase our costs of obtaining such capital. 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.
United
States tax authorities could treat us as a "passive foreign investment company,"
which could have adverse United States federal income tax consequences to United
States holders.
A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for United States 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." United States shareholders of a PFIC are
subject to a disadvantageous United States federal income tax regime with
respect to the income derived by the PFIC, the distributions they receive from
the PFIC and the gain, if any, they derive from the sale or other disposition of
their shares in the PFIC.
We should
not be a PFIC with respect to any taxable year. Based upon our operations
as described herein, we do not believe that our income from our time charters
should be treated as passive income for purposes of determining whether we are a
PFIC. Accordingly, our income from our time chartering activities should
not constitute "passive income," and the assets that we own and operate in
connection with the production of that income should not constitute passive
assets.
There is
substantial legal authority supporting this position consisting of case law and
United States Internal Revenue Service, or IRS, pronouncements concerning the
characterization of income derived from time charters and voyage charters as
services income for other tax purposes. However, it should be noted that
there is also authority which characterizes time charter income as rental income
rather than services income for other tax purposes. Accordingly, no
assurance can be given that the IRS or a court of law will accept this position,
and there is a risk that the IRS or a court of law could determine that we are a
PFIC. Moreover, no assurance can be given that we would not constitute a
PFIC for any future taxable year if the nature and extent of our operations
change.
If the
IRS were to find that we are or have been a PFIC for any taxable year, our
United States shareholders would face adverse United States federal income tax
consequences and information reporting requirements. Under the PFIC rules,
unless those shareholders make an election available under the Code (which
election could itself have adverse consequences for such shareholders, as
discussed below under Item 10.E. "Taxation—United States Federal Income
Taxation—United States Federal Income Taxation of United States Holders"), such
shareholders would be liable to pay United States federal income tax at the then
prevailing income tax rates on ordinary income plus interest, in respect of
excess distributions and upon any gain from the disposition of their common
shares, as if the excess distribution or gain had been recognized ratably over
the shareholder's holding period of the common shares. See Item 10.E.
"Taxation—United States Federal Income Taxation—United States Federal Income
Taxation of United States Holders" for a more comprehensive discussion of the
United States federal income tax consequences to United States shareholders if
we are treated as a PFIC.
We
may have to pay tax on United States source shipping income, which would reduce
our earnings.
Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a corporation that owns or charters vessels, as we and our
subsidiaries do, 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.
For
taxable years after our initial public offering, we and our subsidiaries intend
to take the position that we qualify for this statutory tax exemption 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 after the offering and thereby become subject to United
States federal income tax on our United States source shipping income. For
example, in certain circumstances we may no longer qualify for exemption under
Code section 883 for a particular taxable year if shareholders with a five
percent or greater interest in our common shares owned, in the aggregate, 50% or
more of our outstanding common shares for more than half the days during the
taxable year. Due to the factual nature of the issues involved, there can
be no assurances on the tax-exempt status of us or any of our
subsidiaries.
If we or
our subsidiaries were not entitled to exemption under Section 883 for any
taxable year, they could be subject for such year to an effective 2% United
States federal income tax on the shipping income they derive during the year
which is 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 decrease our earnings available for distribution to our
shareholders.
Any
dividends paid by us may not qualify for preferential rates of United States
federal income taxation in the hands of United States non-corporate
holders.
We expect
that any dividends paid on our common shares to a United States shareholder who
is an individual, trust or estate will generally be treated as "qualified
dividend income" that is taxable at preferential United States federal income
tax rates (through 2010). Our dividends will be so treated provided that
(1) our common shares are readily tradable on an established securities
market in the United States (such as the New York Stock Exchange, on which our
common stock is traded); (2) we are not a PFIC for the taxable year during
which the dividend is paid or the immediately preceding taxable year (which we
have not been, are not and do not anticipate being in the future); (3) the
recipient of the dividend has owned the common shares for more than 60 days in
the 121-day period beginning 60 days before the date on which the common shares
become ex-dividend; and (4) the recipient of the dividend is not under an
obligation to make related payments with respect to positions in substantially
similar or related property.
There is
no assurance that any dividends paid on our common stock will be eligible for
these preferential rates in the hands of a United States non-corporate
shareholder. For example, under current law, the preferential rate for qualified
dividend income is scheduled to expire on December 31, 2010. If the
preferential rate for such dividends is not extended, then any dividends paid by
us after December 31, 2010 will be treated as ordinary income. In addition,
legislation has been previously introduced in the United States Congress which,
if enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of enactment. Finally, as
discussed in more detail in Item 10.E. "Taxation—United States Federal Income
Tax Considerations—Passive Foreign Investment Company Status and Significant Tax
Consequences," we could be treated as a passive foreign investment company for
the taxable year in which we pay the dividend or the immediately preceding
taxable year.
We
will be required to make additional capital expenditures to expand the number of
vessels in our fleet and to maintain all our vessels, which will be dependent on
additional financing.
Our
business strategy is based in part upon the expansion of our fleet through the
purchase of additional vessels beyond the three vessels we have agreed to
acquire. We currently have outstanding commitments to purchase three additional
vessels for an aggregate purchase of approximately $73.0 million. If we are
unable to fulfill our obligations under the memorandum of agreement for future
vessel acquisitions, the sellers of such vessels may be permitted to terminate
such contracts and we may forfeit all or a portion of the down payments we
already made under such contracts, and we may be sued for any outstanding
balance.
In
addition, we will incur significant maintenance costs for our existing and any
newly-acquired vessels. A newbuilding vessel must be drydocked within five years
of its delivery from a shipyard, and vessels are typically drydocked every 30
months thereafter, not including any unexpected repairs. We estimate the cost to
drydock a vessel to be between $400,000 and $900,000, depending on the size and
condition of the vessel and the location of drydocking.
Risks
Related To Our Relationship With Scorpio Group and Its Affiliates
We
are dependent on our managers and there may be conflicts of interest between us
and our managers that may not be resolved in our favor.
Our
success depends to a significant extent upon the abilities and efforts of our
technical manager, SSM, our commercial manager, SCM, and our management team.
Our success will depend upon our and our managers' ability to hire and 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 maintain "key man" life insurance on any of our
officers.
Our
technical and commercial managers are affiliates of Scorpio Group, which is
owned and controlled by the Lolli-Ghetti family, of which our founder, Chairman
and Chief Executive Officer, Mr. Emanuele Lauro, is a member. Conflicts of
interest may arise between us, on the one hand, and our commercial and technical
managers, on the other hand. As a result of these conflicts, our commercial and
technical managers, who have limited contractual duties, may favor their own or
their owner's interests over our interests. These conflicts may have unfavorable
results for us.
Our
founder, Chairman and Chief Executive Officer has affiliations with our
commercial and technical managers which may create conflicts of
interest.
Emanuele
Lauro, our founder, Chairman and Chief Executive Officer, is a member of the
Lolli-Ghetti family which owns and controls our commercial and technical
managers and owns 30.1% of our outstanding common shares as of the date of this
annual report. These responsibilities and relationships could create conflicts
of interest between us, on the one hand, and our commercial and technical
managers, on the other hand. These conflicts may arise in connection with the
chartering, purchase, sale and operations of the vessels in our fleet versus
vessels managed by other companies affiliated with our commercial or technical
managers. Our commercial and technical managers may give preferential treatment
to vessels that are time chartered in by related parties because our founder,
Chairman and Chief Executive Officer and members of his family may receive
greater economic benefits. In particular, our commercial and technical managers
currently provide commercial and technical management services to approximately
74 and 16 vessels respectively, other than the vessels in our fleet, that are
owned or operated by entities affiliated with Mr. Lauro, and such entities
may acquire additional vessels that will compete with our vessels in the future.
Such conflicts may have an adverse effect on our results of
operations.
Our
Chief Executive Officer and President do not devote all of their time to our
business, which may hinder our ability to operate successfully.
Messrs.
Lauro and Bugbee, our Chief Executive Officer and President, respectively, are
involved in other business activities with members of the Scorpio Group, which
may result in their spending less time than is appropriate or necessary to
manage our business successfully. Based solely on the anticipated relative sizes
of our initial fleet and the fleet owned by members of the Scorpio Group over
the next twelve months, we estimate that Messrs. Lauro and Bugbee will
spend approximately 70-85% of their monthly business time on our business
activities and their remaining time on the business of members of the Scorpio
Group. However, the actual allocation of time could vary significantly from time
to time depending on various circumstances and needs of the businesses, such as
the relative levels of strategic activities of the businesses. This could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.
Our
commercial and technical managers are each privately held companies and there is
little or no publicly available information about them.
SCM is
our commercial manager and SSM is our technical manager. SCM's and SSM's ability
to render management services will depend in part on their own financial
strength. Circumstances beyond our control could impair our commercial manager's
or technical manager's financial strength, and because each is a privately held
company, information about the financial strength of our commercial manager and
technical manager is not available. As a result, we and an investor in our
securities might have little advance warning of financial or other problems
affecting our commercial manager or technical manager even though their
financial or other problems could have a material adverse effect on us and our
security holders.
We
are subject to certain risks with respect to our counterparties on contracts,
and failure of such counterparties to meet their obligations could cause us to
suffer losses or negatively impact our results of operations and cash
flows.
We have
entered into various contracts, including charter agreements with our customers,
consisting of four long-term fixed-rate charter agreements and two tanker pool
agreements, and our credit facility entered into in June 2010,. Such agreements
subject us to counterparty risks. The ability of each of our counterparties to
perform its obligations under a contract with us will depend on a number of
factors that are beyond our control and may include, among other things, general
economic conditions, the condition of the maritime and offshore industries, the
overall financial condition of the counterparty, charter rates received for
specific types of vessels, and various expenses. For example, the combination of
a reduction of cash flow resulting from declines in world trade, a reduction in
borrowing bases under reserve-based credit facilities and the lack of
availability of debt or equity financing may result in a significant reduction
in the ability of our charterers to make charter payments to us. In addition, in
depressed market conditions, our charterers and customers may no longer need a
vessel that is currently under charter or contract or may be able to obtain a
comparable vessel at lower rates. As a result, charterers and customers may seek
to renegotiate the terms of their existing charter agreements or avoid their
obligations under those contracts. Should a counterparty fail to honor its
obligations under agreements with us, we could sustain significant losses which
could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
The
failure of our charterers to meet their obligations under our time charter
agreements, on which we depend for a majority of our revenues, could cause us to
suffer losses or otherwise adversely affect our business.
As of the
date of this annual report, we employed four tankers under fixed rate long-term
time charter agreements with an average remaining duration of approximately
eight months. The ability and willingness of each of our counterparties to
perform its obligations under a time charter agreement with us will depend on a
number of factors that are beyond our control and may include, among other
things, general economic conditions, the condition of the tanker shipping
industry and the overall financial condition of the counterparties. Charterers
are sensitive to the commodity markets and may be impacted by market forces
affecting commodities such oil. In addition, in depressed market conditions,
there have been reports of charterers renegotiating their charters or defaulting
on their obligations under charters. Our customers may fail to pay charterhire
or attempt to renegotiate charter rates. Should a counterparty fail to honor its
obligations under agreements with us, it may be difficult to secure substitute
employment for such vessel, and any new charter arrangements we secure in the
spot market or on time charters may be at lower rates given currently decreased
tanker charter rate levels. Where we plan to employ a vessel in the spot charter
market, we intend to generally place such vessel in a tanker pool managed by our
commercial manager that pertains to that vessel's size class. If our charterers
fail to meet their obligations to us or attempt to renegotiate our charter
agreements, we could sustain significant losses which could have a material
adverse effect on our business, financial condition, results of operations and
cash flows, as well as our ability to pay dividends, if any, in the future, and
compliance with covenants in our credit facilities.
Our
charterers may terminate or default on their charters, which could adversely
affect our results of operations and cash flow.
Our
charters may terminate earlier than the dates indicated in this annual report.
The terms of our charters vary as to which events or occurrences will cause a
charter to terminate or give the charterer the option to terminate the charter,
but these generally include a total or constructive loss of the relevant vessel,
the requisition for hire of the relevant vessel, the drydocking of the relevant
vessel for a certain period of time or the failure of the relevant vessel to
meet specified performance criteria. In addition, the ability of each of our
charterers to perform its obligations under a charter will depend on a number of
factors that are beyond our control. These factors may include general economic
conditions, the condition of the tanker industry, the charter rates received for
specific types of vessels and various operating expenses. The costs and delays
associated with the default by a charterer under a charter of a vessel may be
considerable and may adversely affect our business, results of operations, cash
flows and financial condition and our available cash.
We cannot
predict whether our charterers will, upon the expiration of their charters,
re-charter our vessels on favorable terms or at all. If our charterers decide
not to re-charter our vessels, we may not be able to re-charter them on terms
similar to our current charters or at all. In the future, we may also employ our
vessels on the spot charter market, which is subject to greater rate fluctuation
than the time charter market. Where we plan to employ a vessel in the spot
charter market, we intend to generally place such vessel in a tanker pool
managed by our commercial manager that pertains to that vessel's size
class.
If we
receive lower charter rates under replacement charters or are unable to
re-charter all of our vessels, our available cash may be significantly reduced
or eliminated.
Our
insurance may not be adequate to cover our losses that may result from our
operations due to the inherent operational risks of the tanker
industry.
We carry
insurance to protect us against most of the accident-related risks involved in
the conduct of our business, including marine hull and machinery insurance,
protection and indemnity insurance, which includes pollution risks, crew
insurance and war risk insurance. However, we may not be adequately insured to
cover losses from our operational risks, which could have a material adverse
effect on us. Additionally, our insurers may refuse to pay particular claims and
our insurance may be voidable by the insurers if we take, or fail to take,
certain action, such as failing to maintain certification of our vessels with
applicable maritime regulatory organizations. Any significant uninsured or
under-insured loss or liability could have a material adverse effect on our
business, results of operations, cash flows and financial condition and our
available cash. In addition, we may not be able to obtain adequate insurance
coverage at reasonable rates in the future during adverse insurance market
conditions.
As a
result of the September 11, 2001 attacks, the U.S. response to the attacks
and related concern regarding terrorism, insurers have increased premiums and
reduced or restricted coverage for losses caused by terrorist acts generally.
Accordingly, premiums payable for terrorist coverage have increased
substantially and the level of terrorist coverage has been significantly
reduced.
Because
we obtain some of our insurance through protection and indemnity associations,
which result in significant expenses to us, we may be required to make
additional premium payments.
We may be
subject to increased premium payments, or calls, in amounts based on our claim
records, the claim records of our managers, as well as 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. In addition, our protection and indemnity associations may not have
enough resources to cover claims made against them. 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 available cash.
Risks
Related To Our Indebtedness
Servicing
debt, which we may incur in the future, would limit funds available for other
purposes and if we cannot service our debt, we may lose our
vessels.
Borrowing
under our credit facility requires us to dedicate a part of our cash flow from
operations to paying interest on our indebtedness. These payments limit funds
available for working capital, capital expenditures and other purposes,
including further equity or debt financing in the future. Amounts borrowed under
our credit facility bear interest at variable rates. Increases in prevailing
rates could increase the amounts that we would have to pay to our lenders, even
though the outstanding principal amount remains the same, and our net income and
cash flows would decrease. We expect our earnings and cash flow to vary from
year to year due to the cyclical nature of the tanker industry. If we do not
generate or reserve enough cash flow from operations to satisfy our debt
obligations, we may have to undertake alternative financing plans, such
as:
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·
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seeking
to raise additional capital;
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·
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refinancing
or restructuring our debt;
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·
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reducing
or delaying capital investments.
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However,
these alternative financing plans, if necessary, may not be sufficient to allow
us to meet our debt obligations. If we are unable to meet our debt obligations
or if some other default occurs under our credit facility, the lender could
elect to declare that debt, together with accrued interest and fees, to be
immediately due and payable and proceed against the collateral vessels securing
that debt even though the majority of the proceeds used to purchase the
collateral vessels did not come from our credit facility.
Our
credit facility contains restrictive covenants which limit the amount of cash
that we may use for other corporate activities, which could negatively affect
our growth and cause our financial performance to suffer.
Our
credit facility imposes operating and financial restrictions on us. These
restrictions limit our ability, or the ability of our subsidiaries party thereto
to:
|
·
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pay
dividends and make capital expenditures if we do not repay amounts drawn
under our credit facility or if there is another default under our credit
facility;
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·
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incur
additional indebtedness, including the issuance of
guarantees;
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·
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create
liens on our assets;
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·
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change
the flag, class or management of our vessels or terminate or materially
amend the management agreement relating to each
vessel;
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·
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merge
or consolidate with, or transfer all or substantially all our assets to,
another person; or
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·
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enter
into a new line of business.
|
Therefore,
we will need to seek permission from our lenders in order to engage in some
corporate actions. Our lenders' interests may be different from ours and we may
not be able to obtain our lenders' permission when needed. This may limit our
ability to pay dividends to you if we determine to do so in the future, finance
our future operations or capital requirements, make acquisitions or pursue
business opportunities.
If
the recent volatility in LIBOR rates continues, it will affect the interest rate
under our credit facility which could affect our profitability, earnings and
cash flow.
Amounts
borrowed under our credit facility bear interest at an annual rate ranging from
3.0% to 3.5% above LIBOR. LIBOR rates have recently been volatile, with the
spread between those rates and prime lending rates widening significantly at
times. These conditions are the result of the recent disruptions in the
international credit markets. Because the interest rates borne by amounts that
we may drawdown under our credit facility fluctuate with changes in the LIBOR
rates, if this volatility were to continue, it would affect the amount of
interest payable on amounts that we were to drawdown from our credit facility,
which in turn, would have an adverse effect on our profitability, earnings and
cash flow.
ITEM
4. INFORMATION ON THE COMPANY
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A.
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History
and Development of the Company
|
Scorpio Tankers Inc. was incorporated
in the Republic of the Marshall Islands on July 1, 2009 by Simon Financial
Limited, or Simon, the 100% owner of Liberty Holding Company Ltd., or Liberty.
On October 1, 2009, Simon transferred to Scorpio Tankers Inc. three vessel
owning and operating subsidiary companies. Prior to becoming a public company,
the operating subsidiaries were owned by Simon. On April 6, 2010, we closed the
issuance of 12,500,000 shares of common stock at $13.00 per share in our initial
public offering and received net proceeds of $149.6 million, after deducting
underwriters' discounts and offering expenses. A subsidiary of Liberty
retained ownership of the 5,589,147 shares it owned before the offering. Our
principal executive offices are located at 9, Boulevard Charles III, Monaco
98000. Our telephone number is +377-9798-5716. Our stock trades on
the New York Stock Exchange (NYSE) under the symbol STNG.
On April
9, 2010, we repaid in full the outstanding balance of $38.9 million of our 2005
Credit Facility from the proceeds of the initial public offering.
On April
19 and 22, 2010, we entered into agreements to purchase four double-hulled
Handymax tankers for an aggregate purchase price of $99.0 million. The ships,
which are charter-free, are scheduled to be delivered by September
2010. Three of the ships,
STI Conqueror
,
STI Gladiator
and
STI Matador
, were built at
the Shina Shipbuilding Co. Ltd. in South Korea, two ships in 2003; one ship in
2005. The fourth ship,
STI Highlander
, was built at
the Hyundai Mipo Dockyard in South Korea in 2007.
On May 4,
2010, we closed the issuance of 450,000 shares of common stock at $13.00 and
received $5.4 million, after deducting underwriters' discounts, when the
underwriters in the Company's initial public offering partially exercised their
over-allotment option.
On May
13, 2010, we entered into agreements to purchase two LR1 ice class 1A product
tankers (
STI Heritage
and
STI Harmony
) each
with an existing short-term time charter contract. The two ships were
built in 2008 and 2007 at the Onomichi Dockyard in Japan. The
aggregate purchase price of $92.0 million includes an estimated $2.5 million
related to the value of their existing time charter contracts. The
time charter contracts of $25,500 per day per ship plus 50% profit sharing over
the base rate expire in October 2010 (plus or minus 30 days) for the vessel
built in 2007 and January 2011 (plus or minus 30 days) for the vessel built in
2008. The time charters, which were signed in 2007, are with a
related party of Scorpio Tankers Inc.
On June
9, 2010, we announced that we took delivery of three products tanker vessels
that the Company previously agreed to acquire. Two of the tankers are LR1 ice
class 1A sister ships,
STI
Harmony
and
STI
Heritage
were acquired for an aggregate price of $92.0 million, which
includes an estimated $2.5 million related to the value of the existing time
charter contracts. The third vessel delivered was
STI Conqueror
, which is an
ice class 1B ship, and was acquired for $26.0 million.
We are
engaged in seaborne transportation of crude oil and refined petroleum products
in the international shipping markets. Our fleet as of December 31,
2009 consisted of three wholly owned tankers (two LR1 product tankers and one
post-Panamax tanker). As of the date of this annual report, we have
taken delivery of three additional vessels. Below is our fleet list as of the
date of this annual report:
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Time
Charter Info
|
|
|
|
|
|
|
|
|
|
|
|
Ice
|
|
|
|
Daily
Base
|
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|
|
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|
Vessel
Name
|
|
Year
Built
|
|
|
DWT
|
|
|
Class
|
|
Employment
|
|
Rate
|
|
|
Expiry
(A)
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1
|
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Noemi
|
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2004
|
|
|
|
72,515
|
|
|
|
-
|
|
Time
Charter (B)
|
|
$
|
24,500
|
|
|
21-Jan-2012
|
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|
2
|
|
Senatore
|
|
|
2004
|
|
|
|
72,514
|
|
|
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-
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Time
Charter
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|
$
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26,000
|
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04-Oct-2010
|
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3
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Venice
|
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2001
|
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81,408
|
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1C
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|
SPTP
(C)
|
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|
N/A
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|
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N/A
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4
|
|
STI
Conqueror
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2005
|
|
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40,158
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1B
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SHTP
(D)
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N/A
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N/A
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5
|
|
STI
Harmony
|
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2007
|
|
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73,919
|
|
|
|
1A
|
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Time
Charter (E)
|
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$
|
25,500
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17-Oct-2010
|
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6
|
|
STI
Heritage
|
|
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2008
|
|
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73,919
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|
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1A
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Time
Charter (E)
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$
|
25,500
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08-Jan-2011
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414,433
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Vessels
Agreed to be Acquired :
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1
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STI
Gladiator
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2003
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40,083
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-
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SHTP
(D)
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N/A
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N/A
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2
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STI
Matador
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2003
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40,096
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-
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SHTP
(D)
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N/A
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N/A
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3
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STI
Highlander
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2007
|
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37,145
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1A
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SHTP
(D)
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N/A
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N/A
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117,324
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|
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531,757
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(A)
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Redelivery
from the charterer is plus or minus 30 days from the expiry
date.
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(B)
|
Noemi
is time chartered
by King Dustin, which is a related party.
|
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(C)
|
The
vessel operates in the Scorpio Panamax Tanker Pool Ltd., or
SPTP. The SPTP is operated by Scorpio Commercial
Management, or SCM. SPTP and SCM are related parties to the
Company.
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(D)
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The
vessel operates in Scorpio Handymax Tanker Pool Ltd., or
SHTP. The SHTP is operated by Scorpio Commercial
Management. SHTP and SCM are related parties to the
Company.
|
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(E)
|
STI Harmony
and
STI Heritage
were
acquired with their existing time charter contracts that commenced in
October 2007 and January 2008, respectively. The vessels are
chartered to subsidiaries of Liberty, which are related
parties.
|
|
Operations
We
operate our vessels on time charters or in commercial pools (such as the Scorpio
Panamax Tanker Pool and Scorpio Handymax Tanker Pool). As of the date
of this annual report:
|
·
|
Noemi,
Senatore, STI Harmony and STI Heritage were on time
charters.
|
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·
|
Venice
was operating in the Scorpio Panamax Tanker
Pool.
|
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·
|
STI
Conqueror was operating in the Scorpio Handymax Tanker
Pool.
|
The
remaining vessels that we have agreed to acquire will enter the Scorpio Handymax
Tanker Pool upon delivery.
Time
Charters
Time charters give us a fixed and
stable cash flow for a known period of time. Time charters also
mitigate in part the seasonality of the spot market business, which is generally
weaker in the second and third quarters of the year. In the future,
we may opportunistically look to enter our vessels into time charter contracts.
We may also enter into time charter contracts with profit sharing agreements,
which enable us to benefit if the spot market increases.
Commercial Pools
To
increase vessel utilization and thereby revenues, we participate in commercial
pools with other shipowners of similar modern, well-maintained vessels. By
operating a large number of vessels as an integrated transportation system,
commercial pools offer customers greater flexibility and a higher level of
service while achieving scheduling efficiencies. Pools employ experienced
commercial charterers and operators who have close working relationships with
customers and brokers, while technical management is performed by each
shipowner. Pools negotiate charters with customers primarily in the spot market.
The size and scope of these pools enable them to enhance utilization rates for
pool vessels by securing backhaul voyages and COAs, thus generating higher
effective TCE revenues than otherwise might be obtainable in the spot market
while providing a higher level of service offerings to customers.
Commercial
Management Agreement
Our
vessels are commercially managed by Scorpio Commercial Management S.A.M., or
SCM. SCM is a related party and SCM's services include securing
employment, in the spot market and on time charters, for the Company's vessels.
SCM also manages the Scorpio Panamax Tanker Pool and the Scorpio Handymax Tanker
Pool. When our vessels operate in one of the commercial pools managed
by SCM, we pay SCM an agent fee of $250 per vessel per day plus 1.25% commission
per charter fixture. When our vessels are operating outside of such
commercial pools, we pay SCM a fee of $250 per vessel per day plus a 1.25%
commission of gross revenues per charter fixture for Panamax and LR1 vessels and
$300 per vessel per day for Handymax vessels, which are the same fees SCM
charges third parties.
We signed
commercial management agreements in December 2009 for
Noemi, Senatore
and
Venice
for a period of three
years, which may be terminated upon a two year notice. We have also
signed similar agreements for the vessels that we acquired and agreed to acquire
so far in 2010, and we expect to sign similar agreements for additional vessels
that may acquire in the future.
Technical
Management Agreement
Our
vessels are technically managed by Scorpio Ship Management S.A.M., or SSM, a
related party, with the exception of two vessels we have recently acquired which
are being technically managed by unaffiliated technical manager. SSM
is owned by members of the Lolli-Ghetti family. SSM facilitates vessel support
such as crew, provisions, deck and engine stores, insurance, maintenance and
repairs, and other services as necessary to operate the Company's vessels such
as drydocks and vetting/inspection under a technical management agreement. We
currently pay SSM $548 per vessel per day to provide technical management
services for each of our vessels.
We signed
the technical management agreements in December 2009 for a period of three
years, which may be terminated upon a two year notice.
We have also signed
similar agreements for the vessels that we acquired and agreed to acquire so far
in 2010, and we expect to sign similar agreements for additional vessels that
may acquire in the future.
Administrative
Services Agreement
We have
an administrative services agreement with Liberty, or our
Administrator. Liberty provides accounting, legal compliance,
financial, information technology services, and the provision of administrative
staff and office space. We will reimburse our Administrator for the reasonable
direct or indirect expenses it incurs in providing us with the administrative
services described above. Liberty also arranges vessel sales and
purchases for us. Liberty sub-contracts its responsibilities to other entities
within the Scorpio Group.
We will
also pay our Administrator a fee for arranging vessel purchases and sales for
us, equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale. For the three vessels (STI
Conqueror, STI Harmony and STI Heritage) purchased as of the date of this annual
report, the Administrator earned $1.2 million. We believe this 1% fee on
purchases and sales is customary in the tanker industry.
Further,
pursuant to our administrative services agreement, Liberty, on behalf of itself
and other members of the Scorpio Group, has agreed that it will not directly own
product or crude tankers ranging in size from 35,000 dwt to 200,000
dwt.
Our
administrative services agreement, whose effective commencement began in
December 2009, has a duration of three years.
The
International Tanker Market
International
seaborne oil and petroleum products transportation services are mainly provided
by two types of operators: major oil company captive fleets (both private and
state-owned) and independent shipowner fleets. Both types of
operators transport oil under short-term contracts (including single-voyage
"spot charters") and long-term time charters with oil companies, oil traders,
large oil consumers, petroleum product producers and government
agencies. The oil companies own, or control through long-term time
charters, approximately one third of the current world tanker capacity, while
independent companies own or control the balance of the fleet. The
oil companies use their fleets not only to transport their own oil, but also to
transport oil for third-party charterers in direct competition with independent
owners and operators in the tanker charter market.
The
current international financial crisis is affecting the international tanker
market. It is expected that the global fleet will increase during 2010 because
of the present order book. However, some shipping companies are now facing
challenges in financing their large newbuilding programs, as shipping banks are
more restrictive than before in granting credit. The current financial upheaval
may delay deliveries of newbuildings and may also lead to the cancellation of
newbuilding orders, and there have been reports of cancellations of tanker
newbuildings from certain yards. Shipping companies with high debt or other
financial commitments may be unable to continue servicing their debt, which
could lead to foreclosure on vessels.
The oil
transportation industry has historically been subject to regulation by national
authorities and through international conventions. Over recent years,
however, an environmental protection regime has evolved which has a significant
impact on the operations of participants in the industry in the form of
increasingly more stringent inspection requirements, closer monitoring of
pollution-related events, and generally higher costs and potential liabilities
for the owners and operators of tankers.
In order
to benefit from economies of scale, tanker charterers will typically charter the
largest possible vessel to transport oil or products, consistent with port and
canal dimensional restrictions and optimal cargo lot sizes. A
tanker's carrying capacity is measured in deadweight tons, or dwt, which is the
amount of crude oil measured in metric tons that the vessel is capable of
loading. The oil tanker fleet is generally divided into the following
five major types of vessels, based on vessel carrying capacity: (i) Ultra Large
Crude Carrier, or ULCC, with a size range of approximately 320,000 to 450,000
dwt; (ii) Very Large Crude Carrier, or VLCC, with a size range of approximately
200,000 to 320,000 dwt; (iii) Suezmax-size range of approximately 120,000 to
200,000 dwt; (iv) Aframax-size range of approximately 80,000 to 120,000 dwt; (v)
Panamax-size range of approximately 60,000 to 70,000 dwt; and (v) small tankers
of less than approximately 60,000 dwt. ULCCs and VLCCs typically
transport crude oil in long-haul trades, such as from the Arabian Gulf to
Rotterdam via the Cape of Good Hope. Suezmax tankers also engage in
long-haul crude oil trades as well as in medium-haul crude oil trades, such as
from West Africa to the East Coast of the United States. Aframax-size
vessels generally engage in both medium-and short-haul trades of less than 1,500
miles and carry crude oil or petroleum products. Smaller tankers
mostly transport petroleum products in short-haul to medium-haul
trades.
The 2009 Tanker Market
(
Source: Fearnleys)
Following the onset of the global
financial crisis in 2008, expectations, in general terms, were quite dismal for
2009. In a broader sense, the tanker market fared quite poorly in 2009, but had
huge discrepancies between the various sub-segments.
The oil tanker fleet is generally
divided into five major categories of vessels, based on carrying capacity and
the types of cargoes carried. A tanker's carrying capacity is
measured in dwt, which is the amount of crude oil measured in metric tons that
the vessel is capable of loading. In the single voyage market the VLCC, whose
carrying capacity ranges from 200,000 dwt to 320,000 dwt, reached an average of
about $29,000 per day, a significant decrease from $88,000 per day in 2008.
Suezmaxes, whose carrying capacity ranges from 120,000 dwt to 200,000 dwt,
achieved an average rate of $31,500 per day, down from $67,000 the year before.
Corresponding rates for Aframaxes, whose carrying capacity ranges from 80,000
dwt to 120,000 dwt, were $10,000 per day compared with $50,000 per day in 2008.
In comparison with asset values the Suezmax market showed the strongest
resilience in the downturn.
Seaborne crude oil trade, measured in
ton-miles, declined approximately 1.0% in 2009. This was markedly
less than anticipated. Crude oil imports to the United States declined
approximately 7.5%, but transportation work declined by about 13.5%. This was,
to a certain degree, offset by strongly increased imports to China resulting in
the U.S. becoming the second largest crude oil importing country.
The use of tankers for floating storage
increased in 2009. At the beginning of the year as a pure commodity price play
(contango in the oil futures market) but later in the year a significant number
of tankers were employed for storage due to brimming on-shore storage
facilities. For greater parts of the year more than 30 VLCCs were employed in
storage.
Periodically the crude tanker spot
market yielded negative time charter results during 2009. It was expected that
several single-hull, or SH, ships would have been sold for demolition given the
IMO phase out of SH ships scheduled for 2010. However, demolition sales were low
and only 8 VLCCs and 2 Suezmax tankers were sold for demolition. Currently,
according to Fearnresearch, the world fleet contains 66 SH VLCCs and 24 SH
Suezmax tankers that, given strict adherence to the IMO phase out schedule, are
supposed to cease oil trading by the end of 2010.
According to data from Fearnresearch,
in 2009 a total of 55 VLCCs and 46 Suezmax tankers were delivered from yards.
The Suezmax fleet expanded by 13% and the VLCC fleet by 8% (both measured by
deadweight). In total, net tanker fleet growth ended at 8.6%. Following the
decline in crude oil prices in mid-2008, prices gradually rose throughout 2009
despite the fact that global oil demand decreased 1.2 millions of barrels per
day, or mb/d, or 1.4%, to 85 mb/d. OPEC crude oil production declined 2.5 mb/d,
or 8%, to 28.7 mb/d, according to the International Energy Agency (IEA). OPEC
NGL (Natural Gas Liquids) production was only marginally up compared to
2008.
The sale and purchase market for
tankers, measured by the number of transactions, decreased again in 2009. A
total of about 155 transactions were concluded. There are several reasons for
this decline, but primarily the difficulties in securing financing for
acquisitions must be considered the prime cause. Secondly, the market was
characterized by few sellers willing to take losses on either newbuildings
ordered at record price levels or existing vessels purchased at the height of
the market in 2007/08.
The International Energy Agency, or
IEA, in their latest market report, has become quite optimistic for growth in
global oil demand in 2010. According to their May 2010 report global demand is
estimated to increase 2.0% this year. At the same time, the downturn
in North Sea output as well as new infrastructure in the FSU (Former Soviet
Union) will have a quite negative impact on demand for short-haul crude oil
tankers. A similar development is observed in North America where Mexican crude
oil output is expected to continue falling. Both of these developments are
expected to have a negative impact on Aframax tankers whereas the effects for
Suezmax and VLCC crude tankers will be quite positive as crude oil has to be
sourced in areas farther away generating a significant growth in transportation
work.
Environmental
and Other Regulations
Government
laws and regulations significantly affect the ownership and operation of our
tankers. We are subject to international conventions, national, state and local
laws and regulations in force in the countries in which our vessels may operate
or are registered. Compliance with such laws, regulations and other requirements
entails significant expense, including vessel modifications and implementation
of certain operating procedures.
A variety
of government, quasi-governmental and private organizations subject our tankers
to both scheduled and unscheduled inspections. These organizations include the
local port authorities, national authorities, harbor masters or equivalent,
classification societies, flag state administrations (countries of registry),
labor organizations (including but not limited to the International Transport
Workers' Federation), charterers, terminal operators and oil companies. Some of
these entities require us to obtain permits, licenses, certificates and
approvals for the operation of our tankers. Our failure to maintain necessary
permits, licenses, certificates or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of the vessels
in our fleet, or lead to the invalidation or reduction of our insurance
coverage.
We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the tanker industry. Increasing environmental concerns have
created a demand for tankers that conform to stricter environmental standards.
We are required to maintain operating standards for all of our vessels that
emphasize operational safety, quality maintenance, continuous training of our
officers and crews and compliance with applicable local, national and
international environmental laws and regulations. Such laws and regulations
frequently change and may impose increasingly strict requirements. We cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our tankers. In
addition, a future serious marine incident that results in significant oil
pollution or otherwise causes significant adverse environmental impact could
result in additional legislation or regulation that could negatively affect our
profitability.
International
Maritime Organization
The IMO,
the United Nations agency for maritime safety and the prevention of pollution,
has adopted the International Convention for the Prevention of Pollution from
Ships, or MARPOL, which has been updated through various amendments. MARPOL
establishes environmental standards relating to oil leakage or spilling, garbage
management, sewage, air emissions, handling and disposal of noxious liquids and
the handling of harmful substances in packaged forms.
Air
Emissions
In
September 1997, the IMO adopted Annex VI to MARPOL to address air pollution
from ships. Effective May 2005, Annex VI sets limits on sulfur oxide and
nitrogen oxide emissions from all commercial vessel exhausts and prohibits
deliberate emissions of ozone depleting substances (such as halons and
chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks,
and the shipboard incineration of specific substances. 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. Additional or new conventions, laws and regulations may be
adopted that could require the installation of expensive emission control
systems and adversely affect our business, cash flows, results of operations and
financial condition. In October 2008, the IMO adopted amendments to Annex VI
regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and
ozone-depleting substances, which amendments enter into force on July 1,
2010. The amended Annex VI will reduce air pollution from vessels by, among
other things, (i) implementing a progressive reduction of sulfur oxide
emissions from ships by reducing the global sulfur fuel cap initially to 3.50%
(from the current cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020, subject to a
feasibility review to be completed no later than 2018; and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards
for new marine engines, depending on their date of installation. The United
States ratified the Annex VI amendments in October 2008, and the U.S.
Environmental Protection Agency, or EPA, promulgated equivalent emissions
standards in late 2009.
The
Marine Environment Protection Committee, or MEPC, has designated the area
extending 200 miles from the territorial sea baseline adjacent to the
Atlantic/Gulf and Pacific coasts and the eight main Hawaiian Islands as an
Emission Control Area, or ECA, under the Annex VI amendments. The new ECA will
enter into force in August 2012, whereupon fuel used by all vessels operating in
the ECA cannot exceed 1.0% sulfur, dropping to 0.1% sulfur in 2015. From 2016,
nitrogen oxide after-treatment requirements will also apply. If other ECAs are
approved by the IMO or other new or more stringent requirements relating to
emissions from marine diesel engines or port operations by vessels are adopted
by the EPA or the states where we operate, compliance with these regulations
could entail significant capital expenditures or otherwise increase the costs of
our operations.
Safety
Management System Requirements
The IMO
also adopted the International Convention for the Safety of Life at Sea, or
SOLAS, and the International Convention on Load Lines, or LL, which impose a
variety of standards that regulate the design and operational features of
ships. The IMO periodically revises the SOLAS and LL
standards.
Our
operations are also subject to environmental standards and requirements
contained in the International Safety Management Code for the Safe Operation of
Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO under
SOLAS. The ISM Code requires the party with operational control of a vessel
to develop an extensive safety management system that includes, among other
things, the adoption of a safety and environmental protection policy setting
forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies. We rely upon the
safety management system that has been developed for our vessels for compliance
with the ISM Code.
The ISM
Code requires that vessel operators also obtain a safety management certificate
for each vessel they operate. This certificate evidences compliance by a
vessel's management with code requirements for a safety management
system. No vessel can obtain a certificate unless its manager has been
awarded a document of compliance, issued by each flag state, under the ISM
Code. SSM has obtained documents of compliance for its offices and safety
management certificates for all of our vessels for which the certificates are
required by the ISM Code. These documents of compliance and safety management
certificates are renewed as required.
Noncompliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in, or
invalidation of, available insurance coverage for affected vessels and may
result in the denial of access to, or detention in, some ports. The U.S. Coast
Guard and European Union authorities have indicated that vessels not in
compliance with the ISM Code by the applicable deadlines will be prohibited from
trading in U.S. and European Union ports, as the case may be.
Pollution
Control and Liability Requirements
IMO has
negotiated international conventions that impose liability for pollution in
international waters and the territorial waters of the signatory nations to such
conventions. For example, many countries have ratified and follow the
liability plan adopted by the IMO and set out in the International Convention on
Civil Liability for Oil Pollution Damage, or the CLC, although the United States
is not a party. Under this convention and depending on whether the country
in which the damage results is a party to the 1992 Protocol to the CLC, a
vessel's registered owner is strictly liable, subject to certain affirmative
defenses, for pollution damage caused in the territorial waters of a contracting
state by discharge of persistent oil. The limits on liability outlined in
the 1992 Protocol use the International Monetary Fund currency unit of Special
Drawing Rights, or SDR. The right to limit liability is forfeited under the
CLC where the spill is caused by the shipowner's actual fault and under the 1992
Protocol where the spill is caused by the shipowner's intentional or reckless
conduct. Vessels trading with states that are parties to these conventions
must provide evidence of insurance covering the 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 that of the CLC. We believe that our protection and
indemnity insurance will cover the liability under the plan adopted by the
IMO.
The IMO
adopted the International Convention on Civil Liability for Bunker Oil Pollution
Damage, or the Bunker Convention, to impose strict liability on ship owners for
pollution damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention, which became effective on
November 21, 2008, requires registered owners of ships over 1,000 gross
tons to maintain insurance or other financial security for pollution damage in
an amount equal to the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount calculated in
accordance with the Convention on Limitation of Liability for Maritime Claims of
1976, as amended). With respect to non-ratifying states, liability for spills or
releases of oil carried as fuel in ship's bunkers typically is determined by the
national or other domestic laws in the jurisdiction where the events or damages
occur.
In
addition, IMO adopted an International Convention for the Control and Management
of Ships' Ballast Water and Sediments, or BWM, in February 2004. BWM's
implementing regulations call for a phased introduction of mandatory ballast
water exchange requirements, to be replaced in time with mandatory concentration
limits. BWM will not become effective until 12 months after it has been
adopted by 30 states, the consolidated merchant fleets of which represent not
less than 35% of the gross tonnage of the world's merchant shipping. To
date, there has not been sufficient adoption of this standard for it to
take force.
The IMO
continues to review and introduce new regulations. It is impossible to predict
what additional regulations, if any, may be passed by the IMO and what effect,
if any, such regulations might have on our operations.
U.S.
Regulations
The U.S.
Oil Pollution Act of 1990, or OPA, established an extensive regulatory and
liability regime for the protection and cleanup of the environment from oil
spills. OPA affects all owners and operators whose vessels trade in the
United States, its territories and possessions or whose vessels operate in U.S.
waters, which includes the U.S. territorial sea and its 200 nautical mile
exclusive economic zone. The United States has also enacted the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
which applies to the discharge of hazardous substances other than oil, whether
on land or at sea. Both OPA and CERCLA impact our operations.
Under
OPA, vessel owners, operators and bareboat charterers 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. OPA defines these other
damages broadly to include:
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natural
resources damage and related assessment
costs;
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real
and personal property damage;
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·
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net
loss of taxes, royalties, rents, fees and other lost
revenues;
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·
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lost
profits or impairment of earning capacity due to property or natural
resources damage; and
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net
cost of public services necessitated by a spill response, such as
protection from fire, safety or health hazards, and loss of subsistence
use of natural resources.
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Effective
July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to
the greater of $2,000 per gross ton or $17.088 million for any double-hull
tanker that is over 3,000 gross tons (subject to possible adjustment for
inflation), and our fleet is entirely composed of vessels of this size class.
CERCLA, which applies to owners and operators of vessels, contains a similar
liability regime and provides for cleanup, removal and natural resource
damages. Liability under CERCLA is limited to the greater of $300 per gross
ton or $5 million for vessels carrying a hazardous substance as cargo and the
greater of $300 per gross ton or $0.5 million for any other vessel. These OPA
and CERCLA limits of liability do not apply if an incident was directly caused
by violation of applicable U.S. 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.
OPA and
the U.S. Coast Guard also require owners and operators of vessels to establish
and maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet the limit of their potential liability under OPA and CERCLA.
Vessel owners and operators may satisfy their financial responsibility
obligations by providing a proof of insurance, a surety bond, self-insurance or
a guaranty. We plan to comply with the U.S. Coast Guard's financial
responsibility regulations by providing a certificate of responsibility
evidencing sufficient self-insurance.
The oil
spill in the Gulf of Mexico that began in April 2010 may also result in
additional regulatory initiatives or statutes, including the raising of
liability caps under OPA, that may affect our operations or require us to incur
additional expenses to comply with such regulatory initiatives or
statutes.
We expect
to maintain pollution liability coverage insurance in the amount of
$1 billion per incident for each of our vessels. If the damages from a
catastrophic spill were to exceed our insurance coverage, it could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.
The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil or hazardous substances
in U.S. navigable waters unless authorized by a duly-issued permit or exemption,
and imposes strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the costs of
removal and remediation and damages and complements the remedies available under
OPA and CERCLA.
The EPA
regulates the discharge of ballast water and other substances in U.S. waters
under the CWA. Effective February 6, 2009, EPA regulations require vessels
79 feet in length or longer (other than commercial fishing and recreational
vessels) to comply with a Vessel General Permit authorizing ballast water
discharges and other discharges incidental to the operation of vessels. The
Vessel General Permit imposes technology and water-quality based effluent limits
for certain types of discharges and establishes specific inspection,
monitoring, recordkeeping and reporting requirements to ensure the effluent
limits are met. U.S. Coast Guard regulations adopted under the U.S.
National Invasive Species Act, or NISA, also impose mandatory ballast water
management practices for all vessels equipped with ballast water tanks entering
or operating in U.S. waters, and in 2009 the Coast Guard proposed new ballast
water management standards and practices, including limits regarding ballast
water releases. Compliance with the EPA and the U.S. Coast Guard regulations
could require the installation of equipment on our vessels to treat ballast
water before it is discharged or the implementation of other port facility
disposal arrangements or procedures at potentially substantial cost, and/or
otherwise restrict our vessels from entering U.S. waters.
European
Union Regulations
In
October 2009, the European Union amended a directive to impose criminal
sanctions for illicit ship-source discharges of polluting substances, including
minor discharges, if committed with intent, recklessly or with serious
negligence and the discharges individually or in the aggregate result in
deterioration of the quality of water. Criminal liability for pollution may
result in substantial penalties or fines and increased civil liability
claims.
Greenhouse
Gas Regulation
In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or UNFCCC, which we refer to as the Kyoto Protocol, entered into
force. Pursuant to the Kyoto Protocol, adopting countries are required to
implement national programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of contributing to global
warming. Currently, the emissions of greenhouse gases from international
shipping are not subject to the Kyoto Protocol. However, international
negotiations are continuing with respect to a successor to the Kyoto Protocol,
which sets emission reduction targets through 2012, and restrictions on shipping
emissions may be included in any new treaty. In December 2009, more than 27
nations, including the United States and China, signed the Copenhagen Accord,
which includes a non-binding commitment to reduce greenhouse gas emissions. The
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels, if such emissions are not regulated through the
IMO or the UNFCCC by December 31, 2010. In the United States, the EPA has
issued a final finding that greenhouse gases threaten public health and safety,
and has proposed regulations governing the emission of greenhouse gases from
motor vehicles and stationary sources. The EPA may decide in the future to
regulate greenhouse gas emissions from ships and has already been petitioned by
the California Attorney General to regulate greenhouse gas emissions from
ocean-going vessels. Other federal and state regulations relating to the control
of greenhouse gas emissions may follow, including the climate change initiatives
that are being considered in the U.S. Congress. In addition, the IMO is
evaluating various mandatory measures to reduce greenhouse gas emissions from
international shipping, including market-based instruments. Any passage of
climate control legislation or other regulatory initiatives by the EU, U.S., IMO
or other countries where we operate that restrict emissions of greenhouse gases
could require us to make significant financial expenditures that we cannot
predict with certainty at this time.
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
U.S. Maritime Transportation Security Act of 2002, or the 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. Similarly, in December 2002, amendments to SOLAS created
a new chapter of the convention dealing specifically with maritime security. The
new chapter became effective in July 2004 and imposes various detailed
security obligations on vessels and port authorities, most of which are
contained in the International Ship and Port Facilities Security Code, or the
ISPS Code. The ISPS Code is designed to protect ports and international shipping
against terrorism. After July 1, 2004, to trade internationally, a vessel
must attain an International Ship Security Certificate from a recognized
security organization approved by the vessel's flag state. Among the various
requirements are:
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on-board
installation of automatic identification systems to provide a means for
the automatic transmission of safety-related information from among
similarly equipped ships and shore stations, including information on a
ship's identity, position, course, speed and navigational
status;
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on-board
installation of ship security alert systems, which do not sound on the
vessel but only alert the authorities on
shore;
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the
development of vessel security
plans;
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ship
identification number to be permanently marked on a vessel's
hull;
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a
continuous synopsis record kept onboard showing a vessel's history
including, the name of the ship and of the state whose flag the ship is
entitled to fly, the date on which the ship was registered with that
state, the ship's identification number, the port at which the ship is
registered and the name of the registered owner(s) and their
registered address; and
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compliance
with flag state security certification
requirements.
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The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid International Ship Security
Certificate attesting to the vessel's compliance with SOLAS security
requirements and the ISPS Code. We have implemented the various security
measures addressed by the MTSA, SOLAS and the ISPS Code, and our fleet is in
compliance with applicable security requirements.
Inspection
by classification societies
Every
oceangoing vessel must be "classed" by a classification society. The
classification society certifies that the vessel is "in-class," signifying that
the vessel has been built and maintained in accordance with the rules of
the classification society and complies with applicable rules and
regulations of the vessel's country of registry and the international
conventions of which that country is a member. In addition, where surveys
are required by international conventions and corresponding laws and ordinances
of a flag state, the classification society will undertake them on application
or by official order, acting on behalf of the authorities
concerned.
The
classification society also undertakes on request other surveys and checks that
are required by regulations and requirements of the flag state. These
surveys are subject to agreements made in each individual case and/or to the
regulations of the country concerned.
For
maintenance of the class, regular and extraordinary surveys of hull, machinery,
including the electrical plant, and any special equipment classed are required
to be performed as follows:
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Annual
Surveys.
For seagoing ships, annual surveys are conducted for
the hull and the machinery, including the electrical plant and where
applicable for special equipment classed, at intervals of 12 months from
the date of commencement of the class period indicated in the
certificate.
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Intermediate
Surveys.
Extended annual surveys are referred to as
intermediate surveys and typically are conducted two and one-half years
after commissioning and each class renewal. Intermediate surveys may be
carried out on the occasion of the second or third annual
survey.
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Class Renewal
Surveys.
Class renewal surveys, also known as special
surveys, are carried out for the ship's hull, machinery, including the
electrical plant and for any special equipment classed, at the intervals
indicated by the character of classification for the hull. At the
special survey the vessel is thoroughly examined, including audio-gauging
to determine the thickness of the steel structures. Should the
thickness be found to be less than class requirements, the classification
society would prescribe steel renewals. The classification society
may grant a one year grace period for completion of the special survey.
Substantial amounts of money may have to be spent for steel renewals to
pass a special survey if the vessel experiences excessive wear and tear.
In lieu of the special survey every four or five years, depending on
whether a grace period was granted, a ship owner has the option of
arranging with the classification society for the vessel's hull or
machinery to be on a continuous survey cycle, in which every part of the
vessel would be surveyed within a five year cycle. At an owner's
application, the surveys required for class renewal may be split according
to an agreed schedule to extend over the entire period of class. This
process is referred to as continuous class
renewal.
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All areas
subject to survey as defined by the classification society are required to be
surveyed at least once per class period, unless shorter intervals between
surveys are prescribed elsewhere. The period between two subsequent surveys of
each area must not exceed five years.
Vessels
have their underwater parts inspected every 30 to 36 months. Depending on the
vessel's age and other factors, this inspection can often be done afloat with
minimal disruption to the vessel's commercial deployment. However, vessels are
required to be drydocked, meaning physically removed from the water, for
inspection and related repairs at least once every five years from delivery. If
any defects are found, the classification surveyor will issue a recommendation
which must be rectified by the ship owner within prescribed time
limits.
Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in-class" by a classification society which is a member of the
International Association of Classification Societies. All our vessels are
certified as being "in-class" by American Bureau of Shipping. All new and
secondhand vessels that we purchase must be certified prior to their delivery
under our standard purchase contracts and memoranda of agreement. If the vessel
is not certified on the scheduled date of closing, we have no obligation to take
delivery of the vessel.
In
addition to the classification inspections, many of our customers regularly
inspect our vessels as a precondition to chartering them for voyages. We
believe that our well-maintained, high-quality vessels provide us with a
competitive advantage in the current environment of increasing regulation and
customer emphasis on quality.
Risk
of Loss and Liability Insurance
General
The
operation of any cargo vessel includes risks such as mechanical failure,
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 in certain
circumstances imposes virtually unlimited liability upon owners, operators and
demise charterers of any vessel trading in the United States exclusive economic
zone for certain oil pollution accidents in the United States, has made
liability insurance more expensive for vessel-owners and operators trading in
the United States market. While we believe that our present insurance coverage
is adequate, not all risks can be insured against, 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.
Marine and
War Risks Insurance
We
have in force marine and war risks insurance for all of our
vessels. Our marine hull and machinery insurance covers risks of particular
average and actual or constructive total loss from collision, fire,
grounding, engine breakdown and other insured named perils up to an
agreed amount per vessel. Our war risks insurance covers the risks
of particular average and actual or constructive total loss from
confiscation, seizure, capture, vandalism, sabotage, and other
war-related named perils. We have also arranged coverage for increased
value for each vessel. Under this increased value coverage, in the event of
total loss of a vessel, we will be able to recover amounts in excess of those
recoverable under the hull and machinery policy in order to compensate for
additional costs associated with replacement of the loss
of the vessel. Each vessel is covered up to at
least its fair market value at the time of the
insurance attachment and subject to a fixed deductible per each single
accident or occurrence, but excluding actual or constructive total
loss.
Protection
and Indemnity Insurance
Protection
and indemnity insurance is provided by mutual protection and indemnity
associations, or P&I Associations, and covers our third party liabilities in
connection with our shipping activities. This includes third-party liability and
other related expenses resulting from 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 mutual protection and indemnity associations, or "clubs."
Subject to the "capping" discussed below, our coverage, except for pollution, is
unlimited.
Our
current protection and indemnity insurance coverage for pollution is
$1 billion per vessel per incident. We are a member of a P&I Club that
is a member of the International Group of P&I Clubs, or the International
Group. The P&I Clubs 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. Although the
P&I Clubs compete with each other for business, they have found it
beneficial to pool their larger risks under the auspices of the International
Group. This pooling is regulated by a contractual agreement which defines the
risks that are to be pooled and exactly how these risks are to be shared by the
participating P&I Clubs. The pool provides a mechanism for sharing all
claims in excess of $8 million up to approximately $5.5 billion. We are subject
to calls payable to the associations based on its claim records as well as the
claim records of all other members of the individual associations and members of
the pool of P&I Clubs comprising the International Group.
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C.
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Organizational
Structure
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As of
December 31, 2009, Scorpio Tankers Inc. owned 100% of the four subsidiaries
listed below.
Company:
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Incorporated
in:
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Noemi
Shipping Company Limited
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The
Republic of The Marshall Islands
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Senatore
Shipping Company Limited
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The
Republic of The Marshall Islands
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Venice
Shipping Company Limited
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The
Republic of The Marshall Islands
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Sting
LLC
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State
of Delaware, United States of
America
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D.
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Property,
Plant and Equipment
|
For a
description of our fleet, see "Item 4.A. – History and Development of the
Company" and " Item 4.B. Business Overview – Our Fleet".
ITEM
4A. UNRESOLVED STAFF COMMENTS
None.
ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The
following presentation of management's discussion and analysis of results of
operations and financial condition should be read in conjunction with our
consolidated financial statements, accompanying notes thereto and other
financial information appearing in "ITEM 18. Financial Statements". You should
also carefully read the following discussion with "Risk Factors," "The
International Tanker Industry," "Cautionary Statement Regarding Forward-Looking
Statements." The consolidated financial statements as of December 31, 2009 and
2008 and for the three years in the period ended
December 31, 2009, have been prepared in accordance with IFRS as issued by
the IASB The consolidated financial statements are presented in U.S. Dollars
unless otherwise indicated. Any amounts converted from another non-U.S. currency
to U.S. Dollars in this registration statement are at the rate applicable at the
relevant date, or the average rate during the applicable period.
Prior to
October 1, 2009, our historical consolidated financial statements were prepared
on a carve-out basis from the financial statements of Liberty and include all
assets, liabilities and results of operations of our three vessel-owning
subsidiaries, formerly subsidiaries of Liberty, for those periods. The other
financial information included in this filing represents the aggregated
financial information of the operations of our three vessel-owning
subsidiaries.
We
anticipate additional opportunities to expand our fleet through acquisitions of
tankers, and we believe that recent downward pressure on tanker values will
present attractive investment opportunities to ship operators that have the
necessary capital resources. We may purchase secondhand vessels that meet our
specifications or newbuilding vessels, either directly from shipyards or from
the current owners with shipyard contracts. The timing of these acquisitions
will depend on our ability to identify suitable vessels on attractive purchase
terms. Since our initial public offering, we have purchased six
vessels, three of which have been delivered as of June 23, 2010.
We
generate revenues by charging customers for the transportation of their crude
oil and other petroleum products using our vessels. Historically, these services
generally have been provided under the following basic types of contractual
relationships:
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Voyage charters
, which
are charters for short intervals that are priced on current, or "spot,"
market rates; and
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Time charters
, whereby
vessels we operate and for which we are responsible for crewing and other
voyage expenses are chartered to customers for a fixed period of time at
rates that are generally fixed, but may contain a variable component based
on inflation, interest rates, or current market
rates.
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The
table below illustrates the primary distinctions among these types of
charters and contracts:
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Voyage
Charter
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Time
Charter
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Typical
contract length
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Single
voyage
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One
year or more
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Hire
rate basis
(1)
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Varies
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Daily
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Voyage
expenses
(2)
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We
pay
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Customer
pays
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Vessel
operating costs
(3)
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We
pay
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We
pay
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Off-hire
(4)
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Customer
does not pay
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Customer
does not pay
|
|
(1)
|
"Hire rate"
refers to
the basic payment from the charterer for the use of the
vessel.
|
|
(2)
|
"Voyage expenses"
refers to expenses incurred due to a vessel's traveling from a loading
port to a discharging port, such as fuel (bunker) cost, port expenses,
agent's fees, canal dues and extra war risk insurance, as well as
commissions.
|
|
(3)
|
Defined
below under "—Important Financial and Operational Terms and
Concepts."
|
|
(4)
|
"Off-hire"
refers to
the time a vessel is not available for service due primarily to scheduled
and unscheduled repairs or
drydocking.
|
As of
December 31, 2009, one of our vessels,
Venice
, was operating in the
Scorpio Panamax Tanker Pool, The majority of the vessels in the Scorpio Panamax
Tanker Pool trade in the spot market. The two other vessels,
Noemi
and
Senatore
, were chartered to
customers under fixed-rate long-term time charter contracts that, as of
January 1, 2010, have remaining durations of approximately 24 and nine
months, respectively.
IMPORTANT
FINANCIAL AND OPERATIONAL TERMS AND CONCEPTS
We use a
variety of financial and operational terms and concepts. These include the
following:
Vessel
revenues.
Vessel revenues primarily include revenues from time
charters and pool revenues. Vessel revenues are affected by hire rates and the
number of days a vessel operates. Vessel revenues are also affected by the mix
of business between vessels on time charter and vessels in pools. Revenues from
vessels in pools are more volatile, as they are typically tied to prevailing
market rates.
Vessel operating
costs.
We are responsible for vessel operating costs, which include
crewing, repairs and maintenance, insurance, stores, lube oils, communication
expenses, and technical management fees. The two largest components of our
vessel operating costs are crews and repairs and maintenance. Expenses for
repairs and maintenance tend to fluctuate from period to period because most
repairs and maintenance typically occur during periodic drydockings. Please read
"Drydocking" below. We expect these expenses to increase as our fleet matures
and to the extent that it expands.
Additionally,
these costs include technical management fees charged by SSM. Historically, our
fees under technical management arrangements with SSM were under management
agreements with other Scorpio Group entities, which are related parties of ours.
Since agreements with related parties are by definition not at arms length, the
expenses incurred under these agreements may have been different than the
historical costs incurred if the subsidiaries had operated as unaffiliated
entities during prior periods. Our estimates of any differences between
historical expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed in the notes to the
historical consolidated financial statements included elsewhere in this annual
report. Prior to the closing of our initial public offering, we entered into a
technical management agreement with SSM. Under this agreement, since December 1,
2009, SSM continues to provide us technical services and we pay market-based
fees for this service which we believe are customary for the tanker
industry.
Drydocking.
We
must periodically drydock each of our vessels for inspection, repairs and
maintenance and any modifications to comply with industry certification or
governmental requirements. Generally, each vessel is drydocked every 30 months.
We capitalize a substantial portion of the costs incurred during drydocking and
amortize those costs on a straight-line basis from the completion of a
drydocking to the estimated completion of the next drydocking. We immediately
expense costs for routine repairs and maintenance performed during drydocking
that do not improve or extend the useful lives of the assets. The number of
drydockings undertaken in a given period and the nature of the work performed
determine the level of drydocking expenditures.
Depreciation.
Depreciation
expense typically consists of:
|
·
|
charges
related to the depreciation of the historical cost of our fleet (less an
estimated residual value) over the estimated useful lives of the
vessels; and
|
|
·
|
charges
related to the amortization of drydocking expenditures over the estimated
number of years to the next scheduled
drydocking.
|
Time Charter
Equivalent Rates.
Time charter equivalent, or TCE, rates, are a standard
industry measure of the average daily revenue performance of a vessel. The TCE
rate achieved on a given voyage is expressed in U.S. dollars/day and is
generally calculated by subtracting voyage expenses, including bunkers and port
charges, from voyage revenue and dividing the net amount (time charter
equivalent revenues) by the number of days in the period.
Revenue
Days.
Revenue days are the total number of calendar days our vessels were
in our possession during a period, less the total number of off-hire days during
the period associated with major repairs or drydockings. Consequently, revenue
days represent the total number of days available for the vessel to earn
revenue. Idle days, which are days when a vessel is available to earn revenue,
yet is not employed, are included in revenue days. We use revenue days to show
changes in net voyage revenues between periods.
Average Number of
Vessels.
Historical average number of vessels consists of the average
number of vessels that were in our possession during a period. We use average
number of vessels primarily to highlight changes in vessel operating costs and
depreciation and amortization.
Contract of
Affreightment.
A contract of affreightment, or COA, relates to the
carriage of specific quantities of cargo with multiple voyages over the same
route and over a specific period of time which usually spans a number of years.
A COA does not designate the specific vessels or voyage schedules that will
transport the cargo, thereby providing both the charterer and ship owner greater
operating flexibility than with voyage charters alone. The charterer has the
flexibility to determine the individual voyage scheduling at a future date while
the ship owner may use different ships to perform these individual voyages. As a
result, COAs are mostly entered into by large fleet operators such as pools or
ship owners with large fleets of the same vessel type. All of the ship's
operating, voyage and capital costs are borne by the ship owner while the
freight rate normally is agreed on a per cargo ton basis.
Commercial
Pools.
To increase vessel utilization and thereby revenues, we
participate in commercial pools with other shipowners of similar modern,
well-maintained vessels. By operating a large number of vessels as an integrated
transportation system, commercial pools offer customers greater flexibility and
a higher level of service while achieving scheduling efficiencies. Pools employ
experienced commercial charterers and operators who have close working
relationships with customers and brokers, while technical management is
performed by each shipowner. Pools negotiate charters with customers primarily
in the spot market. The size and scope of these pools enable them to enhance
utilization rates for pool vessels by securing backhaul voyages and COAs, thus
generating higher effective TCE revenues than otherwise might be obtainable in
the spot market while providing a higher level of service offerings to
customers.
ITEMS YOU
SHOULD CONSIDER WHEN EVALUATING OUR RESULTS
You
should consider the following factors when evaluating our historical financial
performance and assessing our future prospects:
|
·
|
Our voyage
revenues are affected by cyclicality in the tanker
markets.
The cyclical nature of the tanker industry causes
significant increases or decreases in the revenue we earn from our
vessels, particularly those we trade in the spot market. If we choose to
pay dividends in the future, this will, from period to period, affect the
cash available to pay such dividends. We intend to employ
a chartering strategy to capture upside opportunities in the spot
market while using fixed-rate time charters to reduce downside risks,
depending on SCM's outlook for freight rates, oil tanker market conditions
and global economic conditions. Historically, the tanker industry has been
cyclical, experiencing volatility in profitability due to changes in the
supply of, and demand for, tanker capacity. The supply of tanker capacity
is influenced by the number and size of new vessels built, vessels
scrapped, converted and lost, the number of vessels that are out of
service, and regulations that may effectively cause early obsolescence of
tonnage. The demand for tanker capacity is influenced by, among other
factors:
|
|
·
|
global
and regional economic and political
conditions;
|
|
·
|
increases
and decreases in production of and demand for crude oil and petroleum
products;
|
|
·
|
increases
and decreases in OPEC oil production
quotas;
|
|
·
|
the
distance crude oil and petroleum products need to be transported by
sea; and
|
|
·
|
developments
in international trade and changes in seaborne and other transportation
patterns.
|
|
·
|
Tanker
rates also fluctuate based on seasonal variations in
demand.
Tanker markets are typically stronger in the winter
months as a result of increased oil consumption in the northern hemisphere
but weaker in the summer months as a result of lower oil consumption in
the northern hemisphere and refinery maintenance. In addition,
unpredictable weather patterns during the winter months tend to disrupt
vessel scheduling. The oil price volatility resulting from these factors
has historically led to increased oil trading activities in the winter
months. As a result, revenues generated by our vessels have historically
been weaker during the fiscal quarters ended June 30 and
September 30, and stronger in the fiscal quarters ended March 31
and December 31.
|
|
·
|
Our general
and administrative expenses will be affected by the commercial management,
and administrative services agreements we have entered into with SCM and
Liberty Holding Company Ltd., respectively, and costs we will incur from
being a public company.
Historically, we incurred management
fees for commercial and administrative management under management
agreements with other Scorpio Group entities, which are parties related to
us. Since agreements with related parties are by definition not at arms
length, the expenses incurred under these agreements may have been
different than the historical costs incurred if the subsidiaries had
operated as unaffiliated entities during prior periods. Our estimates of
any differences between historical expenses and the expenses that may have
been incurred had the subsidiaries been stand-alone entities have been
disclosed in the notes to the historical consolidated financial statements
included elsewhere in this annual
report.
|
We
entered into a commercial management agreement with SCM. We also entered into an
administrative services agreement with Liberty Holding Company Ltd., or our
Administrator. Under these agreements, since December 1, 2009, SCM provides us
with commercial services and our Administrator provides us with administrative
services. We pay market-based fees under our commercial management agreement,
which we believe is customary for the tanker industry. We reimburse our
Administrator for the reasonable direct or indirect expenses it incurs in
providing us with the administrative services described above. We will also pay
our Administrator a fee for arranging vessel purchases and sales for us equal to
1% of the gross purchase or sale price, payable upon the consummation of any
such purchase or sale. We believe this 1% fee on purchases and sales is
customary in the tanker industry. Our historical general and administrative
management fees are estimates of the value of the general and administrative
services provided by Scorpio Group affiliates to us. These fees may not be
equivalent to a market-based fee and, thus, our historical general and
administrative expenses may not reflect what we will incur in the future. As a
result of changes to our commercial management agreements agreed upon in
December 2009, we estimate that our commercial management fees in 2010 will
increase by $0.3 million. The new technical and administrative
services
agreements
were negotiated at rates similar to the rates under the previous agreements and
therefore we expect there will be no additional impact on the results of
operations in future periods for technical and administrative management
services. In addition, we will incur additional general and administrative
expenses as a result of being a publicly traded company, including costs
associated with annual reports to shareholders and Securities and Exchange
Commission, or SEC, filings, investor relations, New York Stock Exchange fees
and tax compliance expenses.
RESULTS
OF OPERATIONS
Vessel
revenue in our consolidated income statements represents TCE revenues. Revenues
and TCE are the same for us because our vessels are employed on time charter
contracts or in a pool. When a vessel is on time charter, the customer pays us
the contract revenue, and the customer is responsible for all of the voyage
expenses. When a vessel is in a pool, the pool pays us the vessel's allocated
earnings within the pool, which we record as revenue, and the pool is also
responsible for the voyage expenses. The vessel's allocated earnings in the pool
are reduced to reflect the commercial management fee charged by SCM, the pool
manager.
Shipowners
base economic decisions regarding the deployment of their vessels upon actual
and anticipated TCE rates, and industry analysts typically measure rates in
terms of TCE rates. This is because under time charters the customer usually
pays the voyage expenses, while under voyage charters, also known as spot market
charters, the shipowner usually pays the voyage expenses. Accordingly, the
discussion of revenue below focuses on TCE rates where applicable.
The
following tables separately present our operating results for the years ended
December 31, 2009, 2008 and 2007.
FOR
THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2008
|
|
For
the Years Ended
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
Percentage
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
revenue
|
|
$
|
27,619,041
|
|
|
$
|
39,274,196
|
|
|
$
|
(11,655,155
|
)
|
|
|
(30
|
)%
|
Charterhire
|
|
|
(3,072,916
|
)
|
|
|
(6,722,334
|
)
|
|
|
3,649,418
|
|
|
|
(54
|
)%
|
Vessel
Expenses
|
|
|
(8,562,118
|
)
|
|
|
(8,623,318
|
)
|
|
|
61,200
|
|
|
|
(1
|
)%
|
General
and administrative expenses
|
|
|
(416,908
|
)
|
|
|
(600,361
|
)
|
|
|
183,453
|
|
|
|
(31
|
)%
|
Depreciation
|
|
|
(6,834,742
|
)
|
|
|
(6,984,444
|
)
|
|
|
159,702
|
|
|
|
(2
|
)%
|
Impairment
of vessels
|
|
|
(4,511,877
|
)
|
|
|
-
|
|
|
|
(4,511,877
|
)
|
|
|
-
|
|
Interest
expense – bank loan
|
|
|
(699,115
|
)
|
|
|
(1,710,907
|
)
|
|
|
1,011,792
|
|
|
|
(59
|
)%
|
Gain/(loss)
on derivative financial instruments
|
|
|
148,035
|
|
|
|
(2,463,648
|
)
|
|
|
2,611,683
|
|
|
|
(106
|
)%
|
Interest
income
|
|
|
4,929
|
|
|
|
35,492
|
|
|
|
(30,563
|
)
|
|
|
(86
|
)%
|
Other
expenses, net
|
|
|
(256,292
|
)
|
|
|
(18,752
|
)
|
|
|
(237,540
|
)
|
|
|
1,267
|
%
|
Net
income
|
|
$
|
3,418,037
|
|
|
$
|
12,185,924
|
|
|
$
|
(8,757,887
|
)
|
|
|
(72
|
)%
|
Net income.
Net income for the year ended December 31, 2009 was $3.4 million, a
decrease of $8.8 million, or 72%, when compared to net income of $12.2 million
for the year ended December 31, 2008. The differences between the two periods
are discussed below.
Vessel
revenue
.
Revenue
was $27.6 million for the year ended December 31, 2009, a decrease of $11.7
million, or 30%, from revenue of $39.3 million for the year ended December 31,
2008. The following table summarizes our revenue:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Owned
vessels:
|
|
|
|
|
|
|
|
|
|
Time
charter revenue
|
|
$
|
17,203,709
|
|
|
$
|
18,293,963
|
|
|
$
|
(1,090,254
|
)
|
Pool
revenue
|
|
|
7,438,726
|
|
|
|
13,201,424
|
|
|
|
(5,762,698
|
)
|
Time
chartered-in vessels:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pool
revenue
|
|
|
2,976,606
|
|
|
|
7,778,809
|
|
|
|
(4,802,203
|
)
|
TOTAL
|
|
$
|
27,619,041
|
|
|
$
|
39,274,196
|
|
|
$
|
(11,655,155
|
)
|
The
reduction in time charter revenue of $1.1 million or 6% was primarily the result
of
Noemi
and
Senatore
both being drydocked
in 2009.
Noemi
was
drydocked in August 2009 (off-hire for 23 days), which reduced revenue by $0.6
million, and
Senatore
was drydocked in May 2009 (off-hire for 14 days), which reduced revenue by $0.4
million.
Noemi
and
Senatore
were employed
on time charters that began in 2007 for the years ended December 31, 2009 and
2008.
The
reduction in pool revenue for the owned vessel
Venice
of $5.8 million or 44%
was due to a decrease in the spot market rates. The majority of the vessels in
the Scorpio Panamax Tanker Pool operate in the spot market.
The
reduction of the pool revenue for a time chartered-in vessel of $4.8 million, or
62%, was due to 95 less operating days in the year ended December 31, 2009 and a
decrease in spot market rates, which resulted in a decrease in the pool rates.
In May 2008, we time chartered-in a vessel until May 2009, and the vessel
operated in the Scorpio Panamax Tanker Pool. We do not anticipate
time chartering-in vessels in the future.
Charterhire.
Charterhire expense of $3.1 million for the year ended December 31, 2009
decreased $3.6 million, or 54%, from $6.7 million for the year ended December
31, 2008. The decrease was due to 95 less operating days in the year ended
December 31, 2009, and a reduction in the profit and loss arrangement included
in the charterparty. The vessel was chartered-in by us from May 29, 2008 to
May 1, 2009 at $26,750 per day plus a 50% profit and loss arrangement where
we agreed to pay 50% of the vessel's earnings in the pool above the daily
charterhire rate, and we would receive 50% of the vessels earnings in the pool
below $26,750 per day. For year ended December 31, 2009, we recorded a reduction
in the charterhire expense of $108,000 because the vessel's earnings in the pool
were less than $26,750 per day. For the year ended December 31, 2008, we
recorded an increase in the charterhire expense of $1.0 million because the
vessel's earnings in the pool were more than $26,750 per day.
Vessel operating
costs.
Vessel operating costs for owned vessels for the years ended
December 31, 2009 and 2008 were $8.6 million in each year; there were no
significant changes in vessel operating costs from one year to
another.
General and
administrative expense.
General and administrative expense, which
includes the commercial management and administrative fees, of $0.4 million for
the year ended December 31, 2009, decreased $0.2 million or 31% from $0.6
million for the year ended December 31, 2008. This decrease in 2009 primarily
resulted from the reduction in the administrative fees charged by the
provider.
Depreciation.
Depreciation and
amortization expense of $6.8 million for the year ended December 31, 2009
decreased $0.2 million, or 2%, from $7.0 million for the year ended December 31,
2008. The decrease in depreciation expense was primarily due to a change in the
estimated residual value due to changes in scrap rates since December 31, 2008.
See discussion of this change in estimate in Note 5 to the audited consolidated
financial statements included in "ITEM 18 Financial Statements".
Impairment.
In the year ended
December 31, 2009, we recognized an impairment loss of $4.5 million for
Noemi
and
Senatore
. This
impairment loss was triggered by reductions in vessel values, and represented
the difference between the carrying value and recoverable
amount, being fair value less cost to sell. We determined the fair value of each
vessel by adding (i) the charter free market value of the vessel to
(ii) the discounted value of each vessel's time charter, which is the
difference between each vessel's time charter contracted rate and the market
rate for a similar type of vessel with a similar contracted duration. In
determining the charter free market value, we took into consideration the
estimated valuations provided by an independent ship broker.
Interest
expense—bank loan.
Interest expense-bank loan was $0.7 million for the
year ended December 31, 2009, a decrease of $1.0 million or 59% from $1.7
million for year ended December 31, 2008. The decrease in interest expense was
primarily due to a reduction in LIBOR and a decrease in the principal
outstanding during the periods the 2005 Credit Facility was outstanding, which
was paid in full from the proceeds of the initial public offering. The average
interest rate including margin decreased to 1.70% for the year ended December
31, 2009 from 3.71% for the year ended December 31, 2008. The average principal
for the year ended December 31, 2009 and 2008 was $41.6 million and $45.2
million, respectively.
Gain/(loss) on
derivative financial instruments.
Gain/(loss) on
derivatives from our interest rate swap, which consists of realized and
unrealized gains and losses, was a gain of $0.1 million for the year ended
December 31, 2009; there was an unrealized gain of $0.95 million offset by a
realized loss of $0.8 million. For the year ended December 31, 2008, there was a
loss on derivatives of $2.5 million, which was from an unrealized loss of $2.1
million and a realized loss of $0.4 million. The unrealized gains and losses
reflect the adjustment of the market value of the swap (the contract rate versus
the current market rate). The realized loss is the result of the settlement
difference between contracted interest rates and the actual market interest
rates (LIBOR).
Interest income.
Interest income was $4,929 for the year ended December 31, 2009, a
decrease of $30,563 or 86% from the $35,492 for the year ended December 31,
2008. The decrease was primarily due a reduction in interest rates for our cash
deposits and reduction in the cash balance.
Other expense,
net.
Other expense, net was a loss of $256,292 for the year ended
December 31, 2009, and a net loss of $18,752 for the year ended December 31,
2008. This change was primarily the result of sundry finance expenses and
changes in foreign currency gains and losses.
FOR
THE YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2007
|
|
For
the Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Percentage
Change
|
|
Vessel
revenue
|
|
$
|
39,274,196
|
|
|
$
|
30,317,138
|
|
|
$
|
8,957,058
|
|
|
|
30
|
%
|
Charterhire
|
|
|
(6,722,334
|
)
|
|
|
—
|
|
|
|
(6,722,334
|
)
|
|
|
—
|
|
Vessel
operating costs
|
|
|
(8,623,318
|
)
|
|
|
(7,600,508
|
)
|
|
|
(1,022,810
|
)
|
|
|
(13
|
)%
|
Depreciation
|
|
|
(6,984,444
|
)
|
|
|
(6,482,484
|
)
|
|
|
(501,960
|
)
|
|
|
(8
|
)%
|
General
and administrative expenses
|
|
|
(600,361
|
)
|
|
|
(590,773
|
)
|
|
|
(9,588
|
)
|
|
|
(2
|
)%
|
Interest
expense—bank loan
|
|
|
(1,710,907
|
)
|
|
|
(1,953,344
|
)
|
|
|
242,437
|
|
|
|
12
|
%
|
Loss
on derivative financial instruments
|
|
|
(2,463,648
|
)
|
|
|
(1,769,166
|
)
|
|
|
(694,482
|
)
|
|
|
(39
|
)%
|
Interest
income
|
|
|
35,492
|
|
|
|
142,233
|
|
|
|
(106,741
|
)
|
|
|
(75
|
)%
|
Other
expense, net
|
|
|
(18,752
|
)
|
|
|
(9,304
|
)
|
|
|
(9,448
|
)
|
|
|
(102
|
)%
|
Net
Income
|
|
$
|
12,185,924
|
|
|
$
|
12,053,792
|
|
|
$
|
132,132
|
|
|
|
1
|
%
|
Net Income.
Net Income for the year end December 31, 2008 was $12.2 million, an
increase of $0.1 million or 1% when compared to net income of $12.1 million for
the year ended December 31, 2007. The differences between the two years are
discussed below.
Vessel
revenue.
Revenue was $39.3
million for the year ended December 31, 2008, an increase of $9.0 million
from the revenue of $30.3 million for the year ended December 31, 2007. The
following table summarizes our revenue:
|
|
For
the Years Ended
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
Owned
vessels:
|
|
|
|
|
|
|
|
|
|
Time
charter revenue
|
|
$
|
18,293,963
|
|
|
$
|
10,557,524
|
|
|
$
|
7,736,439
|
|
Pool
revenue
|
|
|
13,201,424
|
|
|
|
19,759,614
|
|
|
|
(6,558,190
|
)
|
Time
chartered-in vessels:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pool
revenue
|
|
|
7,778,809
|
|
|
|
—
|
|
|
|
7,778,809
|
|
TOTAL
|
|
$
|
39,274,196
|
|
|
$
|
30,317,138
|
|
|
$
|
8,957,058
|
|
The
increase in time charter revenue of $7.7 million or 73% was the result
of:
|
·
|
Noemi
being on time
charter for all of 2008 and only 344 days in 2007, an increase of $0.5
million.
|
|
·
|
Senatore
being on time
charter for all of 2008 and only 89 days in 2007, an increase of $7.2
million.
|
The
reduction of pool revenue for the owned vessels of $6.6 million or 33% was due
to:
|
·
|
Senatore
operating in
the pool for 276 days in 2007 and zero days in 2008, a decrease of $8.1
million.
|
|
·
|
Noemi
operating in the
pool for 21 days in 2007 and zero days in 2008, a decrease of $0.6
million.
|
The
reduction in the number of days for the owned vessels in the pool (366 in 2008
and 662 in 2007) was partially offset by an increase of $2.2 million
(20%) in 2008 from
Venice's
revenue from the
pool. The vessel was in the pool for both years. The 20% increase in
Venice's
revenue was due to
higher rates in the spot market. The majority of the vessels in the Scorpio
Panamax Tanker Pool operated in the spot market.
The
increase of the pool revenue for the time chartered in-vessel of $7.8 million
was due to a vessel being time chartered-in from May 29, 2008 until
May 1, 2009. The vessel operated in the Scorpio Panamax Tanker
Pool.
Charterhire.
Charterhire expense for the year ended December 31, 2008 was $6.7 million.
There was no charterhire expense in 2007 since we did not charter in any vessels
during 2007. The vessel was chartered in from May 29, 2008 to May 1,
2009. The daily rate was at $26,750 per day plus a 50% profit and loss
arrangement where (i) we agreed to pay 50% of the vessel's earnings above
the daily charterhire rate and (ii) we received 50% of the vessel's
earnings below $26,750 per day. The profit sharing expense recorded during 2008
was $1.0 million.
Vessel operating
costs.
Vessel operating costs for the owned vessels of $8.6 million for
the year ended December 31, 2008 increased $1.0 million, or 13%, from $7.6
million for the year ended December 31, 2007. The increase was primarily
due to higher crew expenses, which included higher salaries and training
expenses, and higher stores (e.g. lube oils).
General and
administrative expenses.
General and
administrative expenses of $0.6 million for the year ended December 31,
2008 was similar to the expense for the year ended December 31,
2007.
Depreciation.
Depreciation and amortization expense of $7.0 million for the year ended
December 31, 2008 increased $0.5 million or 8% from $6.5 million for the
year ended December 31, 2007. The increase in depreciation expense was
primarily due to a change in the estimated residual value due to changes in
scrap rates in the period. See discussion of this change in estimate in Note 5
to the audited consolidated financial statements included elsewhere in this
annual report.
Interest
expense—bank loan.
Interest expense-bank
loan was $1.7 million for year ended December 31, 2008, a decrease of $0.25
million or 12% from $1.95 million for the year ended December 31, 2007. The
decrease in interest expense was primarily due to a reduction in LIBOR and a
decrease in the outstanding principal. The average interest rate including
margin decreased to 3.71% for the year ended December 31, 2008 from 6.05%
for the year ended December 31, 2007. The average principal outstanding for
the years ended December 31, 2008 and 2007 was $45.2 million and $48.8
million, respectively.
Loss on
derivative financial instruments.
Loss on derivatives from our interest
rate swap, which consists of realized and unrealized losses, was a loss of $2.5
million for the year ended December 31, 2008; there was an unrealized loss
of $2.1 million and a realized loss of $0.4 million. For the year ended
December 31, 2007, there was a loss on derivatives of $1.8 million, which
was from an unrealized loss of $1.3 million and a realized loss of $0.5 million.
The unrealized gains and losses reflect the adjustment of the market value of
the swap (the contract rate versus the current market rate). The realized loss
is the result of the settlement difference between contracted interest rates and
the actual market interest rates (LIBOR).
Interest income.
Interest income was $35,492 for the year ended December 31, 2008, a
decrease of $106,741 or 75% from $142,233 for the year ended December 31,
2007. The decrease was primarily due a reduction in interest rates for our cash
deposits.
Other expense,
net.
Other expense net, was a loss of $18,752 and $9,304 for the years
ended December 31, 2008 and 2007, respectively. The increase in the
loss of $9,448 or 102% was primarily due to a change in foreign currency
losses.
|
B.
|
Liquidity and Capital
Resources
|
On April
6, 2010, we closed the issuance of 12,500,000 shares of common stock at $13.00
per share in our initial public offering and received net proceeds of $149.6
million, after deducting underwriters' discounts and offering
expenses. On April 9, 2010, we repaid in full the outstanding balance
of $38.9 million of our 2005 Credit Facility from the proceeds of the initial
public offering. On May 4, 2010, we closed the issuance of 450,000
shares of common stock at $13.00 and received $5.4 million, after deducting
underwriters' discounts, when the underwriters in the Company's initial public
offering partially exercised their over-allotment option. The
remaining proceeds of our initial public offering, including over-allotment
exercise, will be used for working capital, general corporate expenses, and
vessel acquisitions.
On June
2, 2010, we executed our $150 million loan facility, the 2010 Credit Facility,
which is described below. The 2010 Credit Facility will be used and
has been used to partially finance the vessel acquisitions. As
of June 23, 2010, we have drawn down $19.0 million to finance the acquisition of
vessels.
Our
primary source of funds for our short-term and long-term liquidity needs will be
the cash flows generated from our vessel operations, particularly cash flows
from our two vessels,
Noemi
and
Senatore
, on time charter and
future vessels that have time charters, such as
STI Heritage
and
STI Harmony
. Time charters
provide contracted revenue that reduces the volatility (rates can fluctuate
within months) and seasonality (rates are generally stronger in first and fourth
quarters of the year) from vessels that operate in the spot market.
Venice,
the third vessel in
our fleet as of December 31, 2009, operates in the Scorpio Panamax Tanker Pool,
and vessels that we acquire in the future that are not on time charter will
operate in pools. The pools reduce volatility because (i) they aggregate
the revenues and expenses of all pool participants and distribute net earnings
to the participants based on an agreed upon formula and (ii) some of the
vessels in the pool are on time charter. We believe these cash flows from
operations, the net proceeds from the initial public offering, and draw downs
from the 2010 Credit Facility will be sufficient to meet our existing liquidity
needs for the next 12 months.
As of
December 31, 2009, our cash balance was $0.5 million, which is down from our
cash balance of $3.6 million as of December 31, 2008. For the
year ended December 31, 2009, our net cash inflow from operating activities was
$9.3 million and the net cash outflow from financing activities was $12.5
million, which included a dividend of $8.7 million. For the year
ended December 31, 2008, our net cash inflow from operating activities was $24.8
million and the net cash outflow from financing activities was $22.4 million,
which included a dividend $18.8 million.
As of
December 31, 2009, our long-term liquidity needs were comprised of our debt
repayment obligations for our 2005 Credit Facility, which was fully repaid using
the proceeds of the initial public offering completed on April 6,
2010.
In April
and May 2010, we agreed to purchase six vessels for an aggregate of $191.0
million. We expect to finance these acquisitions with the net
proceeds from the initial public offering and from the 2010 Credit Facility,
which is described further under "Long-Term Debt Obligations and Credit
Arrangements – 2010 Credit Facility" below.
The 2010
Credit Facility requires us to comply with a number of covenants, including
financial covenants related to liquidity, consolidated net worth, loan to value
ratios and collateral maintenance; delivery of quarterly and annual financial
statements and annual projections; maintaining adequate insurances; compliance
with laws (including environmental); compliance with ERISA; maintenance of flag
and class of the initial vessels; restrictions on consolidations, mergers or
sales of assets; approvals on changes in the manager of the vessels; limitations
on liens; limitations on additional indebtedness; prohibitions on paying
dividends if a covenant breach or an event of default has occurred or would
occur as a result of payment of a dividend; prohibitions on transactions with
affiliates; and other customary covenants.
Since two
of our vessels were in drydock in 2009 and the third received an underwater
survey in 2009, we do not anticipate the three vessels in our fleet as of
December 31, 2009 requiring a drydocking within the next 12
months. We are assessing the need to perform drydocks for the ships
we agreed to acquire in 2010.
Cash
Flows
The table
below summarizes our sources and uses of cash for the periods
presented:
|
|
For
the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Condensed
Cash Flows
|
|
|
|
|
|
|
|
|
|
Provided
(Used) By:
|
|
|
|
|
|
|
|
|
|
Cash
Provided by Operating Activities
|
|
$
|
9,305,851
|
|
|
$
|
24,837,892
|
|
|
$
|
5,830,773
|
|
Cash
Used by Investing Activities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cash
Used by Financing Activities
|
|
|
(12,468,990
|
)
|
|
|
(22,384,000
|
)
|
|
|
(10,693,500
|
)
|
For
the Year Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Cash
provided by operating activities
Net cash
provided by operating activities was $9.3 million for the year ended December
31, 2009, which was a decrease of $15.5 million from the year ended December 31,
2008. The primary reasons for the decrease were (i) lower revenues from the
vessels in the pool ($10.6 million), (ii) 37 off-hire days for two of the
vessels that were in drydock during 2009 ($1.0 million); changes in the
shareholder receivable and payable ($7.7 million) and (iii) drydock
payments for two of our vessels that were performed in 2009 ($1.6 million).
These reductions were partially offset by (i) a decrease in the charterhire
expense ($3.6 million), and (ii) changes in other assets and liabilities
($1.8 million).
Cash
used by investing activities
There was
no cash used in investing activities for any of the periods shown.
Cash
used by financing activities
Cash used
by financing activities was $12.5 million for the year ended December 31, 2009,
which was $9.9 million less than the cash used for the year ended December 31,
2008. This decrease was due to a reduction in dividends paid of $10.1 million
($8.7 million for the year ended December 31, 2009 and $10.8 million in the year
ended December 31, 2008). During the years ended December 31, 2009 and 2008, we
made scheduled principal payments on our debt of $3.6 million.
For
the Year Ended December 31, 2008 Compared to the Year Ended
December 31, 2007
Cash
provided by operating activities
Net cash
provided by operating activities was $24.8 million for the year ended
December 31, 2008, which was an increase of $19.0 million from the year
ended December 31, 2007. Changes in operating cash flows before movements
in working capital resulted in a net positive variance compared to 2007 of $1.4
million. The remaining changes in operating cash flows were due to changes in
assets and liabilities. The primary reasons for the increase were (i) a
decrease in cash payments of $8.4 million to a related party ($8.4 million was
paid in 2007 and none in 2008), (ii) an increase in net cash from the
shareholder of $10.8 million (a net payment of $8.2 million was made in 2007 and
a net receipt of $2.6 million in 2008); (iii) a decrease in receipts of
accounts receivable of $2.0 million due to collection of receivables; and
(iv) an increase in changes in other assets and liabilities of $0.3
million.
Cash
used by investing activities
There was
no cash used in investing activities for any of the periods shown.
Cash
used by financing activities
Cash used
by financing activities was $22.4 million for the year ended December 31,
2008, which was an increase of $11.7 million from the cash used by financing
activities for the year ended December 31, 2007. This change was due to an
increase of $11.7 million in dividends paid ($18.8 million for the year ended
December 31, 2008 and $7.1 million for the year ended December 31,
2007). During the years ended December 31, 2008 and 2007, we made scheduled
principal payments on our debt of $3.6 million.
Long-Term
Debt Obligations and Credit Arrangements
2005
Credit Facility
Two of
our wholly-owned subsidiaries, Senatore Shipping Company Limited and Noemi
Shipping Company Limited, were joint and several borrowers under a loan
agreement dated May 17, 2005, or the 2005 Credit Facility, entered into
with The Royal Bank of Scotland plc, as lender, which was secured by, among
other things, a first preferred mortgage over each of
Senatore
and
Noemi
. The initial amount of
the 2005 Credit Facility was $56,000,000 and consisted of two tranches, one for
each vessel-owning subsidiary. Each tranche was repayable in 40 consecutive
quarterly installments of $450,000, plus a balloon payment of $10,000,000, to be
made together with the 40
th
installment of each tranche. The 2005 Credit Facility was due to mature on
May 18, 2015. The interest rate on the loan was 0.70% above LIBOR. As of
December 31, 2009, the outstanding balance was $39.8 million, with $3.6 million
due within the next 12 months. As of December 31, 2009, we were in compliance
with all of our loan covenants. On April 9, 2010, we repaid the outstanding
balance of $38.9 million with the proceeds from our initial public
offering.
2010
Credit Facility
On June
2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting
through its New York branch, DnB NOR Bank ASA, acting through its New York
branch, and Fortis Bank Nederland, or the lead arrangers, for a senior secured
term loan facility of up to $150 million. Borrowings under the
credit facility are available until December 2, 2011 and bear interest at LIBOR
plus an applicable margin of 3.00% per annum when our debt to
capitalization (total debt plus equity) ratio is equal to or less than 50% and
3.50% per annum when our debt to capitalization ratio is greater than 50%.
A commitment fee equal to 40% of the applicable margin is payable on the unused
daily portion of the credit facility. The credit facility matures on June 2,
2015 and can only be used to partially finance the cost of future vessel
acquisitions, which vessels would be the collateral for the credit
facility.
Borrowings
for each vessel financed under this facility, represent a separate tranche, with
repayment terms dependent on the age of the vessel at acquisition. Each tranche
under the new credit facility is repayable in equal quarterly installments, with
a lump sum payment at maturity, based on a full repayment of such tranche when
the vessel to which it relates is fifteen years of age. Our subsidiaries, which
may at any time own one or more of our initial vessels, will act as guarantors
under the credit facility. As of June 23, 2010, we have drawn down
$19.0 million under this facility.
The
credit facility requires us to comply with a number of covenants, including
financial covenants; delivery of quarterly and annual financial statements and
annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class
of the initial vessels; restrictions on consolidations, mergers or sales of
assets; prohibitions on changes in the Manager of our initial vessels;
limitations on liens; limitations on additional indebtedness; prohibitions on
paying dividends if a covenant breach or an event of default has occurred or
would occur as a result of payment of a dividend; prohibitions on transactions
with affiliates; and other customary covenants.
The
financial covenants include:
|
·
|
The
ratio of debt to capitalization shall be no greater than 0.60 to
1.00.
|
|
·
|
Consolidated
tangible net worth shall be no less than US$ 150,000,000 plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal
quarter from July 1, 2010 going forward and 75% of the value of any new
equity issues from July 1, 2010 going
forward.
|
|
·
|
The
ratio of EBITDA to actual interest expense shall be no less than 2.50 to
1.00 commencing with the fifth fiscal quarter following the closing of the
credit facility. Such ratio shall be calculated quarterly on a trailing
quarter basis from and including the fifth fiscal quarter however for the
ninth fiscal quarter and periods thereafter the ratio shall be calculated
on a trailing four quarter basis.
|
|
·
|
Unrestricted
cash and cash equivalents including amounts on deposit with the lead
arrangers for the first five fiscal quarters following the closing of our
initial public offering shall at all times be no less than the higher of
(i) US$ 2,000,000 per vessel or (ii) US$ 10,000,000 and thereafter
unrestricted cash and cash equivalents shall at all times be no less than
the higher of (i) US$ 1,000,000 per vessel or (ii) US$
10,000,000.
|
|
·
|
The
aggregate fair market value of the collateral vessels shall at all times
be no less than 150% of the then aggregate outstanding principal amount of
loans under the credit facility.
|
Interest
Rate Swaps
As of
December 31, 2009, we had one interest rate swap. The notional value was $19.9
million, and the effective fixed interest rate was 4.79%. The swap began in May
2005 and was scheduled to end in May 2015. The interest rate swap was
terminated when the 2005 Credit Facility was repaid in April 2010. In
the future, we may enter into interest rate swaps to manage our exposure
interest rates.
CAPITAL
EXPENDITURES
Vessel
Acquisitions
In April
and May 2010, we agreed to acquire six tankers for an aggregate purchase price
of $191.0 million. These vessels will be paid for with the net
proceeds from our initial public offering and from our credit
facility.
Drydock
We do not
plan to drydock the three vessels in our fleet as of December 31, 2009 within
the next 12 months because (i)
Noemi
and
Senatore
were drydocked in
2009 for an aggregate cost of $1.6 million and 37 off-hire days, and
(ii)
Venice
received an underwater survey in 2009. The vessels are not scheduled to be
drydocked until 2011 and 2012.
We have
not yet determined the need to do a drydock for the six vessels that we agreed
to acquire in April and May 2010 (three have been acquired as of the date of
this annual report).
As our
fleet matures and expands, our drydock expenses will likely increase. Ongoing
costs for compliance with environmental regulations and society classification
survey costs are a component of our vessel operating costs. We are not currently
aware of any regulatory changes or environmental liabilities that we anticipate
will have a material impact on our current or future operations.
Dividends
We do not
have immediate plans to pay dividends, but we will continue to assess our
dividend policy. In the future, our board of directors may determine it is in
the best interest of the Company to pay dividends.
|
C.
|
Research
and Development, Patents and Licenses,
Etc.
|
Not
applicable
See ITEM
4.B "The International Tanker Industry"
|
E.
|
Off-Balance
Sheet Arrangements
|
As of
December 31, 2009, we had no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital resources.
|
F.
|
Tabular
Disclosure of Contractual
Obligations
|
The
following table sets forth our total contractual obligations at December 31,
2009 (1):
|
|
in millions of
$
|
|
|
|
Less than
1
year
|
|
|
1 to 3
years
|
|
|
3 to 5
years
|
|
|
More than
5
years
|
|
|
Thereafter
|
|
Bank
Loan
(2)
|
|
$
|
3.6
|
|
|
$
|
7.2
|
|
|
$
|
7.2
|
|
|
$
|
21.8
|
|
|
|
—
|
|
Bank
Loan—Interest payments
(3)
|
|
$
|
1.2
|
|
|
$
|
2.1
|
|
|
$
|
1.6
|
|
|
$
|
0.5
|
|
|
|
—
|
|
Technical
management fees
(4)
|
|
$
|
0.6
|
|
|
$
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
management fees
(5)
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On
June 2, 2010, we executed a new $150 million credit facility to partially
finance the acquisition of new vessels. As of June 23, 2010, we
have drawn down $19.0 million under this credit
facility.
|
|
(2)
|
On
April 9, 2010, we repaid the outstanding balance of $38.9 million under
the 2005 Credit Facility from the proceeds of the initial public
offering.
|
|
(3)
|
The
interest expense on the 2005 Credit Facility was variable and based on
LIBOR. The payments in the above schedule were calculated using an
interest swap rate of 2.31% plus a margin of 0.70%, which was the margin
for the 2005 Credit Facility.
|
|
(4)
|
We
pay our technical manager, SSM, $548 per
day.
|
|
(5)
|
We
pay our commercial manager, SCM, $250 per day plus 1.25% of gross revenue
for vessels that are not in a pool.
|
Restricted
Stock
On June
18, 2010, we issued 559,458 shares of restricted stock to our executive officers
at a price of $10.99 per share, for a total value of $ 6,148,443. The vesting
schedule of the restricted stock is (i) one-third of the shares vest on April 6,
2013, (ii) one-third of the shares vest on April 6, 2014, and (iii) one-third of
the shares vest on April 6, 2015. The expense for the restricted stock will be
recognized over the vesting periods for each third of the shares. The expense
for this restricted stock grant is:
|
·
|
for
the year ending December 31,
2010, $922,124;
|
|
·
|
for
the year ending December 31, 2011,
$1,702,383;
|
|
·
|
for
the year ending December 31, 2012,
$1,702,383;
|
|
·
|
for
the year ending December 31, 2013,
$1,151,776;
|
|
·
|
for
the year ending December 31, 2014, $562,848
and
|
|
·
|
for
the year ending December 31, 2015,
$106,929.
|
On June
18, 2010, we issued 9,000 shares to our independent directors at a price of
$10.99 per share, for a total value of $98,910. These shares vest on
April 6, 2011 and were approved prior to the initial public
offering.
G. Safe Harbor
See "Cautionary Statement Regarding
Forward-Looking Statements" at the beginning of this annual report.
CRITICAL
ACCOUNTING ESTIMATES
In the
application of our accounting policies, which are prepared in conformity with
IFRS as issued by the IASB, we are required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities, and revenues
and expenses that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these
estimates.
The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate is
revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future
periods.
The
significant judgments and estimates are as follows:
Revenue
recognition
We
currently generate all of revenue from time charters and pools. Revenue
recognition for time charters and pools is generally not as complex or as
subjective as voyage charters. Time charters are for a specific
period of time at a specific rate per day. For long-term time charters, revenue
is recognized on a straight-line basis over the term of the
charter. Pool revenues are determined by the pool managers from the
total revenues and expenses of the pool and allocated to pool participants using
a mechanism set out in the pool agreement.
Vessel
impairment
The
Company evaluates the carrying amounts of its
vessels
to determine whether there is any indication that those vessels have suffered an
impairment loss. If any such indication exists, the recoverable
amount of vessels is estimated in order to determine the extent of the
impairment loss (if any).
Recoverable
amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. The projection
of cash flows related to vessels is complex and requires the Company to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically
volatile. In assessing the fair value less cost to sell of the
vessel, the Company obtains vessel valuations from leading, independent and
internationally recognized ship brokers on an annual basis or when there is an
indication that an asset or assets may be impaired.
If an
indication of impairment is identified, the need for recognising an impairment
loss is assessed by comparing the carrying amount of the vessels to the higher
of the fair value less cost to sell and the value in use.
Vessel
lives and residual value
The
carrying value of each of our vessels represents its original cost at the time
it was delivered or purchased less depreciation. We depreciate our vessels to
their residual value on a straight-line basis over their estimated useful lives,
being 20 years from the date of initial delivery from the
shipyard. The residual value is estimated as the lightweight tonnage
of each vessel multiplied by a forecast scrap value per ton. The scrap value per
ton is estimated taking into consideration the scrap market rate ruling at the
year end. See Note 5 for discussion of changes in the residual values
during the period.
An
increase in the estimated useful life of a vessel or in its scrap value would
have the effect of decreasing the annual depreciation charge and extending it
into later periods. A decrease in the useful life of a vessel or scrap value
would have the effect of increasing the annual depreciation charge.
When
regulations place significant limitations over the ability of a vessel to trade
on a worldwide basis, the vessel's useful life is adjusted to end at the date
such regulations become effective. The estimated salvage value of the vessels
may not represent the fair market value at any one time since market prices of
scrap values tend to fluctuate.
Deferred
drydock cost
The
Company recognizes drydock costs as a separate component of the vessels'
carrying amounts and amortizes the drydock cost on a straight-line basis over
the estimated period until the next drydock. We use judgment when estimating the
period between drydocks performed, which can result in adjustments to the
estimated amortization of the drydock expense. If the vessel is disposed of
before the next drydock, the remaining balance of the deferred drydock is
written-off and forms part of the gain or loss recognized upon disposal of
vessels in the period when contracted. We expect that our vessels
will be required to be drydocked approximately every 30 to 48 months for major
repairs and maintenance that cannot be performed while the vessels are
operating. Costs capitalized as part of the drydock include actual costs
incurred at the drydock yard and parts and supplies used in making such
repairs.
Standards
and interpretations in issue not yet adopted
At the
date of authorisation of these financial statements, the following Standards and
Interpretations which have not been applied in these financial statements were
in issue but not yet effective:
IFRS
1 (amended)/IAS 27 (amended)
|
Cost
of an Investment in a Subsidiary, Jointly Controlled Entity or
Associate
|
|
|
IFRS
2 (amended)
|
Share-based
payments
|
|
|
IFRS
3 (revised 2008)
|
Business
Combinations
|
|
|
IFRS
9
|
Financial
Instruments
|
|
|
IAS
27 (revised 2008)
|
Consolidated
and Separate Financial Statements
|
|
|
IAS
28 (revised 2008)
|
Investments
in Associates
|
|
|
IFRIC
12
|
Service
Concession Arrangements
|
|
|
IFRIC
17
|
Distributions
of Non-cash Assets to Owners
|
|
|
IFRIC
18
|
Transfers
of Assets from Customers
|
|
|
IFRIC
19
|
Extinguishing
Financial Liabilities with Equity
Instruments
|
Improvements
to IFRSs (April 2009)
The
directors do not expect that the adoption of these Standards and Interpretations
in future periods will have a material impact on the financial statements of the
Company except for the treatment of acquisition of subsidiaries and associates
when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come
into effect for business combinations for which the acquisition date is on or
after the beginning of the first annual period beginning on or after July 1,
2009.
ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors
and Senior Management
|
Set forth
below are the names, ages and positions of our directors and executive officers.
Our board of directors is elected annually, and each director elected holds
office for a three-year term or until his successor shall have been duly elected
and qualified, except in the event of his death, resignation, removal or the
earlier termination of his term of office. The initial term of office of each
director is as follows: The two Class I directors will serve for a term expiring
at the 2011 annual meeting of shareholders, the two Class II directors will
serve for a term expiring at the 2012 annual meeting of shareholders, and the
one Class III director will serve for a term expiring at the 2013 annual meeting
of the shareholders. Officers are elected from time to time by vote of our board
of directors and hold office until a successor is elected.
Name
|
|
Age
|
|
Position
|
Emanuele
A. Lauro
|
|
31
|
|
Chairman,
Class I Director, and Chief Executive Officer
|
Robert
Bugbee
|
|
50
|
|
President
and Class II Director
|
Brian
Lee
|
|
43
|
|
Chief
Financial Officer
|
Cameron
Mackey
|
|
41
|
|
Chief
Operating Officer
|
Luca
Forgione
|
|
34
|
|
General
Counsel
|
Sergio
Gianfranchi
|
|
65
|
|
Vice
President, Vessel Operations
|
Alexandre
Albertini
|
|
33
|
|
Class
III Director
|
Ademaro
Lanzara
|
|
67
|
|
Class
I Director
|
Donald
C. Trauscht
|
|
76
|
|
Class
II Director
|
Biographical
information with respect to each of our directors and executive officers is set
forth below.
Emanuele A. Lauro,
Chairman &
Chief Executive Officer
Emanuele
A. Lauro, our founder, Chairman and Chief Executive Officer, joined Scorpio
Group in 2003 and has continued to serve there in a senior management position
since 2004. Under Mr. Lauro's leadership, Scorpio Group has grown from an
owner of three vessels in 2003 to an owner of five vessels, an operator or
manager of approximately 60 vessels in 2008. Over the course of the last six
years, Mr. Lauro has founded and developed the Scorpio Aframax Tanker Pool,
Scorpio Panamax Tanker Pool and the Scorpio Handymax Tanker Pool which as of
June 20, 2010 employ 14, 22 and 38 vessels, respectively, from Scorpio Group and
third party participants. He also founded Scorpio Logistics in May 2007
,
a company within the Scorpio
Group which owns and operates specialized assets engaged in coal transhipment in
Indonesia and which engages in strategic investments in coastal shipping and
port development in India. Furthermore, Mr. Lauro formed a joint
venture with Koenig & cie., Scorship Navigation, in August 2005 which
engages in the identification, placement, and management of certain
international shipping investments on behalf of German investors. In
addition, Mr. Lauro developed a joint venture company, Crewtech
Philippines, in May 2007 which screens, trains, and manages vessel staff for
various third party owners of drybulk and tanker vessels. Mr. Lauro
has a degree in international business from the European Business School,
London, and he has served as the Vice President of the Chamber of Shipping of
Monaco since 2006.
Robert Bugbee,
President
and Director
Robert
Bugbee, our President, has more than 25 years of experience in the shipping
industry. He joined Scorpio Group in February 2009 and has continued to serve
there in senior management. Prior to joining Scorpio Group, Mr. Bugbee was
a partner at Ospraie Management LLP between 2007 and 2008, a company which
advises and invests in commodities and basic industry. From 1995 to 2007, Mr
Bugbee was employed at OMI Corporation, or OMI, a NYSE-listed tanker company
sold in 2007. While at OMI, Mr. Bugbee most recently served as President
from January 2002 until the sale of the company, and he previously served as
Executive Vice President since January 2001, Chief Operating Officer since March
2000 and Senior Vice President of OMI from August 1995 to June 1998.
Mr. Bugbee joined OMI in February 1993. Prior to this, he was employed by
Gotaas-Larsen Shipping Corporation since 1984. During this time he took a two
year sabbatical from 1987 for the M.I.B. Programme at the Norwegian School for
Economics and Business administration in Bergen. He has a Fellowship from the
International Shipbrokers Association and a B.A. (Honors) in from London
University.
Brian Lee,
Chief
Financial Officer
Brian
Lee, our Chief Financial Officer, joined Scorpio Group in April 2009. In June
2009, he became the Scorpio Group's Controller. He has been employed in the
shipping industry since 1998. Prior to joining Scorpio Group, he was the
Controller of OMI Corporation from 2001 until the sale of the company in 2007.
Mr. Lee has a M.B.A. from the University of Connecticut and has B.S. in
Business Administration from the University at Buffalo, State University of New
York.
Cameron Mackey,
Chief
Operating Officer
Cameron
Mackey, our Chief Operating Officer, joined Scorpio Group in March 2009, where
he has served as Chief Operating Officer. Prior to joining Scorpio Group, he was
an equity and commodity analyst at Ospraie Management LLC from 2007-2008. Prior
to that, he was Senior Vice President of OMI Marine Services LLC from 2004-2007
and in Business Development at OMI Corporation from 2002-2004. He has been
employed in the shipping industry since 1994 and, earlier in his career, was
employed in unlicensed and licensed positions in the merchant navy, primarily on
tankers in the international fleet of Mobil Oil Corporation, where he held the
qualification of Master Mariner. He has an M.B.A. from the Sloan School of
Management at the Massachusetts Institute of Technology, a B.S. from the
Massachusetts Maritime Academy and a B.A. from Princeton
University.
Luca Forgione,
General
Counsel
Luca
Forgione, our General Counsel, joined Scorpio Group in August 2009 as General
Counsel. He is licensed as a lawyer in his native Italy and as a Solicitor of
the Supreme Court of England & Wales. Mr. Forgione has six years
of shipping industry experience and has worked in the fields of shipping,
offshore logistics, commodity trading and energy since the beginning of his
in-house career, most recently with Constellation Energy Commodities Group Ltd.
in London, which is part of Constellation Energy Group Inc. listed on the NYSE
under "CEG," from 2007 to 2009., and previously with Coeclerici S.p.a. in Milan
from 2004 to 2007. He has experience with all aspects of the supply chain of
drybulk and energy commodities (upstream and downstream), and has developed
considerable understanding of the regulatory and compliance regimes surrounding
the trading of physical and financial commodities as well as the owning,
managing and chartering of vessels. Mr. Forgione was a Tutor in
International Trade Law and Admiralty Law at University College London
(U.K.) and more recently a Visiting Lecturer in International Trade Law at
King's College (U.K.). He has a Masters Degree in Maritime Law from the
University of Southampton (U.K.) and a Law Degree from the University of Genoa
(Italy).
Messers.
Lauro, Bugbee, Lee, Mackey, and Forgione collectively have over 65 years of
combined shipping experience and have developed strong tanker industry
relationships with leading charterers, lenders, shipbuilders, insurers and other
key industry participants.
Sergio Gianfranchi,
Vice
President, Vessel Operations
Sergio
Gianfranchi, our Vice President of Vessel Operations, served as Operations
Manager of our technical manager, SSM, at its headquarters in Monaco from 2002
to 2004. He has been instrumental in launching and operating the Scorpio
Group's Panamax, Handymax and Aframax pools during the last five years, and was
employed as the Fleet Manager of SCM, the Scorpio Group affiliate that manages
the commercial operations of approximately 50 vessels grouped in the three
Scorpio Group pools, from 2007 to 2009. Mr. Gianfranchi is currently
employed as the Pool Fleet Manager of SCM. From 1999 to 2001,
Mr. Gianfranchi served as the on-site owner's representative of the Scorpio
Group affiliates named Doria Shipping, Tristan Shipping, Milan Shipping and Roma
Shipping, to survey the construction of their Panamax and Post-Panamax
newbuilding tankers being built at the 3Maj Shipyard in Rijeka, Croatia. When
Mr. Gianfranchi joined SSM in 1989, he began as vessel master of its OBOs
(multipurpose vessels that carry ore, heavy drybulk and oil). Upon
obtaining his Master Mariner License in 1972, he served until 1989 as a vessel
master with prominent Italian shipping companies, including NAI, which is the
largest private Italian shipping company and owned by the Lolli-Ghetti family,
and Almare, initially a subsidiary of NAI but later controlled by Finmare, the
Italian state shipping financial holding company. In this position he
served mostly on OBOs, tankers and drybulk carriers. He graduated from La Spezia
Nautical Institute in Italy in 1963.
Alexandre Albertini,
Director
Alexandre
Albertini agreed to serve as a director effective as of the closing of our
initial public offering. Mr. Albertini has more than 10 years of
experience in the shipping industry. He has been employed by Marfin Management
SAM, a drybulk ship management company, since 1997 and has served as Managing
Director there since 2009, working in fields related to crew and human
resources, insurance, legal, financial, technical, commercial, and information
technology. He is a director of eight drybulk shipowning companies and serves as
President of Ant. Topic srl, a vessel and crewing agent based in Italy. The
aggregate valuation of the drybulk shipping companies for which
Mr. Albertini serves as a Secretary or director is approximately $300
million. In 2008, Mr. Albertini was elected as a member of the Executive
Committee of InterManager. He is a founding member of the Chamber of Shipping of
Monaco and has served as its Secretary General since 2006. Mr. Albertini
also holds various board positions in several other local business and
associations.
Ademaro Lanzara,
Director
Ademaro
Lanzara agreed to serve as a director effective as of the closing of our initial
public offering. Mr. Lanzara has served as the Chairman of BPV Finance
(International) Plc Dublin, a subsidiary of Banca Popolare di Vicenza, Italy,
since 2008. He is also a director of Istituto dell'Enciclopedia Italiana fondata
da Giovanni Treccani Spa, Rome. From 1963 to 2006, Mr. Lanzara held a
number of positions with BNL spa Rome, a leading Italian banking group,
including acting as the Chairman of the Credit Committee, Chairman of
the Finance Committee and Deputy CEO. He also served as Chairman and/or director
of a number of BNL controlled banks or financial companies in Europe, the United
States and South America. He formerly served as a director of each of the
Institute of International Finance Inc. in Washington DC, Compagnie Financiere
Edmond de Rothschild Banque, in Paris, France, ABI—Italian Banking Association
in Rome, Italy, FITD—Interbank deposit Protection Fund, in Rome, Italy, ICC
International Chamber of Commerce Italian section, Rome, Italy Co-Chairman Round
Table of Bankers and Small and Medium Enterprises, European Commission, in
Brussels, Belgium. Mr. Lanzara has a economics degree (graduated
magna cum laude
) from the
University of Naples, a law degree from the University of Naples and a PMD from
Harvard Business School.
Donald C. Trauscht,
Director
Donald C.
Trauscht agreed to serve as a director effective as of the closing of our
initial public offering. He has served as the Chairman of BW Capital
Corporation, a private investment company, since 1996. From 1967 to 1995,
Mr. Trauscht held a number of positions at Borg-Warner Corporation,
including Chairman and Chief Executive Officer. While at Borg Warner,
Mr. Trauscht supervised an annual capital budget of $250 million and was
responsible for risk assessment decisions involving the company's investments.
He has participated in acquisitions, divestments, financings, public offerings
and other transactions whose combined value is over $30 billion.
Mr. Trauscht is a director of Esco Technologies Inc., Hydac International
Corporation, Bourns Inc., and EyesForLearning LLC. He formerly served as a
director of Baker Hughes Inc., Cordant Technologies Inc., Blue Bird Corporation,
Imo Industries Inc., Mannesmann Capital Corporation, Wynn International Inc.,
Recon Optical Inc., Global Motorsport Group Inc., OMI Corporation, IES
Corporation, and NSK-Warner Ltd. He has served as the Chairman, Lead Director,
and Audit Committee, Compensation Committee, and Governance Committee Chairman
at numerous public and private companies.
We did
not pay any compensation to members of our senior executive officers in 2009. We
expect to pay aggregate compensation to our senior executive officers in 2010
for the period April 6, 2010 to December 31, 2010 of approximately $2.1 million.
Each of our non-employee directors will receive annual cash compensation in the
aggregate amount of $45,000 annually, plus an additional fee of $5,000 for each
committee on which a director serves plus an additional fee of $15,000 for each
committee for which a director serves as Chairman, per year, plus an additional
fee of $20,000 to the lead independent director, plus reimbursements for actual
expenses incurred while acting in their capacity as a director. Our officers and
directors are eligible to receive awards under our equity incentive plan which
is described below under "—2010 Equity Incentive Plan."
We
believe that it is important to align the interests of our directors and
management with that of our shareholders. In this regard, we have determined
that it will generally be beneficial to us and to our shareholders for our
directors and management to have a stake in our long-term performance. We expect
to have a meaningful component of our compensation package for our directors and
management consist of equity interests in the Company in order to provide them
on an on-going basis with a meaningful percentage of ownership in the
Company.
We do not
have a retirement plan for our officers or directors.
2010
Equity Incentive Plan
We have
adopted an equity incentive plan, which we refer to as the plan, under which
directors, officers, employees, consultants and service providers of us and our
subsidiaries and affiliates are eligible to receive incentive stock options and
non-qualified stock options, stock appreciation rights, restricted stock,
restricted stock units and unrestricted common stock. We have reserved a total
of 1,148,916 common shares for issuance under the plan, subject to adjustment
for changes in capitalization as provided in the plan and it is not expected
that any additional common shares will be reserved for issuance under our equity
incentive plan prior to the third anniversary of the closing of our initial
public offering. The plan is administered by our compensation committee. We
issued a total of 559,458 restricted shares under the plan to our executive
officers in the second quarter of 2010 which will vest in three equal
installments on the third, fourth and fifth anniversaries, respectively, of the
grant date. In the second quarter of 2010, we also issued 9,000 restricted
shares to our independent directors.
Under the
terms of the plan, stock options and stock appreciation rights granted under the
plan will have an exercise price equal to the fair market value of a common
share on the date of grant, unless otherwise determined by the plan
administrator, but in no event will the exercise price be less than the fair
market value of a common share on the date of grant. Options and stock
appreciation rights will be exercisable at times and under conditions as
determined by the plan administrator, but in no event will they be exercisable
later than ten years from the date of grant.
The plan
administrator may grant shares of restricted stock and awards of restricted
stock units subject to vesting, forfeiture and other terms and conditions as
determined by the plan administrator. Following the vesting of a restricted
stock unit, the award recipient will be paid an amount equal to the number of
vested restricted stock units multiplied by the fair market value of a common
share on the date of vesting, which payment may be paid in the form of cash or
common shares or a combination of both, as determined by the plan administrator.
The plan administrator may grant dividend equivalents with respect to grants of
restricted stock units.
Adjustments
may be made to outstanding awards in the event of a corporate transaction or
change in capitalization or other extraordinary event. In the event of a "change
in control" (as defined in the plan), unless otherwise provided by the plan
administrator in an award agreement, awards then outstanding will become fully
vested and exercisable in full.
Our board
of directors may amend or terminate the plan and may amend outstanding awards,
provided that no such amendment or termination may be made that would materially
impair any rights, or materially increase any obligations, of a grantee under an
outstanding award. Shareholder approval of plan amendments will be required
under certain circumstances. Unless terminated earlier by our board of
directors, the plan will expire ten years from the date the plan is
adopted.
Employment
Agreements
We have
agreed to enter into employment agreements with each of our executives. We
expect that these employment agreements will be in effect for a period of up to
two years, and will automatically renew for the same successive employment
periods unless terminated in accordance with the terms of such agreements.
Pursuant to the terms of their respective employment agreements, our executives
will be prohibited from disclosing or unlawfully using any of our material
confidential information.
Upon a
change in control of the Company, the annual bonus provided under the employment
agreement becomes a fixed bonus of up to 150% of the executive's base salary. If
an executive's employment is terminated within two years of a change in control
due to either disability or a reason other than "for cause," he will be entitled
to receive upon termination an assurance bonus equal to such fixed bonus and an
immediate lump-sum payment in an amount equal to three times the sum of the
Executive's then current Base Salary and the assurance bonus, and he will
continue to receive all salary, compensation payment and benefits, including
additional bonus payments, otherwise due to him, to the extent permitted by
applicable law, for the remaining balance of his then-existing employment
period. If an executive's employment is terminated for cause or voluntarily by
the employee, he shall not be entitled to any salary, benefits or reimbursements
beyond those accrued through the date of his termination, unless he voluntarily
terminated his employment in connection with certain conditions. Those
conditions include a change in control combined with a significant geographic
relocation of his office, a material diminution of his duties and
responsibilities, and other conditions identified in the employment agreement,
substantially in the form of an exhibit attached to this registration
statement.
Our board
of directors currently consists of five directors, three of whom have been
determined by our board of directors to be independent under the rules of the
New York Stock Exchange and the rules and regulations of the SEC. We
have an Audit Committee, a Nominating and Corporate Governance Committee and a
Compensation Committee, each of which is comprised of our three independent
directors, who are Messrs. Alexandre Albertini, Ademaro Lanzara and Donald
Trauscht. The Audit Committee, among other things, reviews our external
financial reporting, engage our external auditors and oversee our internal audit
activities, procedures and the adequacy of our internal accounting controls. In
addition, provided that no member of the Audit Committee has a material interest
in such transaction, the Audit Committee will be responsible for reviewing
transactions that we may enter into in the future with other members of the
Scorpio Group that our board believes may present potential conflicts of
interest between us and the Scorpio Group. The Nominating and Corporate
Governance Committee is responsible for recommending to the board of directors
nominees for director and directors for appointment to board committees and
advising the board with regard to corporate governance practices. Our
Compensation Committee oversees our equity incentive plan and recommends
director and senior employee compensation. Our shareholders may also nominate
directors in accordance with procedures set forth in our bylaws. There are no
service contracts between us and any of our directors providing for benefits
upon termination of their employment or service.
As of
December 31, 2009, we did not have employees. We currently have six
employees. The commercial and operational responsibility of the Company was
administered by SSM and SCM.
The
following table sets forth information regarding the share ownership of the our
common stock as of June 23, 2010 by our directors and officers, including the
559,458 restricted shares issued to our executive officers and the 9,000
restricted shares issued to our independent directors in the second quarter of
2010 pursuant to our equity incentive plan.
Name
|
|
No.
of Shares
(1)
|
|
|
%
Owned
|
|
Emanuele
A. Lauro
|
|
|
225,868
|
|
|
|
1.2
|
%
|
Robert
Bugbee
|
|
|
265,618
|
|
|
|
1.4
|
%
|
Cameron
Mackey
|
|
|
117,108
|
|
|
|
0.6
|
%
|
All
other officers and directors individually
|
|
|
*
|
|
|
|
*
|
|
|
(1)
|
Includes
shares of restricted stock from the 2010 Equity Incentive
Plan.
|
* The
remaining officers and directors individually each own less than 1% of our
outstanding shares of common stock.
ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The
following table sets forth information regarding beneficial ownership as of June
23, 2010 of the Company's common stock for owners of more than five percent of
our common stocks of which we are aware.
Name
|
|
No.
of Shares
|
|
|
%
Owned
|
|
Scorpio
Owning Holding Ltd. (1)(2)
|
|
|
5,589,147
|
|
|
|
30.1
|
%
|
Steelhead
Partners LLC (3)
|
|
|
1,000,000
|
|
|
|
5.4
|
%
|
Steelhead
Navigator Master L.P.
|
|
|
970,000
|
|
|
|
5.2
|
%
|
|
(1)
|
Scorpio
Owning Holding Ltd. is 100% owned by Liberty Holding Company Ltd, which is
100% owned by Simon Financial Limited. Simon Financial Limited is
beneficially owned by members of the Lolli-Ghetti
family.
|
|
(2)
|
Emanuele A.
Lauro and Robert Bugbee own 2% and 1.75%, respectively, of Liberty Holding
Company Ltd.
|
|
(3)
|
James
Michael Johnson and Brian Katz Klein, as member-managers of Steelhead
Partners LLC, have shared voting power to direct the 1,000,000 shares held
by Steelhead Partners LLC, and may consequently be deemed to be beneficial
owners of such shares. As Steelhead Partners LLC is the investment manager
of Steelhead Navigator Master L.P., James Michael Johnson and Brian Katz
Klein may be deemed to beneficially own the 970,000 shares held by
Steelhead Navigator Master L.P. However, Steelhead Partners
LLC, James Michael Johnson and Brian Katz Klein disclaim such beneficial
ownership except to the extent of his or its pecuniary interests. All
information regarding Steelhead Partners LLC, Steelhead Navigator Master
L.P., James Michael Johnson and Brian Katz Klein is derived from the
Schedule 13G filed with the SEC on May 11,
2010.
|
|
B.
|
Related
Party Transactions
|
Commercial
and Technical Management Agreements
As our
commercial and technical managers, SCM and SSM provide us with commercial and
technical services pursuant to their respective commercial and technical
management agreements with us. We expect to enter into similar agreements with
respect to each vessel we acquire going forward. Commercial management services
include securing employment, on both spot market and time charters, for our
vessels. Where we plan to employ a vessel on the spot charter market, we intend
to generally place such vessel in a tanker pool managed by our commercial
manager that pertains to that vessel's size class. Technical management services
include day-to-day vessel operation, performing general maintenance, monitoring
regulatory and classification society compliance, customer vetting procedures,
supervising the maintenance and general efficiency of vessels, arranging the
hiring of qualified officers and crew, arranging and supervising drydocking and
repairs, purchasing supplies, spare parts and new equipment for vessels,
appointing supervisors and technical consultants and providing technical
support. We pay our managers fees for these services and reimburse our managers
for the reasonable direct or indirect expenses they incur in providing us with
these services.
We pay
our commercial manager and technical manager management fees. For the
years ended December 31, 2009, 2008 and 2007, certain of the expenses
incurred for commercial, technical and administrative management services were
under management agreements with other Scorpio Group entities, which are related
parties. Since agreements with related parties are by definition not at arms
length, the expenses incurred under these agreements may have been different
than the historical costs incurred if the subsidiaries had operated as
unaffiliated entities during prior periods. Our estimates of any differences
between historical expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed below and in the
notes to the historical consolidated financial statements included elsewhere in
this filing.
Since
December 1, 2009, we pay SCM, our commercial manager, a fee of $250 per
vessel per day plus a 1.25% commission per charter fixture to provide commercial
management services for
Noemi
and
Senatore
.
Venice
is part of the Scorpio
Panamax Tanker Pool, whose pool participants collectively pay SCM's agent fee of
$250 per vessel per day plus 1.25% commission per charter fixture. We pay our
technical manager $548 per vessel per day to provide technical management
services for each of our vessels. We have entered into separate commercial and
technical management agreements for each of our vessels, and both our commercial
management agreements with SCM and our technical management agreements with SSM
are for a period of three years, and may be terminated upon two year's
notice.
Administrative
Services Agreement
Liberty
Holding Company Ltd., which we refer to as our Administrator, provides us with
administrative services pursuant to an administrative services agreement. The
administrative services provided under the agreement primarily include
accounting, legal compliance, financial, information technology services, and
the provision of administrative staff and office space. Our Administrator will
also arrange vessel sales and purchases for us. Further, pursuant to our
administrative services agreement, Liberty, on behalf of itself and other
members of the Scorpio Group, has agreed that it will not directly own product
or crude tankers ranging in size from 35,000 dwt to 200,000 dwt. We expect that
our Administrator will sub-contract many of its responsibilities to other
entities within the Scorpio Group.
We will
reimburse our Administrator for the reasonable direct or indirect expenses it
incurs in providing us with the administrative services described above. We will
also pay our Administrator a fee for arranging vessel purchases and sales for us
equal to 1% of the gross purchase or sale price, payable upon the consummation
of any such purchase or sale. We believe this 1% fee on purchases and sales is
customary in the tanker industry.
Scorpio
Panamax Tanker Pool
To
increase vessel utilization and thereby revenues, we participate in a commercial
pool with other shipowners of similar modern, well-maintained vessels. By
operating a large number of vessels as an integrated transportation system,
commercial pools offer customers greater flexibility and a higher level of
service while achieving scheduling efficiencies. Pools employ experienced
commercial charterers and operators who have close working relationships with
customers and brokers, while technical management is performed by each
shipowner. The managers of the pools negotiate charters with customers primarily
in the spot market. The size and scope of these pools enable them to enhance
utilization rates for pool vessels by securing backhaul voyages and COAs, thus
generating higher effective TCE revenues than otherwise might be obtainable in
the spot market while providing a higher level of service offerings to
customers.
Where we
plan to employ a vessel in the spot charter market, we intend to generally place
such vessel in a tanker pool managed by our commercial manager that pertains to
that vessel's size class. Our vessel
Venice
participates in SCM's
Scorpio Panamax Tanker Pool. All tankers in the Scorpio Panamax Tanker Pool are
double-hull and trade both clean and dirty petroleum products. The earnings
allocated to vessels (charterhire expense for the pool) are aggregated and
divided on the basis of a weighted scale, or Pool Points, which reflect
comparative voyage results on hypothetical benchmark routes. The Pool Point
system generally favors those vessels with greater cargo-carrying capacity and
those with better fuel consumption. Pool Points are also awarded to vessels
capable of carrying clean products and to vessels capable of trading in certain
ice conditions.
Venice
is significantly larger than the other tankers in the Scorpio Panamax Tanker
Pool yet has a similar fuel consumption; her earnings on benchmark voyages are
therefore approximately greater than the average for the pool. Also,
Venice
holds the class
notation "Ice 1C" which means it can travel through waters with thicker ice than
most of the other vessels in the pool. The above average earnings for
Venice
may not be reflective
of future earnings in the pool. The vessel can be withdrawn from the pool upon
90 days notice or after the vessel is free from any commitment, whichever is
later.
SCM is
responsible for the commercial management of the participating vessels,
including the marketing, chartering, operating and bunker (fuel oil) purchases
of the vessels. The pool is administered by Scorpio Panamax Tanker Pool Ltd., or
SPTP, a Cayman Islands corporation. Our founder, Chairman and Chief Executive
Officer is a member of the Lolli-Ghetti family which owns 100% of all issued and
outstanding stock of SPTP. Taking into account the recommendations of a pool
committee and a technical committee, each of which is comprised of
representatives of each pool participant, SPTP sets the pool's policies and
issues directives to the pool participants and SCM. The pool participants remain
responsible for all other costs including the financing, insurance, manning and
technical management of their vessels. The earnings of all of the vessels are
aggregated and divided according to the relative performance capabilities of the
vessel and the actual earning days each vessel is available.
Our
Relationship with Scorpio Group and its Affiliates
Our board
of directors consists of five individuals, three of whom are independent
directors. The three independent directors form the board's Audit Committee
and, pursuant to the Audit Committee charter, are required to review all
potential conflicts of interest between us and Scorpio Group. The two
non-independent directors, Emanuele Lauro and Robert Bugbee, serve in senior
management positions within the Scorpio Group and have an ownership stake in
Liberty, which is our Administrator, and which is also an affiliate of the
Scorpio Group.
The
Scorpio Group is owned and controlled by members of the Lolli-Ghetti family, of
which Mr. Lauro is a member. Mr. Lauro is considered to be the acting
Chief Executive Officer of Scorpio Group, and Mr. Bugbee is considered to
be the acting President of Scorpio Group. Mr. Lauro is employed by Scorpio
Ship Management and Mr. Bugbee is employed by Scorpio USA, and both
entities are affiliates within the Scorpio Group. The ownership interest
for Mr. Lauro and Mr. Bugbee in Liberty, an affiliate of the Scorpio
Group, is a restricted stock ownership interest of 2% and 1.75%, respectively,
but they will have no other ownership interests in the Scorpio Group. This
restricted stock ownership interest cannot be sold or otherwise disposed, can be
forfeited under certain conditions such as termination of employment prior to
vesting, and has no voting rights. We are not affiliated with any other entities
in the shipping industry other than those that are members of the Scorpio
Group.
SCM
and SSM, which as noted previously are affiliates of Scorpio
Group, provide commercial and technical management services to us pursuant
to our commercial and technical management agreements. Under the commercial
management agreement, we pay SCM a fee of $250 per vessel per day plus a 1.25%
commission per charter fixture. For vessels operating in a Scorpio Group
pool, we pay SCM's agent fee of $250 per vessel per day plus 1.25% commission
per charter fixture. We pay SSM $548 per vessel per day to provide
technical management services for each of our vessels. We have entered into
separate commercial and technical management agreements in December 2009 for
each of our vessels and expect to enter into similar agreements with respect to
each vessel that we acquire going forward. The commercial and technical
management agreements with SCM and SSM are each for a period of three
years, and may be terminated upon two year's notice.
We will
reimburse Liberty, which as noted previously is our Administrator and also an
affiliate of the Scorpio Group, for the reasonable direct or indirect expenses
it incurs in providing us with the administrative services described above. We
will also pay our Administrator a fee for arranging vessel purchases and sales
for us equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale. We believe this 1% fee on purchases
and sales is customary in the tanker industry.
Pursuant
to our administrative services agreement, Liberty, on behalf of itself and other
members of the Scorpio Group, has agreed that it will not directly own product
or crude tankers ranging in size from 35,000 dwt to 200,000 dwt. We have no
other agreements with SCM, SSM, our Administrator, or any other party providing
for a resolution of potential conflicts in our favor.
Related
Party Payable and Shareholder Payable
Prior to
November 18, 2009, we had a shareholder payable of $18.9 million and a related
party payable to a subsidiary of Liberty of $27.4 million. On
November 30, 2009, these payables were converted to equity as a capital
contribution with no shares being exchanged in this transaction.
King
Dustin
King Dustin Tankschiffahrts
GmbH&Co.KG
, or King Dustin, is a special purpose entity that is owned
equally by affiliates of Koenig & cie and Scorpio Group. King Dustin
time charters-in
Noemi
from us at $24,500 per day pursuant to a time charter that expires in January
2012. The time charter began in January 2007. King Dustin time charters-out
Noemi
to ST Shipping, a
wholly owned subsidiary of Glencore S.A. of Zug, Switzerland.
Transactions
with subsidiaries of Liberty (herein referred to as Liberty subsidiaries) and
transactions with entities outside of Liberty but controlled by members of the
Lolli-Ghetti family (herein referred to as related party affiliates) in the
consolidated income statements are as follows:
|
|
For
the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
revenue from pools(A)
|
|
$
|
10,425,129
|
|
|
$
|
20,980,233
|
|
|
$
|
19,759,614
|
|
Vessel
revenue from time charters (B)
|
|
|
8,288,767
|
|
|
|
8,879,913
|
|
|
|
8,273,324
|
|
Vessel
operating costs (C)
|
|
|
(600,000
|
)
|
|
|
(765,422
|
)
|
|
|
(739,994
|
)
|
General
and administrative expenses (D)
|
|
|
(344,162
|
)
|
|
|
(619,421
|
)
|
|
|
(536,910
|
)
|
|
(A)
|
The
revenue earned was from the Scorpio Panamax Tanker Pool
(SPTP). SPTP is owned by Scorpio Panamax Tanker Pool Limited,
which is a subsidiary of Liberty.
|
|
(B)
|
The
revenue earned was for
Noemi's
time charter
with King Dustin, which is 50% jointly controlled by a Liberty subsidiary.
The time charter with King Dustin began in January 2007 and expires in
January 2012.
|
|
(C)
|
The
expenses represent technical management fees charged by SSM, a related
party affiliate, and included in the vessel operating costs in the
consolidated income statement. The Company's fees under
technical management arrangements with SSM were not at market rates for
the years ended December 31, 2008 and 2007. The Company
estimates that its technical management fees for the years ended December
31, 2008 and 2007 would have been $601,704 and $600,060, respectively, and
would have increased net income for the periods by $163,718 and $139,934,
respectively, had the Company operated as an unaffiliated entity. The
Company's estimate is based upon the rates charged to third party
participants by SSM in 2007 and
2008.
|
The
Company believes its technical management fees for the year ended December 31,
2009 were at market rates. Additionally, in December 2009, the Company signed a
technical management agreement for each ship with SSM. Each ship will
pay $548 per day for technical management. This fee is the same
charged to third parties by SSM, and therefore the Company believes it
represents a market rate for such services.
|
(D)
|
These
transactions represent commercial management fees charged by SCM, which
prior to October 1, 2009 was a Simon subsidiary and from October 1, 2009
is a related party affiliate, and administrative fees charged by SSM and
are both included in general and administrative expenses in the
consolidated income statement:
|
|
·
|
The
Company incurred commercial management fees of $70,418, $37,996 and
$56,287 for the years ended December 31, 2009, 2008 and 2007,
respectively. The Company's commercial management fees for
vessels not in the Pool were not at market rates in 2009, 2008 and
2007. The Company estimates that its commercial management fees
for the years ended December 31, 2009, 2008 and 2007 would have been
$397,546, $411,675 and $240,219, respectively, and would have decreased
net income for the periods by $327,128, $373,679 and $183,932,
respectively, had the Company operated as an unaffiliated
entity. The Company's estimate is based upon the rates charged
to third party participants in the Pool for 2009, 2008 and
2007.
|
|
·
|
In
December 2009, the Company signed the commercial management agreement with
SCM. Each of the vessels will pay $250 per day and 1.25% of
their revenue when the vessels are not in the Pool. When the
Company's vessels are in the Pool, SCM, the pool manager, charges all
vessels in the Pool (including third party participants) $250 per day and
1.25% of their revenue. The Company therefore believes that the
commercial management agreement represents a market rate for such
services.
|
|
·
|
The
Company incurred administrative management fees of $273,744, $581,425 and
$1,042,203 for the years ended December 31, 2009, 2008 and 2007,
respectively. The administrative fee included services for
accounting, administrative, information technology and management of the
Company. The Company's fees under administrative management
arrangements may not have been at market rates. The Company
cannot estimate what the cost would have been if we operated as an
unaffiliated party, but believes the costs for the years ended December
31, 2009, 2008 and 2007 were reasonable and appropriate for the services
provided.
|
Prior to
December 2009, SSM provided administrative services directly to the
Company. In December 2009, the Company signed an Administrative
Management Agreement for each vessel with Liberty. The Company will
pay Liberty the administrator a fixed monthly fee calculated at cost with no
profit for providing the Company with administrative services, and will
reimburse it for the reasonable direct or indirect expenses it incurs in
providing the Company with such services. The Company will also pay
the administrator a fee for arranging vessel purchases and sales, on behalf of
the Company, equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale. SSM continues to provide
administrative services to the Company under this agreement, but now does so on
behalf of Liberty.
The
Company had the following assets and liabilities with related parties which have
been included in the consolidated balance sheets:
|
|
As
of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Assets:
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
1,133,030
|
|
|
$
|
3,581,581
|
|
Shareholder
receivable
|
|
|
1,928,253
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
-
|
|
|
|
129,844
|
|
Related
party payable (E)
|
|
|
-
|
|
|
|
27,406,408
|
|
Shareholder
payable (F)
|
|
|
-
|
|
|
|
22,028,323
|
|
|
(E)
|
During
December 2009, the Company advanced $1,928,253 to the shareholder, which
was a receivable on the Balance sheet as of December 31, 2009. The
receivable was due upon demand and was non-interest bearing and unsecured.
The amount was repaid to the Company in the first quarter of
2010.
|
|
(F)
|
The
related party payable at December 31, 2008 and 2007 was $27,406,408 and
was owed to a subsidiary of Simon. The payable was repayable upon demand
and was non-interest bearing and unsecured. The outstanding balance as of
November 18, 2009 of $27,406,408 was converted to equity as a capital
contribution.
|
|
(G)
|
The
shareholder payable was owed to Simon. Historically, the Company and Simon
transferred cash depending on the need of each entity and the excess cash
available. The payable was non-interest bearing and unsecured. On November
18, 2009, the outstanding balance of $18,865,931 was converted to equity
as a capital contribution; therefore, the Company had no outstanding
liability to Simon as of December 31,
2009.
|
Key
management remuneration
Executive
management of the Company was provided by a related party affiliate and included
in the management fees described in (D) above. The Company did not have any
employees throughout the periods presented. If the Company
was not part of Simon, and had the same ownership structure and a contract for
administrative services, the Company estimates its general and administrative
costs would have been comparable with the general and administrative costs
presented on the consolidated income statement for the years ended December 31,
2009, 2008 and 2007.
|
C.
|
INTERESTS
OF EXPERTS AND COUNSEL
|
Not
applicable.
ITEM 8
.
FINANCIAL
INFORMATION
|
A.
|
Consolidated
Statements and Other Financial
Information
|
See Item
18.
Legal
Proceedings
To the
best of our knowledge, we are not currently involved in any legal or arbitration
proceedings that would have a significant effect on our financial position or
profitability and no such proceedings are pending or known to be contemplated by
governmental authorities.
Dividend
Policy
Since our
initial public offering closed on April 6, 2010, we have not paid a
dividend. We will continue to assess our dividend policy and our
board of directors may determine it is in the best interest of the Company to
pay dividends in the future. Upon the completion of our acquisition of
additional vessels funded in whole or in part with a portion of the net proceeds
of our initial public offering, and depending on prevailing charter market
conditions, our operating results and capital requirements and other relevant
factors, our board of directors will re-evaluate our dividend
policy.
See ITEM
18 – Financial Statements: Note 18 – Subsequent Events.
ITEM 9.
THE OFFER AND
LISTING
Share
History and Markets
Since our initial public offering, our
shares have traded on the New York Stock Exchange (NYSE) under the symbol
STNG. The monthly high and low market prices for our common stock
since March 31, 2010 were as follows:
For
the month of:
|
|
High
|
|
|
Low
|
|
March
2010
|
|
$
|
12.90
|
|
|
$
|
12.10
|
|
April
2010
|
|
$
|
13.01
|
|
|
$
|
12.13
|
|
May
2010
|
|
$
|
12.31
|
|
|
$
|
10.05
|
|
June
1 to 25, 2010
|
|
$
|
12.14
|
|
|
$
|
10.20
|
|
ITEM
10. ADDITIONAL INFORMATION
Not
applicable
|
B.
|
Memorandum
and articles of association
|
Our amended and restated articles of
incorporation have been filed as exhibit 3.1 to our Amendment No. 2 to our
Registration Statement on Form F-1 (Registration No. 333-164940), filed with the
SEC on March 18, 2010. Our amended and restated bylaws are filed as exhibit 1.2
to this Annual Report on Form 20-F. The information contained in these exhibits
is incorporated by reference herein.
Information regarding the rights,
preferences and restrictions attaching to each class of the shares is described
in the section entitled "Description of Capital Stock" in our
Prospectus Supplement on Form 424B4, filed with the SEC on April 1, 2010, which
supplements our Registration Statement on Form F-1 (Registration No. 333-164940)
with an effective date of March 30, 2010, provided that since the date of that
Prospectus Supplement, our total issued and outstanding common shares has
increased to 18,539,147 as of the date of this Annual Report.
For a
description of our credit facility, see ITEM 5. Operating and Financial Review
and Prospects – Liquidity and Capital Resources.
We have no other material contracts,
other than contracts entered into in the ordinary course of business, to which
the Company is a party.
Under the laws of the countries and
states of incorporation of the Company and its subsidiaries, there are currently
no restrictions on the export or import of capital, including foreign exchange
controls or restrictions that affect the remittance of dividends, interest or
other payments to non-resident holders of our common stock.
The following is a discussion of the
material Marshall Islands and United States federal income tax considerations
applicable to the Company and to holders of the Company's common stock. 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.
Marshall
Islands Tax Considerations
The
following are the material Marshall Islands tax consequences of our activities
to us and holders of our common shares. 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 shareholders.
United
States Federal Income Tax Considerations
The
following are the material United States federal income tax consequences to us
of our activities and to United States Holders and Non-United States Holders,
each as defined below, of the common shares. This discussion does not purport to
deal with the tax consequences of owning common shares 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 shares, may be subject to special rules. This discussion deals only with
holders who hold common shares as capital assets. You are encouraged to consult
your own tax advisors concerning the overall tax consequences arising in your
particular situation under United States federal, state, or local or foreign law
of the ownership of common shares. 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.
The discussion below is based, in part, on the description of our business as
described herein and assumes that we conduct our business as described herein.
References in the following discussion to the "Company," "we," "our" and "us"
are to Scorpio Tankers Inc. and its subsidiaries on a consolidated
basis.
United
States Federal Income Taxation of Operating Income: In General
We
currently earn substantially all our income from the hiring or leasing of
vessels for use on a time charter basis, from participation in a pool or from
the performance of services directly related to those uses, all of which we
refer to as "shipping income."
Unless
exempt from United States federal income taxation under the rules of
Section 883 of the Code, or Section 883, as discussed below, a foreign
corporation such as the Company will be subject to United States federal income
taxation on its "shipping income" that is treated as derived from sources within
the United States, to which we refer as "United States source shipping income."
For tax purposes, "United States source shipping income" includes 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.
Shipping
income attributable to transportation exclusively between non-United States
ports will be considered to be 100% derived from sources entirely outside the
United States. Shipping income derived from sources outside the United States
will not be subject to any United States federal income tax.
Shipping
income attributable to transportation exclusively between United States ports is
considered to be 100% derived from United States sources. However, we are not
permitted by United States law to engage in the transportation of cargoes that
produces 100% United States source shipping income.
Unless
exempt from tax under Section 883, our gross United States 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 and the regulations thereunder, a foreign corporation will be
exempt from United States federal income taxation on its United States source
shipping income if:
(1) it
is organized in a qualified foreign country, which is one that grants an
"equivalent exemption" from tax to corporations organized in the United States
in respect of each category of shipping income for which exemption is being
claimed under Section 883; and
(2) one
of the following tests is met:
(A) more
than 50% of the value of its shares is beneficially owned, directly or
indirectly, by qualified shareholders, which as defined includes individuals who
are "residents" of a qualified foreign country, which we refer to as the "50%
Ownership Test"; or
(B) its
shares are "primarily and regularly traded on an established securities market"
in a qualified foreign country or in the United States, to which we refer as the
"Publicly-Traded Test".
The
Republic of The Marshall Islands, the jurisdiction where we and our ship-owning
subsidiaries are incorporated, has been officially recognized by the IRS as a
qualified foreign country that grants the requisite "equivalent exemption" from
tax in respect of each category of shipping income we earn and currently expect
to earn in the future. Therefore, we will be exempt from United States federal
income taxation with respect to our United States source shipping income if we
satisfy either the 50% Ownership Test or the Publicly-Traded Test.
We
believe that for all taxable years after the initial public offering of our
shares it is highly likely that we will satisfy the Publicly-Traded Test, but,
as discussed below, this is a factual determination made on an annual basis. We
do not currently anticipate a circumstance under which we would be able to
satisfy the 50% Ownership Test for taxable years after the initial public
offering of our shares.
Publicly-Traded
Test
The
regulations under Section 883 provide, in pertinent part, that shares of a
foreign corporation will be considered to be "primarily traded" on an
established securities market in a country if the number of shares of each class
of shares that are traded during any taxable year on all established securities
markets in that country exceeds the number of shares in each such class that are
traded during that year on established securities markets in any other single
country. The Company's common shares, which constitute its sole class of issued
and outstanding shares are currently "primarily traded" on the New York Stock
Exchange.
Under the
regulations, our common shares will be considered to be "regularly traded" on an
established securities market if one or more classes of our shares representing
more than 50% of our outstanding shares, by both total combined voting power of
all classes of shares entitled to vote and total value, are listed on such
market, to which we refer as the "listing threshold." Since all our common
shares are currently listed on the New York Stock Exchange, we expect to satisfy
the listing threshold.
It is
further required that with respect to each class of shares relied upon to meet
the listing threshold, (i) such class of shares is traded on the market,
other than in minimal quantities, on at least 60 days during the taxable year or
one-sixth of the days in a short taxable year; and (ii) the aggregate
number of shares of such class of shares traded on such market during the
taxable year is at least 10% of the average number of shares of such class of
shares outstanding during such year or as appropriately adjusted in the case of
a short taxable year. The Company anticipates that it will satisfy the trading
frequency and trading volume tests. Even if this were not the case, the
regulations provide that the trading frequency and trading volume tests will be
deemed satisfied if, as is the case with our common shares, such
class of shares is traded on an established market in the United States and such
shares are regularly quoted by dealers making a market in such
shares.
Notwithstanding
the foregoing, the regulations provide, in pertinent part, that a class of
shares will not be considered to be "regularly traded" on an established
securities market for any taxable year in which 50% or more of the vote and
value of the outstanding shares of such class are owned, actually or
constructively under specified share attribution rules, on more than half the
days during the taxable year by persons who each own 5% or more of the vote and
value of such class of outstanding shares, to which we refer as the "5 Percent
Override Rule."
For
purposes of being able to determine the persons who actually or constructively
own 5% or more of the vote and value of our common shares, or "5% Shareholders,"
the regulations permit us to rely on those persons that are identified on
Schedule 13G and Schedule 13D filings with the SEC, as owning 5% or more of our
common shares. The regulations further provide that an investment company which
is registered under the Investment Company Act of 1940, as amended, will not be
treated as a 5% Shareholder for such purposes.
In the
event the 5 Percent Override Rule is triggered, the regulations provide that the
5 Percent Override Rule will nevertheless not apply if we can establish that
within the group of 5% Shareholders, there are sufficient qualified shareholders
for purposes of Section 883 to preclude non-qualified shareholders in such
group from owning 50% or more of our common stock for more than half the number
of days during the taxable year.
We
believe that we will satisfy the Publicly-Traded Test for our taxable year
ending December 31, 2010, and will not be subject to the 5 Percent Override
Rule. However, there are factual circumstances beyond our control that could
cause us to lose the benefit of the Section 883 exemption. For example, there is
a risk that we could no longer qualify for exemption under Code section 883 for
a particular taxable year if shareholders with a five percent or greater
interest in the common shares were to own 50% or more of our outstanding common
shares on more than half the days of the taxable year.
Under the
regulations, if we do not satisfy the Publicly-Traded Test and therefore are
subject to the 5 Percent Override Rule, we would have to satisfy certain
substantiation requirements regarding the identity of our shareholders in order
to qualify for the Code Section 883 exemption. These requirements are
onerous and there is no assurance that we would be able to satisfy
them.
Taxation
In Absence of Section 883 Exemption
If the
benefits of Section 883 are unavailable, our United States source shipping
income would be subject to a 4% tax imposed by Section 887 of the Code on a
gross basis, without the benefit of deductions, to the extent that such income
is not considered to be "effectively connected" with the conduct of a United
States trade or business, as described below. Since under the sourcing rules
described above, no more than 50% of our shipping income would be treated as
being United States source shipping income, the maximum effective rate of United
States federal income tax on our shipping income would never exceed 2% under the
4% gross basis tax regime.
To the
extent our United States source shipping income is considered to be "effectively
connected" with the conduct of a United States trade or business, as described
below, any such "effectively connected" United States source shipping income,
net of applicable deductions, would be subject to United States federal income
tax, currently imposed at rates of up to 35%. In addition, we would generally be
subject to the 30% "branch profits" tax 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 our United States trade or business.
Our
United States source shipping income would be considered "effectively connected"
with the conduct of a United States trade or business only if:
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we
have, or are considered to have, a fixed place of business in the United
States involved in the earning of United States source shipping income;
and
|
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·
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substantially
all of our United States 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
sailing to or from the United States on a regularly scheduled basis. Based on
the foregoing and on the expected mode of our shipping operations and other
activities, it is anticipated that none of our United States source shipping
income will be "effectively connected" with the conduct of a United States trade
or business.
United
States Taxation of Gain on Sale of Vessels
If we
qualify for exemption from tax under Section 883 in respect of the shipping
income derived from the international operation of its vessels, then gain from
the sale of any such vessel is highly likely to likewise be exempt from tax
under Section 883, although there is no legal authority directly on point.
If, however, our shipping income from such vessels does not for whatever reason
qualify for exemption under Section 883, then any gain on the sale of a
vessel will be subject to United States federal income tax if such sale occurs
in the United States. To the extent possible, we intend to structure the sales
of our vessels so that the gain therefrom is not subject to United States
federal income tax. However, there is no assurance we will be able to do
so.
United
States Federal Income Taxation of United States Holders
As used
herein, the term "United States Holder" means a beneficial owner of common
shares that is an individual United States citizen or resident, a 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.
If a
partnership holds the common shares, 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 the common shares,
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 shares to a United States
Holder will generally constitute dividends to the extent of our current or
accumulated earnings and profits, as determined under United States federal
income tax principles. Distributions in excess of such earnings and profits will
be treated first as a nontaxable return of capital to the extent of the United
States Holder's tax basis in his common shares on a dollar-for-dollar basis and
thereafter as capital gain. Because we are not a United States corporation,
United States 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 shares will generally be treated
as "passive category income" for purposes of computing allowable foreign tax
credits for United States foreign tax credit purposes.
Dividends
paid on our common shares to a United States Holder who is an individual, trust
or estate (a "United States Non-Corporate Holder") will generally be treated as
"qualified dividend income" that is taxable to such United States Non-Corporate
Holder at preferential tax rates (through 2010) provided that (1) the
common shares are readily tradable on an established securities market in the
United States (such as the New York Stock Exchange, on which our common stock is
traded); (2) 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, as discussed below, we have not been, are not and do not
anticipate being in the future); (3) the United States Non-Corporate Holder
has owned the common shares for more than 60 days in the 121-day period
beginning 60 days before the date on which the common shares become ex-dividend;
and (4) the United States Non-Corporate Holder is not under an obligation
to make related payments with respect to positions in substantially similar or
related property.
There is
no assurance that any dividends paid on our common stock will be eligible for
these preferential rates in the hands of a United States Non-Corporate Holder,
although, as described above, they are highly likely to be so eligible.
Legislation has been previously introduced in the United States Congress which,
if enacted in its present form, would preclude our dividends from qualifying for
such preferential rates prospectively from the date of
enactment. Further, in the absence of legislation extending the term
of the preferential tax rates for qualified dividend income, all dividends
received by a taxpayer in tax years beginning on January 1, 2011 or later
will be taxed at ordinary graduated tax rates. Any dividends out of
earnings and profits we pay which are not eligible for these preferential rates
will be taxed as ordinary income to a United States Non-Corporate
Holder.
Special
rules may apply to any "extraordinary dividend"—generally, a dividend in an
amount which is equal to or in excess of 10% of a shareholder's adjusted basis
in a common share—paid by us. If we pay an "extraordinary dividend" on our
common shares that is treated as "qualified dividend income," then any loss
derived by a United States Non-Corporate Holder from the sale or exchange of
such common shares will be treated as long-term capital loss to the extent of
such dividend.
Sale,
Exchange or Other Disposition of Common Shares
Assuming
we do not constitute a passive foreign investment company for any taxable year,
a United States Holder generally will recognize taxable gain or loss upon a
sale, exchange or other disposition of our common shares in an amount equal to
the difference between the amount realized by the United States Holder from such
sale, exchange or other disposition and the United States Holder's tax basis in
such shares. Such gain or loss will be treated as long-term capital gain or loss
if the United States 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 United States source income or loss, as applicable, for
United States foreign tax credit purposes. Long-term capital gains of United
States Non-Corporate Holders are currently eligible for reduced rates of
taxation. A United States 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 United States Holder that
holds shares in a foreign corporation classified as a "passive foreign
investment company", a PFIC, for United States federal income tax purposes. In
general, we will be treated as a PFIC with respect to a United States Holder if,
for any taxable year in which such holder holds our common shares,
either
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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 our assets during such taxable year
produce, or are held for the production of, passive
income.
|
For
purposes of determining whether we are a PFIC, we will be treated as earning and
owning its proportionate share of the income and assets, respectively, of any of
our subsidiary corporations in which we own at least 25% 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.
It is
highly unlikely that our income from time charters is treated as passive income
for purposes of determining whether we are a PFIC, although there is no legal
authority directly on point. This position is based principally on the view that
the gross income we derive from our time chartering activities should constitute
services income, rather than rental income. Accordingly, such income should not
constitute passive income, and the assets that we 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 PFIC.
There is substantial legal authority supporting this position consisting of case
law and IRS pronouncements concerning the characterization of income derived
from time charters as services income for other tax purposes. However, there is
also authority which characterizes time charter income as rental income rather
than services income for other tax purposes. It should be noted that in the
absence of any legal authority specifically relating to the statutory provisions
governing PFICs, the IRS or a court could disagree with this position.
Therefore, based on our current operations and future projections, we should not
be treated as a passive foreign investment company with respect to any taxable
year after our initial public offering. Accordingly, although we intend to
conduct our affairs in a manner to avoid being classified as a PFIC with respect
to any taxable year, we cannot assure you that the nature of our operations will
not change in the future.
As
discussed more fully below, if we were to be treated as a PFIC for any taxable
year, a United States Holder would be subject to different taxation rules
depending on whether the United States Holder makes an election to treat us as a
"Qualified Electing Fund," which election we refer to as a "QEF election." As an
alternative to making a QEF election, a United States Holder should be able to
make a "mark-to-market" election with respect to our common stock, as discussed
below. In addition, if we were to be treated as a PFIC for any
taxable year after 2010, a U.S. Holder would be required to file an annual
report with the IRS for that year with respect to such holder's common
stock.
Taxation
of United States Holders Making a Timely QEF Election
If a
United States Holder makes a timely QEF election, which United States Holder we
refer to as an "Electing Holder," the Electing Holder must report for United
States federal income tax purposes its pro rata share of our ordinary earnings
and net capital gain, if any, for each taxable year of ours for which we are a
PFIC that ends with or within the taxable year of the Electing Holder,
regardless of whether distributions were received from us by the Electing
Holder. No portion of any such inclusions of ordinary earnings will be treated
as "qualified dividend income." Net capital gain inclusions of United States
Non-Corporate Holders would be eligible for preferential capital gains tax
rates. The Electing Holder's adjusted tax basis in the common shares will be
increased to reflect taxed but undistributed earnings and profits. Distributions
of earnings and profits that had been previously taxed will result in a
corresponding reduction in the adjusted tax basis in the common shares and will
not be taxed again once distributed. An Electing Holder would not, however, be
entitled to a deduction for its pro rata share of any losses that we incur with
respect to any year. An Electing Holder would generally recognize capital gain
or loss on the sale, exchange or other disposition of our common stock. A United
States Holder would make a timely QEF election for our shares by filing one copy
of IRS Form 8621 with his United States federal income tax return for the first
year in which he held such shares when we were a PFIC. If we were to be treated
as a PFIC for any taxable year, we would provide each United States Holder with
all necessary information in order to make the QEF election described
above.
Taxation
of United States Holders Making a "Mark-to-Market" Election
Alternatively,
if we were to be treated as a PFIC for any taxable year and, as we anticipate
will be the case, our shares are treated as "marketable stock," a United States
Holder would be allowed to make a "mark-to-market" election with respect to our
common shares, provided the United States Holder completes and files IRS Form
8621 in accordance with the relevant instructions and related Treasury
regulations. If that election is made, the United States Holder generally would
include as ordinary income in each taxable year the excess, if any, of the fair
market value of the common shares at the end of the taxable year over such
holder's adjusted tax basis in the common shares. The United States Holder would
also be permitted an ordinary loss in respect of the excess, if any, of the
United States Holder's adjusted tax basis in the common shares over its fair
market value at the end of the taxable year, but only to the extent of the net
amount previously included in income as a result of the mark-to-market election.
A United States Holder's tax basis in his common shares would be adjusted to
reflect any such income or loss amount. Gain realized on the sale, exchange or
other disposition of our common shares would be treated as ordinary income, and
any loss realized on the sale, exchange or other disposition of the common
shares would be treated as ordinary loss to the extent that such loss does not
exceed the net mark-to-market gains previously included by the United States
Holder.
Taxation
of United States Holders Not Making a Timely QEF or Mark-to-Market
Election
Finally,
if we were to be treated as a PFIC for any taxable year, a United States Holder
who does not make either a QEF election or a "mark-to-market" election for that
year, whom we refer to as a "Non-Electing Holder," would be subject to special
rules with respect to (1) any excess distribution (i.e., the portion of any
distributions received by the Non-Electing Holder on the common shares in a
taxable year in excess of 125% of the average annual distributions received by
the Non-Electing Holder in the three preceding taxable years, or, if shorter,
the Non-Electing Holder's holding period for the common shares), and
(2) any gain realized on the sale, exchange or other disposition of our
common shares. Under these special rules:
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the
excess distribution or gain would be allocated ratably over the
Non-Electing Holder's aggregate holding period for the common
shares;
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the
amount allocated to the current taxable year, and any taxable year prior
to the first taxable year in which we were a PFIC, would be taxed as
ordinary income and would not be "qualified dividend income";
and
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the
amount allocated to each of the other taxable years would be subject to
tax at the highest rate of tax in effect for the applicable class of
taxpayer for that year, and an interest charge for the deemed deferral
benefit would be imposed with respect to the resulting tax attributable to
each such other taxable year.
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United
States Federal Income Taxation of "Non-United States Holders"
A
beneficial owner of common shares (other than a partnership) that is not a
United States Holder is referred to herein as a "Non-United States
Holder."
If a
partnership holds common shares, 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 common shares, you
are encouraged to consult your tax advisor.
Dividends
on Common Stock
Non-United
States Holders generally will not be subject to United States federal income tax
or withholding tax on dividends received from us with respect to its common
shares, unless that income is effectively connected with the Non-United States
Holder's conduct of a trade or business in the United States. If the Non-United
States 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-United States
Holder in the United States.
Sale,
Exchange or Other Disposition of Common Shares
Non-United
States 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 shares, unless:
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the
gain is effectively connected with the Non-United States Holder's conduct
of a trade or business in the United States (and, if the Non-United States
Holder is entitled to the benefits of an income tax treaty with respect to
that gain, that gain is attributable to a permanent establishment
maintained by the Non-United States Holder in the United States);
or
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the
Non-United States 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.
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If the
Non-United States Holder is engaged in a United States trade or business for
United States federal income tax purposes, dividends on the common shares and
gain from the sale, exchange or other disposition of the shares, 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 United States
Holders. In addition, if you are a corporate Non-United States 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 if
you are a non-corporate United States Holder. Such payments or distributions may
also be subject to backup withholding tax if you are a non-corporate United
States Holder and you:
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fail
to provide an accurate taxpayer identification
number;
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are
notified by the IRS that you have failed to report all interest or
dividends required to be shown on your federal income tax returns;
or
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in
certain circumstances, fail to comply with applicable certification
requirements.
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Non-United
States 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
are a Non-United States Holder and you sell your common shares to or through a
United States office of a 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-United States person, under penalties of perjury, or you
otherwise establish an exemption. If you sell your common shares 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 shares through a non-United States office
of a broker that is a United States person or has some other contacts with the
United States. Such information reporting requirements will not apply, however,
if the broker has documentary evidence in its records that you are a non-United
States person and certain other conditions are met, or you otherwise establish
an exemption.
Backup
withholding 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 IRS.
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F.
|
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.
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I.
|
Subsidiary
Information
|
Not
applicable.
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Interest
Rate Risk
We are
exposed to the impact of interest rate changes primarily through our unhedged
variable-rate borrowings. Significant increases in interest rates could
adversely affect our operating margins, results of operations and our ability to
service our debt. From time to time, we will use interest rate swaps to reduce
our exposure to market risk from changes in interest rates. The principal
objective of these contracts is to minimize the risks and costs associated with
our variable-rate debt and is not for speculative or trading purposes.
Currently, we are not using hedge accounting for our interest rate
swaps.
Since we
did not use hedge accounting for our interest rate swap that commenced in May
2005 and was terminated in April 2010, the changes in the fair value of the
interest rate swap were either offset against the fair value of assets or
liabilities through income. As of December 31, 2009, our outstanding floating
rate debt was $39.8 million and the notional balance of the interest rate swap
was $19.9 million. As of December 31, 2008 the floating rate debt was $43.4
million, and the notional balance of the interest rate swap was $21.7 million.
Based on the floating rate debt at December 31, 2009, a one-percentage point
increase in the floating interest rate would increase interest expense by $0.4
million per year.
The fair
market value of our interest rate swaps was a liability of $1.7 million as of
December 31, 2009, and $2.6 million as of December 31, 2008.
The
following table presents the due dates for the principal payments of our
floating rate debt and the notional balance reductions of our interest rate
swaps:
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As
of December 31, 2009 in
millions
of
$
|
|
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2010
|
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2011 to
2012
|
|
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2013 to
2014
|
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Thereafter
|
|
Principal
payments- floating rate debt
(1)
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$
|
3.6
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$
|
7.2
|
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$
|
7.2
|
|
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$
|
21.8
|
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Notional
balance
(1,2)
|
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1.8
|
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3.6
|
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3.6
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10.9
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(1)
|
On
April 9, 2010, we repaid the outstanding balance of the $38.9 million and
the market value of the interest rate swap of $1.8 million with the
proceeds of the initial public
offering.
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(2)
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We
do not use hedge accounting for our interest rate
swaps.
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Spot
Market Rate Risk
The
cyclical nature of the tanker industry causes significant increases or decreases
in the revenue that we earn from our vessels, particularly those vessels that
participate in pools that are concentrated in the spot market such as the
Scorpio Panamax Tanker Pool. To reduce this risk, we have vessels that are on
time charter contracts.
Foreign
Exchange Rate Risk
Our
primary economic environment is the international shipping market. This market
utilizes the U.S. Dollar as its functional currency. Consequently,
virtually all of our revenues and the majority of our operating expenses are in
U.S. Dollars. However, we incur some of our combined expenses in other
currencies, particularly the Euro. The amount and frequency of some of these
expenses (such as vessel repairs, supplies and stores) may fluctuate from period
to period. Depreciation in the value of the U.S. dollar relative to other
currencies will increase the U.S. dollar cost of us paying such expenses. The
portion of our business conducted in other currencies could increase in the
future, which could expand our exposure to losses arising from currency
fluctuations.
There is
a risk that currency fluctuations will have a negative effect on our cash flows.
We have not entered into any hedging contracts to protect against currency
fluctuations. However, we have some ability to shift the purchase of goods and
services from one country to another and, thus, from one currency to another, on
relatively short notice. We may seek to hedge this currency fluctuation risk in
the future.
Inflation
We do not
expect inflation to be a significant risk to direct expenses in the current and
foreseeable economic environment.
ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART
II
ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM
15T. CONTROLS AND PROCEDURES
A. Disclosure Controls and
Procedures
The Chief Executive Officer and Chief
Financial Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934) as of December 31, 2009, have
concluded that, as of such date, the Company's disclosure controls
and procedures were effective to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms .
The Company further believes that a system of controls, no matter how well
designed and operated, cannot provide absolute assurance that the objectives of
the controls are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
B. Management's Annual Report on
Internal Control Over Financial Reporting
This annual report does not include a
report of management's assessment regarding internal control over financial
reporting or an attestation report of the Company's registered public accounting
firm due to a transition period established by rules of the Securities and
Exchange Commission for newly public companies.
C. Changes in Internal Control Over
Financial Reporting
There have been no changes in internal
controls over financial reporting (identified in connection with management's
evaluation of such internal controls over financial reporting) that occurred
during the year covered by this annual report that have materially affected, or
are reasonably likely to materially affect, the Company's internal controls over
financial reporting.
ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined
that Mr. Ademaro Lanzara, who serves on the Audit Committee, qualifies as an
"audit committee financial expert" and that he is "independent" according to
Securities and Exchange Commission rules.
ITEM
16B. CODE OF ETHICS
We have adopted a code of ethics
applicable to officers, directors and employees. Our code of ethics
complies with applicable guidelines issued by the SEC and is filed as an exhibit
to this annual report.
ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our
principal accountant for fiscal years ended December 31, 2009 and 2008 was
Deloitte LLP (London, United Kingdom), and the audit related fees for those
periods were $155,338 and $89,640, respectively.
None.
None.
During
2009, our principal accountant provided services related to the initial public
offering, which was completed on April 6, 2010, of $355,545.
|
E.
|
Audit
Committee's Pre-Approval Policies and
Procedures
|
The audit
committee's pre-approval of policies and procedures was not applicable for the
year ended December 31, 2009 because our audit committee was not established
until after our initial public offering, which closed on April 6,
2010.
|
F.
|
Audit
Work Performed by Other Than Principal Accountant if Greater Than
50%
|
Not
applicable.
ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM
16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
There have been no purchases of the
Company's common shares by the Company or affiliated purchasers during the
period covered by this report.
ITEM
16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM
16G. CORPORATE GOVERNANCE
Pursuant to an exception for foreign
private issuers, we, as a Marshall Islands company, are not required to comply
with the corporate governance practices followed by U.S. companies under the
NYSE listing standards. We believe that our established practices in the area of
corporate governance are in line with the spirit of the NYSE standards and
provide adequate protection to our shareholders. In this respect, we have
voluntarily adopted NYSE required practices, such as (a) having a majority of
independent directors, (b) establishing audit, compensation and nominating
committees and (c) adopting a Code of Ethics.
There are two significant differences
between our corporate governance practices and the practices required by the
NYSE. The NYSE requires that non-management directors meet regularly in
executive sessions without management. The NYSE also requires that all
independent directors meet in an executive session at least once a year. As
permitted under Marshall Islands law and our bylaws, our non-management
directors do not regularly hold executive sessions without management and we do
not expect them to do so in the future. The NYSE requires companies to adopt and
disclose corporate governance guidelines. The guidelines must address, among
other things: director qualification standards, director responsibilities,
director access to management and independent advisers, director compensation,
director orientation and continuing education, management succession and an
annual performance evaluation. We are not required to adopt such guidelines
under Marshall Islands law and we have not adopted such guidelines.
PART
III
ITEM
17. FINANCIAL STATEMENTS
Not applicable
ITEM
18. FINANCIAL STATEMENTS
The financial information required by
this Item is set forth on pages F-1 to F-28 and is filed as part of this annual
report.
ITEM
19. EXHIBITS
Exhibit
Number
|
Description
|
1.1
|
Amended
and Restated Articles of Incorporation of the Company
(1)
|
1.2
|
Amended
and Restated Bylaws of the Company
|
2.1
|
Form
of Stock Certificate (2)
|
4.1
|
Loan
Agreement for 2010 Credit Facility
|
4.2
|
2010
Equity Incentive Plan
|
4.3
|
Administrative
Services Agreement between the Company and Liberty Holding Company Ltd.
(3)
|
4.4
|
Form
of Commercial Management Agreement with SCM (4)
|
4.5
|
Form
of Technical Management Agreement with
SSM (5)
|
8.1
|
Subsidiaries
of the Company
|
11.1
|
Code
of Ethics
|
12.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
|
12.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
|
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
|
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
|
____________
|
(1)
Filed as Exhibit 3.1 to the Company's Amended Registration Statement on
Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
2010.
|
|
(2)
Filed as Exhibit 4.1 to the Company's Amended Registration Statement on
Form F-1/A (Amendment No. 1) (File No. 333-164940) on March 10,
2010.
|
|
(3)
Filed as Exhibit 10.1 to the Company's Amended Registration Statement on
Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
2010.
|
|
(4)
Filed as Exhibit 10.5 to the Company's Amended Registration Statement on
Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
2010.
|
|
(5)
Filed as Exhibit 10.8 to the Company's Amended Registration Statement on
Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18,
2010.
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
Audited
Consolidated Financial Statements
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
|
F-3
|
Consolidated
Income Statements for the years ended December 31, 2009, 2008 and
2007
|
|
F-4
|
Consolidated
Statements of Changes in Shareholder's Equity for the years ended December
31, 2009, 2008 and 2007
|
|
F-5
|
Consolidated
Cash Flow Statements for the years ended December 31, 2009, 2008 and
2007
|
|
F-6
|
Notes
to the Consolidated Financial Statements
|
|
F-7
|
|
|
|
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Scorpio Tankers Inc.
Majuro,
Marshall Island
We have
audited the accompanying consolidated balance sheets of Scorpio Tankers Inc. and
subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related
consolidated income statements, consolidated statements of changes in
shareholder's equity, and consolidated cash flow statements for each of the
three years in the period ended December 31, 2009. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 Scorpio Tankers Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in
conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
DELOITTE
LLP
London,
United Kingdom
June 24,
2010
Scorpio
Tankers Inc. and Subsidiaries
Consolidated
balance sheets
December
31, 2009 and 2008
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Notes
|
|
|
|
$
|
|
|
|
$
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
444,496
|
|
|
|
3,607,635
|
|
Accounts
receivable
|
|
|
2
|
|
|
|
1,438,998
|
|
|
|
3,701,980
|
|
Prepaid
expenses
|
|
|
3
|
|
|
|
583,944
|
|
|
|
39,596
|
|
Shareholder
receivable
|
|
|
11
|
|
|
|
1,928,253
|
|
|
|
-
|
|
Inventories
|
|
|
4
|
|
|
|
433,428
|
|
|
|
502,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
|
|
|
|
4,829,119
|
|
|
|
7,851,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels
and drydock
|
|
|
5
|
|
|
|
99,594,267
|
|
|
|
109,260,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
104,423,386
|
|
|
|
117,111,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loan
|
|
|
8
|
|
|
|
3,600,000
|
|
|
|
3,600,000
|
|
Accounts
payable
|
|
|
7
|
|
|
|
656,002
|
|
|
|
841,070
|
|
Accrued
expenses
|
|
|
|
|
|
|
953,532
|
|
|
|
495,430
|
|
Shareholder
payable
|
|
|
11
|
|
|
|
-
|
|
|
|
22,028,323
|
|
Related
party payable
|
|
|
11
|
|
|
|
-
|
|
|
|
27,406,408
|
|
Derivative
financial instruments
|
|
|
9
|
|
|
|
814,206
|
|
|
|
706,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
|
6,023,740
|
|
|
|
55,077,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loan
|
|
|
8
|
|
|
|
36,200,000
|
|
|
|
39,800,000
|
|
Derivative
financial instruments
|
|
|
9
|
|
|
|
871,104
|
|
|
|
1,935,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current liabilities
|
|
|
|
|
|
|
37,071,104
|
|
|
|
41,735,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
|
|
|
43,094,844
|
|
|
|
96,812,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder's
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued,
authorized and fully paid in share capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
10
|
|
|
|
55,891
|
|
|
|
55,891
|
|
Additional
paid-in capital
|
|
|
11
|
|
|
|
46,272,339
|
|
|
|
-
|
|
Merger
reserve
|
|
|
|
|
|
|
13,292,496
|
|
|
|
20,243,275
|
|
Retained
earnings
|
|
|
|
|
|
|
1,707,816
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shareholder's equity
|
|
|
|
|
|
|
61,328,542
|
|
|
|
20,299,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholder's equity
|
|
|
|
|
|
|
104,423,386
|
|
|
|
117,111,827
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Scorpio
Tankers Inc. and Subsidiaries
Consolidated
income statements
For
the years ended December 31, 2009, 2008 and 2007
|
|
Notes
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
revenue
|
|
|
12
|
|
|
|
27,619,041
|
|
|
|
39,274,196
|
|
|
|
30,317,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charterhire
|
|
|
13
|
|
|
|
(3,072,916
|
)
|
|
|
(6,722,334
|
)
|
|
|
-
|
|
Vessel
operating costs
|
|
|
14
|
|
|
|
(8,562,118
|
)
|
|
|
(8,623,318
|
)
|
|
|
(7,600,509
|
)
|
Depreciation
|
|
|
|
|
|
|
(6,834,742
|
)
|
|
|
(6,984,444
|
)
|
|
|
(6,482,484
|
)
|
Impairment
of vessels
|
|
|
6
|
|
|
|
(4,511,877
|
)
|
|
|
-
|
|
|
|
-
|
|
General
and administrative expenses
|
|
|
|
|
|
|
(416,908
|
)
|
|
|
(600,361
|
)
|
|
|
(590,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
|
|
|
|
(23,398,561
|
)
|
|
|
(22,930,457
|
)
|
|
|
(14,673,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
4,220,480
|
|
|
|
16,343,739
|
|
|
|
15,643,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense – bank loan
|
|
|
|
|
|
|
(699,115
|
)
|
|
|
(1,710,907
|
)
|
|
|
(1,953,344
|
)
|
Realized
loss on derivative financial instruments
|
|
|
|
|
|
|
(808,085
|
)
|
|
|
(405,691
|
)
|
|
|
(523,694
|
)
|
Unrealized
gain/(loss) on derivative financial instruments
|
|
|
|
|
|
|
956,120
|
|
|
|
(2,057,957
|
)
|
|
|
(1,245,472
|
)
|
Interest
income
|
|
|
|
|
|
|
4,929
|
|
|
|
35,492
|
|
|
|
142,233
|
|
Other
expense, net
|
|
|
|
|
|
|
(256,292
|
)
|
|
|
(18,752
|
)
|
|
|
(9,304
|
)
|
Total
other expense, net
|
|
|
|
|
|
|
(802,443
|
)
|
|
|
(4,157,815
|
)
|
|
|
(3,589,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
3,418,037
|
|
|
|
12,185,924
|
|
|
|
12,053,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
holders of the Parent
|
|
|
|
|
|
|
3,418,037
|
|
|
|
12,185,924
|
|
|
|
12,053,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
0.61
|
|
|
$
|
2.18
|
|
|
$
|
2.16
|
|
Diluted
|
|
|
|
|
|
$
|
0.61
|
|
|
$
|
2.18
|
|
|
$
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
three years ended December 31, 2009 (i) there were no sources of comprehensive
income other than those shown above, and (ii) all operations were
continuing.
The
accompanying notes are an integral part of these consolidated financial
statements.
Scorpio
Tankers Inc. and Subsidiaries
Consolidated
statement of changes in shareholder's equity
For
the years ended December 31, 2009, 2008 and 2007
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
shares
|
|
|
Share
capital
|
|
|
Additional
paid-in
capital
|
|
|
Merger
reserve
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Balance
at January 1, 2007
|
|
|
5,589,147
|
|
|
|
55,891
|
|
|
|
|
|
|
|
21,881,059
|
|
|
|
|
|
|
|
21,936,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,053,792
|
|
|
|
-
|
|
|
|
12,053,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($1.27 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,093,500
|
)
|
|
|
-
|
|
|
|
(7,093,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
5,589,147
|
|
|
|
55,891
|
|
|
|
-
|
|
|
|
26,841,351
|
|
|
|
-
|
|
|
|
26,897,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,185,924
|
|
|
|
-
|
|
|
|
12,185,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($3.36 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,784,000
|
)
|
|
|
-
|
|
|
|
(18,784,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
5,589,147
|
|
|
|
55,891
|
|
|
|
-
|
|
|
|
20,243,275
|
|
|
|
-
|
|
|
|
20,299,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,710,221
|
|
|
|
1,707,816
|
|
|
|
3,418,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid ($1.55 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,661,000
|
)
|
|
|
-
|
|
|
|
(8,661,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contribution (see Note 11)
|
|
|
-
|
|
|
|
-
|
|
|
|
46,272,339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,272,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
5,589,147
|
|
|
|
55,891
|
|
|
|
46,272,339
|
|
|
|
13,292,496
|
|
|
|
1,707,816
|
|
|
|
61,328,542
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Scorpio
Tankers Inc. and Subsidiaries
Consolidated
cash flow statements
For
the years ended December 31, 2009, 2008 and 2007
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
3,418,037
|
|
|
|
12,185,924
|
|
|
|
12,053,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,834,742
|
|
|
|
6,984,444
|
|
|
|
6,482,484
|
|
Impairment
of vessels
|
|
|
4,511,877
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized
(gain)/loss on derivatives
|
|
|
(956,120
|
)
|
|
|
2,057,957
|
|
|
|
1,245,472
|
|
|
|
|
13,808,536
|
|
|
|
21,228,325
|
|
|
|
19,781,748
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Drydock
payments
|
|
|
(1,580,826
|
)
|
|
|
-
|
|
|
|
-
|
|
Decrease/(increase)
in inventories
|
|
|
69,086
|
|
|
|
(112,778
|
)
|
|
|
18,029
|
|
Decrease
in accounts receivable
|
|
|
2,262,984
|
|
|
|
1,002,953
|
|
|
|
2,953,719
|
|
(Increase)/decrease
in prepaid expenses
|
|
|
(4,345
|
)
|
|
|
22,469
|
|
|
|
83,250
|
|
Increase
in shareholder receivable
|
|
|
(1,928,253
|
)
|
|
|
-
|
|
|
|
-
|
|
(Decrease)/increase
in accounts payable
|
|
|
(279,628
|
)
|
|
|
352,254
|
|
|
|
(354,448
|
)
|
Decrease
in related party payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,417,500
|
)
|
(Decrease)/increase
in shareholder payable
|
|
|
(3,162,344
|
)
|
|
|
2,595,226
|
|
|
|
(8,186,213
|
)
|
Increase/(decrease)
in accrued expenses
|
|
|
120,641
|
|
|
|
(250,557
|
)
|
|
|
(47,812
|
)
|
|
|
|
(4,502,685
|
)
|
|
|
3,609,567
|
|
|
|
(13,950,975
|
)
|
Net
cash inflow from operating activities
|
|
|
9,305,851
|
|
|
|
24,837,892
|
|
|
|
5,830,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(8,661,000
|
)
|
|
|
(18,784,000
|
)
|
|
|
(7,093,500
|
)
|
Payments
for stock offering
|
|
|
(207,990
|
)
|
|
|
-
|
|
|
|
-
|
|
Bank
loan repayment
|
|
|
(3,600,000
|
)
|
|
|
(3,600,000
|
)
|
|
|
(3,600,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash outflow from financing activities
|
|
|
(12,468,990
|
)
|
|
|
(22,384,000
|
)
|
|
|
(10,693,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase
in cash and cash equivalents
|
|
|
(3,163,139
|
)
|
|
|
2,453,892
|
|
|
|
(4,862,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at January 1
|
|
|
3,607,635
|
|
|
|
1,153,743
|
|
|
|
6,016,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at December 31
|
|
|
444,496
|
|
|
|
3,607,635
|
|
|
|
1,153,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
760,974
|
|
|
|
1,821,439
|
|
|
|
1,969,014
|
|
During
2009 there were two significant non-cash transactions (i) the legal formation of
the Scorpio Tankers Inc. and subsidiaries (see Note 1) and (ii) the conversion
of the related party payable and shareholder payable to equity (see Note
11).
The
accompanying notes are an integral part of these consolidated financial
statements.
Scorpio Tankers Inc. and
Subsidiaries
Notes to the Consolidated Financial
Statements
1.
General information and significant accounting policies
Company
Scorpio
Tankers Inc. and its subsidiaries (together the Company) are engaged in seaborne
transportation of crude oil and refined petroleum products in the international
shipping markets. Scorpio Tankers Inc. was incorporated in the
Republic of the Marshall Islands on July 1, 2009 by Simon Financial Limited
("Simon" or the "Parent"). On October 1, 2009, Simon transferred to
Scorpio Tankers Inc. three operating subsidiary companies, as described further
below. Simon is incorporated in Liberia and is the ultimate parent company and
controlling party of the Company. Simon is owned by members of the Lolli-Ghetti
family. Emanuele Lauro, our founder, Chairman and Chief Executive Officer is a
member of the Lolli-Ghetti family. At December 31, 2009, the
Lolli-Ghetti family owned 100% of the Company's outstanding common shares and
therefore maintained a controlling interest in the Company. See Note
10 which describes a change in control as a result of the Company's initial
public offering.
Business
The
Company's fleet at December 31, 2009 consisted of three wholly owned Panamax
tankers engaged in seaborne transportation of crude oil and refined petroleum
products in the international shipping markets.
The
Company's vessels, as described in Note 11, are commercially managed by Scorpio
Commercial Management S.A.M. (SCM), which is owned by members of the
Lolli-Ghetti family. SCM's services include securing employment for
the Company's vessels in a pool, in the spot market, or on time
charters.
The
Company's vessels, as described in Note 11, are technically managed by Scorpio
Ship Management S.A.M. (SSM), which is also owned by members of the Lolli-Ghetti
family. SSM facilitates vessel support such as crew, provisions, deck
and engine stores, insurance, maintenance and repairs, and other services as
necessary to operate the Company's vessels such as drydocks and
vetting/inspection under a technical management agreement.
Prior to
December 2009, SSM also provided administrative services directly to the
Company. In December 2009, the Company signed an administrative services
agreement with Liberty Holding Company Ltd. (Liberty), a subsidiary of Simon.
Since December 2009, SSM has provided administrative services on behalf of
Liberty to the Company. The administrative services provided under
the agreement primarily include accounting, legal compliance, financial,
information technology services, and the provision of administrative staff and
office space.
The
Company pays their managers fees for these services and reimburses them for
direct or indirect expenses that they incur in providing these services to the
Company.
Basis
of accounting
The
consolidated financial statements have been presented in United States dollars
(USD or $), which is the functional currency of Scorpio Tankers Inc. and all its
subsidiaries. The financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs) as issued by
the International Accounting Standards Board and on a historical cost basis,
except for the revaluation of certain financial instruments.
Simon
transferred three subsidiaries to the Company (see below) on October 1, 2009 for
a nominal consideration. For accounting purposes, this transfer represents a
combination of entities under common control, with Simon being the ultimate
parent company of all entities in the Company throughout all periods shown. As
such, this business combination is outside the scope of IFRS 3 (2004), "Business
Combinations", and for the years ended December 31, 2009, 2008 and 2007 the
results have therefore been prepared using the principles of merger accounting.
Under this method:
●
the
carrying values of the assets and liabilities of the parties to the combination
are recorded at the historical carrying amount of those assets and liabilities
and are not adjusted to fair value on combination;
1.
General information and significant accounting policies
(continued)
●
the
results and cash flows of all the combining entities are brought into the
consolidated financial statements of the combined entity from the beginning of
the financial year in which the combination occurred. Prior year comparatives
are also presented on the basis that the combination was in place throughout the
prior year; and
● t
he
difference between the historical carrying amount of net assets transferred and
the consideration provided on transfer has been recognized in equity through
share capital and the merger reserve. The share capital as of
December 31, 2008 and 2007 represents the share capital of Scorpio Tankers Inc.
as if Scorpio Tankers Inc. has been incorporated throughout the periods
presented. The remaining difference between historical carrying
amount of net assets transferred and consideration paid was recognized in a
merger reserve.
Any
profits recognized after the October 1, 2009 reorganization have been recognized
in equity within retained earnings.
Subsidiaries
transferred to Scorpio Tankers Inc. on October 1, 2009 were:
|
Company
|
|
Vessel
|
|
Percent
owned
|
|
Incorporated
in
|
|
|
|
|
|
|
|
|
|
Noemi
Shipping Company Limited
|
|
Noemi
|
|
100%
|
|
The
Republic of the Marshall Islands
|
|
Senatore
Shipping Company Limited
|
|
Senatore
|
|
100%
|
|
The
Republic of the Marshall Islands
|
|
Venice
Shipping Company Limited
|
|
Venice
|
|
100%
|
|
The
Republic of the Marshall Islands
|
All
inter-company transactions, balances, income and expenses are eliminated on
combination. There have been no cost allocations from Simon, as all costs of
doing business have been included in the operations of the
subsidiaries.
Going
concern
The
financial statements have been prepared in accordance with the going concern
basis of accounting for the reasons outlined in the "Liquidity Risk" section of
Note 17.
Significant Accounting
Policies
Common
control transactions
The
assets and liabilities transferred from entities under common control are
recorded at the transferor's carrying values. Any difference between the
carrying value of the net assets acquired, and the consideration paid by
the Company is accounted for as an adjustment to shareholder's equity. The
net assets transferred and their results are recognized from the date on which
control was obtained by the ultimate controlling party.
Revenue
recognition
Vessel
revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided in the normal
course of business, net of discounts, and other sales-related or value added
taxes.
Vessel
revenue is comprised of time charter revenue and pool revenue. Time charter
revenue is recognized as services are performed based on the daily rates
specified in the time charter contract. Pool revenue for each vessel is
determined in accordance with the profit sharing terms specified within each
pool agreement. In particular, the pool manager aggregates the revenues and
expenses of all of the pool participants and distributes the net earnings to
participants based on:
1.
General information and significant accounting policies (continued)
(i)
|
the
pool points (vessel attributes such as cargo carrying capacity, fuel
consumption, and construction characteristics are taken into
consideration); and
|
(ii)
|
the
number of days the vessel participated in the pool in the
period.
|
The
Company recognizes pool revenue on a monthly basis, when the vessel has
participated in a pool during the period and the amount of pool revenue for the
month can be estimated reliably. The Company receives estimated
vessel earnings based on the known number of days the vessel has participated in
the pool, the contract terms, and the estimated monthly pool
revenue. On a quarterly basis, the Company receives a report from the
pool which identifies the number of days the vessel participated in the pool,
the total Pool Points for the period, the total pool revenue for the period, and
the calculated share of pool revenue for the vessel. The Company
reviews the quarterly report for consistency with each vessel's pool agreement
and vessel management records. The estimated pool revenue is
reconciled quarterly, coinciding with the Company's external reporting periods,
to the actual pool revenue earned, per the pool report. Consequently, in the
Company's financial statements, reported revenues represent actual pooled
revenues. While differences do arise in the performance of these quarterly
reconciliations, such differences are not material to total reported
revenues.
Interest
receivable is accrued on a time basis and includes interest earned on cash
deposits.
Vessel
operating costs
Vessel
operating costs, which include crewing, repairs and maintenance, insurance,
stores, lube oils, communication expenses, and technical management fees, are
expensed as incurred.
Earnings
per share
Basic
earnings per share is calculated by dividing the net income attributable to
equity holders of the common shares by the weighted average number of common
shares outstanding assuming that the reorganization described under "Basis of
Accounting" was effective during the period. In addition, the stock split
described in Note 10 has been given retroactive effect for all periods presented
herein. Diluted earnings per share are calculated by adjusting the net income
attributable to equity holders of the parent and the weighted average number of
common shares used for calculating basic earnings per share for the effects of
all potentially dilutive shares. Such potentially dilutive common shares are
excluded when the effect would be to increase earnings per share or reduce a
loss per share. For the years ended December 31, 2009, 2008 and 2007,
the Company had no potentially dilutive common shares.
Operating
leases
Costs in
respect of operating leases are charged to the consolidated income statement on
a straight line basis over the lease term.
Foreign
currencies
The
individual financial statements of Scorpio Tankers Inc. and each of its
subsidiaries are presented in the currency of the primary economic environment
in which the company operates (its functional currency), which in all cases is
US dollars. For the purpose of the consolidated financial statements, the
results and financial position of the Company are also expressed in US
dollars.
In
preparing the financial statements of Scorpio Tankers Inc. and each of its
subsidiaries, transactions in currencies other than the US dollar are recorded
at the rate of exchange prevailing on the dates of the
transactions. At the end of each reporting period, monetary assets
and liabilities denominated in other currencies are retranslated into the
functional currency at rates ruling at that date. All resultant exchange
differences have been recognized in the consolidated income statement. The
amount charged to the consolidated income statement during 2009 was a loss of
$36,626, a gain of $43,937 in 2008 and a loss of $17,433 in 2007.
Segment
reporting
In
previous periods, in accordance with IAS 14 "Segment Reporting", the Company has
reported one business segment and one geographical segment since (i) all of the
vessels are Panamax vessels that transport oil and refined petroleum products
and (ii) all of the vessels can trade in the international shipping market and
are not limited to specific parts of the world.
The
Company has adopted IFRS 8 "Operating Segments" on January 1, 2009. This
standard replaces the risks and rewards approach of IAS 14 with the concept of
"operating segments". An operating segment is a component of an
entity:
a)
|
that
engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with
other components of the same
entity),
|
b)
|
whose
operating results are regularly reviewed by the entity's chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess its performance,
and
|
c)
|
for
which discrete financial information is
available.
|
Adoption
of this standard has not resulted in any change to the Company's reportable
segments. Historically, the chief operating decision makers of Simon did not
evaluate the operating results of the Company on a discrete basis including on
an individual subsidiary or individual vessel basis or by distinct geographical
locations. Rather, operating results for the Company have been assessed on an
aggregated owned vessel basis. The chief operating decision makers of the
Company expect to continue to evaluate the operating results of the Company on
an aggregated consolidated basis. Thus, the Company has determined that it
operates under one reportable segment.
For the
years ended December 31, 2009 and 2008, the Company had revenue from three
customers (the Pool and the time charterers for
Noemi
and
Senatore
) in excess of
10%. For the year ended December 31, 2007, the Company had revenue
from two customers (the Pool and the time charterer for
Noemi
) in excess of 10%. See
Note 12 for a breakdown of the revenue for each of these periods. It is not
practical to report revenue or non-current assets on a geographical basis due to
the international nature of the shipping market, as noted above.
Vessels
and drydock
The fleet
is measured at cost, which includes directly attributable financing costs and
the cost of work undertaken to enhance the capabilities of the vessels, less
accumulated depreciation and impairment losses.
Depreciation
is calculated on a straight-line basis to the estimated residual value over the
anticipated useful life of the vessel from date of delivery. The estimated
useful life of each vessel is 20 years. The residual value is estimated as the
lightweight tonnage of each vessel multiplied by scrap value per ton. The scrap
value per ton is estimated taking into consideration the scrap market rate
ruling at the balance sheet date with changes accounted for in the period of
change and in future periods. See Note 5 for discussion of changes in the
residual values during the period.
The
vessels are required to undergo planned drydocks for replacement of certain
components, major repairs and maintenance of other components, which cannot be
carried out while the vessels are operating, approximately every 30 months or 48
months depending on the nature of work and external requirements. These drydock
costs are capitalized and depreciated on a straight-line basis over the
estimated period until the next drydock.
For an
acquired or newly built vessel, a portion of the vessels cost is allocated to
the components expected to be replaced or re-furbished at the next drydock. This
notional drydock cost is estimated by the Company, based on the expected costs
related to the first-coming drydock, which is based on experience and past
history of similar vessels, and carried separately from the cost of the vessel.
Subsequent drydocks are recorded at actual cost incurred. The drydock asset is
amortized on a straight-line basis to the next estimated drydock. The estimated
amortization period for a drydock is based on the estimated period between
drydocks. The Company estimates the period between drydocks to be 30 months
except for the drydock portion of a newly built vessel, which is amortized over
48 months. When the drydock expenditure is incurred prior to the expiry of the
period, the remaining balance is expensed.
Impairment
of vessels and drydock
At each
balance sheet date, the Company reviews the carrying amount of its vessels and
drydock to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the vessels and drydock is estimated in order to determine
the extent of the impairment loss (if any). The Company treats each vessel and
the related drydock as a cash generating unit.
Recoverable
amount is the higher of the fair value less cost to sell and value in
use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been
adjusted.
If the
recoverable amount of the cash generating unit is estimated to be less than its
carrying amount, the carrying amount of the cash-generating unit is reduced to
its recoverable amount. An impairment loss is recognized as an expense
immediately.
Where an
impairment loss subsequently reverses, the carrying amount of the cash
generating unit is increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the
cash generating unit in the prior years. A reversal of impairment is recognized
as income immediately.
Inventories
Inventories
consist of lubricating oils and other items including stock provisions, and are
stated at the lower of cost and net realisable value. Cost is determined by an
average of the three last purchases, which is considered to be materially
equivalent to a weighted average basis. Stores and spares are charged to vessel
operating costs when purchased.
Financial
instruments
Financial
assets and financial liabilities are recognized in the Company's balance sheet
when the Company becomes a party to the contractual provisions of the
instrument.
Financial
assets
All
financial assets are recognized and derecognized on a trade date where the
purchase or sale of a financial asset is under a contract whose terms require
delivery within the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except for those
financial assets classified as at fair value through profit or loss, which are
initially measured at fair value.
Financial
assets are classified into the following specified categories: financial assets
'at fair value through profit or loss' (FVTPL), and 'loans and receivables'. The
classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition.
Income is
recognized on an effective interest basis for debt instruments other than those
financial assets classified as at FVTPL.
Financial
assets at FVTPL
Financial
assets are classified as at FVTPL where the financial asset is held for
trading.
A
financial asset is classified as held for trading if:
|
●
|
it
has been acquired principally for the purpose of selling in the near
future; or
|
|
●
|
it
is a part of an identified portfolio of financial instruments that the
Company manages together and has a recent actual pattern of short-term
profit-taking; or
|
|
●
|
it
is a derivative that is not designated and effective as a hedging
instrument.
|
Financial
assets at FVTPL are stated at fair value, with any resultant gain or loss
recognized in profit or loss. The net gain or loss recognized in profit or loss
incorporates any dividend or interest earned on the financial asset. Fair value
is determined in the manner described in Note 17.
Receivables
Amounts
due from the pool and other receivables that have fixed or determinable payments
and are not quoted in an active market are classified as accounts receivable.
Accounts receivable are measured at amortized cost using the effective interest
method, less any impairment. Interest income is recognized by applying the
effective interest rate, except for short-term receivables when the recognition
of interest would be immaterial.
Impairment
of financial assets
Financial
assets, other than those at FVTPL, are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there is objective
evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the
investment have been impacted.
Financial
assets objective evidence of impairment could include:
|
●
|
significant
financial difficulty of the issuer or counterparty;
or
|
|
●
|
default
or delinquency in interest or principal payments;
or
|
|
●
|
it
becomes probable that the borrower will enter bankruptcy or financial
re-organization.
|
Cash
and cash equivalents
Cash and
cash equivalents comprise cash on hand and demand deposits, and other short-term
highly-liquid investments with maturities of three months or less from the date
of acquisition, and that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in value. The
carrying value of cash and cash equivalents approximates fair value due to the
short-term nature of these instruments.
Financial
liabilities
Financial
liabilities are classified as either financial liabilities 'at FVTPL' or 'other
financial liabilities'.
Financial
liabilities at FVTPL
Financial
liabilities are classified as at FVTPL where the financial liability is held for
trading, using the criteria set out above for financial assets.
Financial
liabilities at FVTPL are stated at fair value, with any resultant gain or loss
recognized in profit or loss as the Company chooses not to disclose the
effective interest rate for debt instruments that are classified as at fair
value through profit or loss. The net gain or loss recognized in profit or loss
incorporates any interest paid on the financial liability. Fair value is
determined in the manner described in Note 17.
Other
financial liabilities
Other
financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs. Other financial liabilities are subsequently
measured at amortized cost using the effective interest method.
Effective
interest method
The
effective interest method is a method of calculating the amortized cost of a
financial asset and a financial liability. It allocates interest
income and interest expense over the relevant period. The effective interest
rate is the rate that discounts estimated future cash flows (including all fees
on points paid or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) over the expected life
of the financial asset and financial liability, or, where appropriate, a shorter
period.
Derivative
financial instruments
The
Company enters into derivative
financial instruments to
manage its exposure to interest rates. Further details of derivative financial
instruments are disclosed in Notes 9 and 17 to the consolidated financial
statements.
Derivatives
are initially recognized at fair value at the date a derivative contract is
entered into and are subsequently remeasured to their fair value at each balance
sheet date. A derivative with a positive fair value is recognized as a financial
asset whereas a derivative with a negative fair value is recognized as a
financial liability. The resulting gain or loss is recognized in profit or loss
immediately.
A
derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months, and it is not
expected to be realized or settled within 12 months.
Equity
instruments
An equity
instrument is any contract that evidences a residual interest in the assets of
the Company after deducting all of its liabilities. Equity
instruments issued by the Company are recorded at the proceeds received, net of
direct issue costs.
The
Company has 1,500 registered shares authorized and issued with a par value of
$1.00 per share. These shares provide the holders with rights to dividends and
voting rights. See Note 10 for details of a stock split after the balance sheet
date which has been retroactively reflected in these financial
statements.
Provisions
Provisions
are recognized when the Company has a present obligation as a result of a past
event, and it is probable that the Company will be required to settle that
obligation. Provisions are measured at the Company's best estimate of the
expenditure required to settle the obligation at the balance sheet date, and are
discounted to present value where the effect is material.
Dividends
A
provision for dividends payable is recognized when the dividend has been
declared in accordance with the terms of the shareholder agreement.
Dividend
per share presented in these consolidated financial statements is calculated by
dividing the aggregate dividends declared by all of Scorpio Tankers Inc's
subsidiaries by the number of Scorpio Tankers Inc shares assuming these shares
have been outstanding throughout the periods presented.
Critical
accounting judgements and key sources of estimation uncertainty
In the
application of the accounting policies, we are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these
estimates.
The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate is
revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future
periods.
The
significant judgements and estimates are as follows:
Revenue
recognition
We
currently generate all of revenue from time charters and pools. Revenue
recognition for time charters and pools is generally not as complex or as
subjective as voyage charters. Time charters are for a specific
period of time at a specific rate per day. For long-term time charters, revenue
is recognized on a straight-line basis over the term of the
charter. Pool revenues are determined by the pool managers from the
total revenues and expenses of the pool and allocated to pool participants using
a mechanism set out in the pool agreement.
Vessel
impairment
The
Company evaluates the carrying amounts of its
vessels
to determine whether there is any indication that those vessels have suffered an
impairment loss. If any such indication exists, the recoverable
amount of vessels is estimated in order to determine the extent of the
impairment loss (if any).
Recoverable
amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. The projection
of cash flows related to vessels is complex and requires the Company to make
various estimates including future freight rates, earnings from the vessels and
discount rates. All of these items have been historically
volatile. In assessing the fair value less cost to sell of the
vessel, the Company obtains vessel valuations from leading, independent and
internationally recognized ship brokers on an annual basis or when there is an
indication that an asset or assets may be impaired.
If an
indication of impairment is identified, the need for recognising an impairment
loss is assessed by comparing the carrying amount of the vessels to the higher
of the fair value less cost to sell and the value in use.
Vessel
lives and residual value
The
carrying value of each of our vessels represents its original cost at the time
it was delivered or purchased less depreciation. We depreciate our vessels to
their residual value on a straight-line basis over their estimated useful
lives. The estimated useful life of each vessel is 20 years from date
of initial delivery from the shipyard. The residual value is estimated as the
lightweight tonnage of each vessel multiplied by a forecast scrap value per ton.
The scrap value per ton is estimated taking into consideration the scrap market
rate ruling at the year end. See Note 5 for discussion of changes in
the residual values during the period.
An
increase in the estimated useful life of a vessel or in its scrap value would
have the effect of decreasing the annual depreciation charge and extending it
into later periods. A decrease in the useful life of a vessel or scrap value
would have the effect of increasing the annual depreciation charge.
When
regulations place significant limitations over the ability of a vessel to trade
on a worldwide basis, the vessel's useful life is adjusted to end at the date
such regulations become effective. The estimated salvage value of the vessels
may not represent the fair market value at any one time since market prices of
scrap values tend to fluctuate.
Deferred
drydock cost
The
Company recognizes drydock costs as a separate component of the vessels'
carrying amounts and amortizes the drydock cost on a straight-line basis over
the estimated period until the next drydock. We use judgment when estimating the
period between drydocks performed, which can result in adjustments to the
estimated amortization of the drydock expense. If the vessel is disposed of
before the next drydock, the remaining balance of the deferred drydock is
written-off and forms part of the gain or loss recognized upon disposal of
vessels in the period when contracted. We expect that our vessels
will be required to be drydocked approximately every 30 to 48 months for major
repairs and maintenance that cannot be performed while the vessels are
operating. Costs capitalized as part of the drydock include actual costs
incurred at the drydock yard and parts and supplies used in making such
repairs.
Standards
and interpretations in issue not yet adopted
At the
date of authorisation of these financial statements, the following Standards and
Interpretations which have not been applied in these financial statements were
in issue but not yet effective:
|
IFRS
1 (amended)/IAS 27 (amended)
|
Cost
of an Investment in a Subsidiary, Jointly Controlled Entity or
Associate
|
|
IFRS
2 (amended)
|
Share-based
payments
|
|
IFRS
3 (revised 2008)
|
Business
Combinations
|
|
IFRS
9
|
Financial
Instruments
|
|
IAS
27 (revised 2008)
|
Consolidated
and Separate Financial Statements
|
|
IAS
28 (revised 2008)
|
Investments
in Associates
|
|
IFRIC
12
|
Service
Concession Arrangements
|
|
IFRIC
17
|
Distributions
of Non-cash Assets to Owners
|
|
IFRIC
18
|
Transfers
of Assets from Customers
|
|
IFRIC
19
|
Extinguishing
Financial Liabilities with Equity
Instruments
|
Improvements
to IFRSs (April 2009)
The
directors do not expect that the adoption of these Standards and Interpretations
in future periods will have a material impact on the financial statements of the
Company except for the treatment of acquisition of subsidiaries and associates
when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come
into effect for business combinations for which the acquisition date is on or
after the beginning of the first annual period beginning on or after July 1,
2009.
2. Accounts
receivable
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Scorpio
Panamax Tanker Pool Limited
|
|
|
1,133,030
|
|
|
|
3,581,581
|
|
Other
receivables
|
|
|
305,968
|
|
|
|
120,399
|
|
|
|
|
1,438,998
|
|
|
|
3,701,980
|
|
Scorpio
Panamax Tanker Pool Limited is a related party, as described in Note
11.
The
Company considers that the carrying amount of accounts receivable approximates
their fair value due to the short maturity thereof. Accounts
receivable are non-interest bearing. At December 31, 2009 and December 31, 2008,
no material receivable balances were past due or impaired.
3. Prepaid
expenses
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Initial
public offering fees
|
|
|
540,054
|
|
|
|
-
|
|
Other
prepayments
|
|
|
43,890
|
|
|
|
39,596
|
|
|
|
|
583,944
|
|
|
|
39,596
|
|
The
initial public offering fees are fees incurred prior to December 31, 2009
related to the Company's initial public offering of its common shares, which was
completed on April 6, 2010 (see Note 10). The fees include
professional fees (legal and accounting) and other fees totalling 540,054 which
were directly attributable to the issuance of the new shares. These
fees will be recorded as a reduction to the additional paid in capital of the
common stock in April 2010. Additional fees of $241,475 which relate to the
listing of the Company's pre-existing shares were charged to the 2009 income
statement within "Other expenses, net".
4. Inventories
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Lubricating
oils
|
|
|
422,153
|
|
|
|
465,643
|
|
Other
|
|
|
11,275
|
|
|
|
36,871
|
|
|
|
|
433,428
|
|
|
|
502,514
|
|
5. Vessels
and drydock
|
|
Vessels
|
|
|
Drydock
|
|
|
Total
|
|
Cost
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
As
of January 1, 2009
|
|
|
138,713,588
|
|
|
|
2,105,847
|
|
|
|
140,819,435
|
|
Addition
|
|
|
-
|
|
|
|
1,680,784
|
|
|
|
1,680,784
|
|
Drydock
write off
(1)
|
|
|
-
|
|
|
|
(2,105,847
|
)
|
|
|
(2,105,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2009
|
|
|
138,713,588
|
|
|
|
1,680,784
|
|
|
|
140,394,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of January 1, 2009
|
|
|
(29,718,644
|
)
|
|
|
(1,840,689
|
)
|
|
|
(31,559,333
|
)
|
Charge
for the year
|
|
|
(6,268,981
|
)
|
|
|
(565,761
|
)
|
|
|
(6,834,742
|
)
|
Impairment
(See Note 6)
|
|
|
(4,511,877
|
)
|
|
|
-
|
|
|
|
(4,511,877
|
)
|
Drydock
write off
(1)
|
|
|
-
|
|
|
|
2,105,847
|
|
|
|
2,105,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2009
|
|
|
(40,499,502
|
)
|
|
|
(300,603
|
)
|
|
|
(40,800,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2009
|
|
|
98,214,086
|
|
|
|
1,380,181
|
|
|
|
99,594,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels
|
|
|
Drydock
|
|
|
Total
|
|
Cost
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
As
of January 1, and December 31, 2008
|
|
|
138,713,588
|
|
|
|
2,105,847
|
|
|
|
140,819,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of January 1, 2008
|
|
|
(23,267,993
|
)
|
|
|
(1,306,896
|
)
|
|
|
(24,574,889
|
)
|
Charge
for the year
|
|
|
(6,450,651
|
)
|
|
|
(533,793
|
)
|
|
|
(6,984,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2008
|
|
|
(29,718,644
|
)
|
|
|
(1,840,689
|
)
|
|
|
(31,559,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2008
|
|
|
108,994,944
|
|
|
|
265,158
|
|
|
|
109,260,102
|
|
(1)
|
Drydock
write off represents the write off of drydock costs that were fully
depreciated during the year. The
Noemi
and
Senatore
were drydocked
as scheduled in 2009 for a total cost of $1,680,784 of which $1,580,826
had been paid by December 31, 2009.
|
Collateral
agreements
Noemi and Senatore
with an
aggregated net book value as of December 31, 2009 of $77,404,810 and $85,328,080
as of December 31, 2008 were provided as collateral under a loan agreement dated
May 17, 2005 (the "2005 Credit Facility"). See Note 8 for full
details as to the nature of this collateral. On April 9, 2010, the Company
repaid all borrowings under the 2005 Credit Facility and consequently these
vessels are no longer collateralized under this agreement (see Note
18).
Prior to
December 2009, the
Venice
was provided as
collateral to a third party under an agreement between a subsidiary of Liberty
and a third party. Neither the
Venice
, Scorpio Tankers Inc.
nor any of its subsidiaries were party to this agreement, nor had they had a
relationship with the third party involved. At the request of
Liberty, in December 2009, the third party agreed to release the
Venice
from the agreement in
exchange for Liberty providing other collateral in place of the
Venice
. Scorpio
Tankers Inc. and its subsidiaries have no remaining collateral obligation under
the agreement.
Changes
in estimated residual values
As
described in Note 1, General information and significant accounting policies,
Vessels and drydock, depreciation is calculated on a straight-line basis to the
estimated residual value over the anticipated useful life of vessels from date
of delivery. The residual value of vessels is estimated as the lightweight
tonnage of each vessel multiplied by scrap value per ton. The scrap value per
ton is estimated taking into consideration the scrap market rate ruling at the
balance sheet date. Where there is a significant change in the estimated
residual value, the resulting effect on depreciation expense is accounted for in
the period of change and in future periods.
In
accordance with this accounting policy and due to the volatility in scrap rates
during the periods presented, the Company changed the estimated residual values
of its vessels at each of the years ended December 31, 2009, 2008 and
2007. The change in the estimated residual value at December 31, 2007
resulted in a decrease in depreciation expense of $717,082 in the year ended
December 31, 2007 as compared to the depreciation which would have been recorded
using the estimated residual values prevailing at December 31,
2006. The change in the estimated residual value at December 31, 2008
resulted in an increase in depreciation expense of $615,506 in the year ended
December 31, 2008, as compared to the depreciation which would have been
recorded using the estimated residual values prevailing at December 31, 2007.
The changes in the estimated residual values at December 31, 2009 resulted in a
decrease in depreciation expense of $96,274 in the year ended December 31, 2009,
as compared to the depreciation which would have been recorded using the
estimated residual values prevailing at December 31, 2008.
Scrap
market rates are historically volatile and therefore it is impracticable for the
Company to estimate the effect of further changes in the scrap market rate and
the residual values of the vessels on the Company's depreciation expense in
periods subsequent to December 31, 2009.
6. Impairment
of vessels
At the
end of each reporting period, the Company evaluates the carrying amounts of
vessels and related drydock costs to determine if there is any indication that
those vessels and related drydock costs have suffered an impairment
loss. If such indication exists, the recoverable amount of the
vessels and related drydock costs is estimated in order to determine the extent
of the impairment loss (if any). As part of this evaluation, the
Company considers certain indicators of potential impairment, such as discounted
projected operating cash flows, business plans and overall market
conditions.
The
current economic and market conditions, including the significant disruptions in
the global credit markets, are having broad effects on participants in a wide
variety of industries. In the nine months ended September 30, 2009, the charter
rates in the oil and petroleum products charter market declined significantly
and Panamax vessel values also declined, both as a result of a slowdown in the
availability of global credit and the significant deterioration in charter
rates. These were both conditions that the Company considered
indicators of a potential impairment, and therefore the Company performed an
impairment test as of September 30, 2009 for each vessel to determine if any
impairment loss had occurred.
To test
for impairment, the Company estimated the recoverable amount by determining the
higher of fair value less costs to sell and value in use for each vessel as of
September 30, 2009. The fair value less costs to sell was
estimated by adding (i) the charter free market value of the vessel and (ii) the
discounted value of each vessel's time charter, which is the difference between
each vessel's time charter contracted rate and the market rate for a similar
type of vessel with a similar contracted duration. In determining the
charter free market value, the Company took into consideration the estimated
valuations provided by an independent ship broker. In assessing value in use,
the estimated future cash flows of each vessel were discounted to their present
value using a pre-tax discount rate reflecting current market assessments of the
time value of money and the risks specific to the vessel for which the estimates
of future cash flows have not been adjusted.
As a
result of the test, the Company determined the recoverable amount of each vessel
to be the fair value less costs to sell. The recoverable amounts of
Noemi
and
Senatore
were below the
carrying values. This resulted in an impairment loss of $4,511,877
for
Noemi
and
Senatore
which was recognized
as a loss in the unaudited condensed consolidated income statement for the
period ended September 30, 2009 and a reduction in the carrying value of the
vessels at that date.
At
December 31, 2009, the Company considered certain indicators of potential
impairment, such as discounted projected operating cash flows, business plans
and overall market conditions and concluded that there were no indications of a
further deterioration in the recoverable amount of the vessels and drydock costs
in the quarter ended December 31, 2009.
7. Accounts
payable
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Suppliers
|
|
|
656,002
|
|
|
|
711,226
|
|
Scorpio
Panamax Tanker Pool Limited
|
|
|
-
|
|
|
|
129,844
|
|
|
|
|
656,002
|
|
|
|
841,070
|
|
Scorpio
Panamax Tanker Pool Limited is a related party, as described in Note
11.
The
majority of accounts payable are settled with a cash payment within 90
days. No interest is charged on accounts payable. The
Company considers that the carrying amount of accounts payable approximate to
their fair value.
8. Bank
loan
Two of
Scorpio Tankers Inc.'s wholly-owned subsidiaries, Senatore Shipping Company
Limited and Noemi Shipping Company Limited, are joint and several borrowers
under the 2005 Credit Facility, entered into with The Royal Bank of Scotland
plc. The initial amount of the 2005 Credit Facility was $56,000,000,
consisting of two tranches, one for each vessel-owning
subsidiary. Each tranche is repayable in 40 consecutive quarterly
installments of $450,000, plus a balloon payment of $10,000,000, to be made
together with the 40
th
installment of each tranche (due on May 18, 2015).
Interest
on the 2005 Credit Facility is currently payable at US$ LIBOR plus
0.70%. The facility includes a variety of restrictive operating
covenants including a loan to value financial covenant and a change of control
covenant. The Company was in compliance with all of its financial
covenants as of December 31, 2009.
As
security for the loan the lender has:
a) a
first preferred mortgage on
Senatore
and
Noemi
; and
b) an
assignment of the earnings and any insurance proceeds on
Senatore
and
Noemi
.
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
3,600,000
|
|
|
|
3,600,000
|
|
Non-current
portion
|
|
|
36,200,000
|
|
|
|
39,800,000
|
|
|
|
|
39,800,000
|
|
|
|
43,400,000
|
|
|
|
|
|
|
|
|
|
|
On April 6, 2010, we completed an initial public offering of its
common shares (see Note 18). With a portion of the net proceeds from
the offering, on April 9, 2010, we repaid the remaining balance of $38,900,000
under the 2005 Credit Facility (there was a payment of principal of $900,000 in
February 2010).
Also, in
connection with the offering noted above, the Company entered into a new credit
facility for the potential acquisition of vessels (see Note 18 for a description
of the new terms of this facility).
9.
Derivative financial instruments
The
Company is exposed to interest rate risk on the 2005 Credit Facility due to
changes in market interest rates. In order to fix the interest rate of the 2005
Credit Facility, Senatore Shipping Company Limited and Noemi Shipping Company
Limited each signed an amortizing interest rate swap with The Royal Bank of
Scotland plc on April 15, 2005 for an initial notional amount of
$56,000,000.
On
February 15, 2007, these swap contracts were amended by reducing the then
notional amount by 50% to $24,850,000. As a result of the amendment,
the Company received $366,000, which was recognized in the 2007 consolidated
income statement within the realized loss on derivative financial
instruments.
The
notional interest rate swap amount was $19,900,000 as of December 31, 2009,
$21,700,000 as of December 31, 2008 and $23,500,000 as of December 31, 2007. The
Company has not elected to apply hedge accounting for these swaps.
The
carrying value (liability) of the Company's interest rate swaps is as
follows:
|
|
As
of December 31,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
(814,206
|
)
|
|
|
(706,078
|
)
|
Non-current
portion
|
|
|
(871,104
|
)
|
|
|
(1,935,352
|
)
|
|
|
|
(1,685,310
|
)
|
|
|
(2,641,430
|
)
|
|
These instruments are carried at fair
value through profit and loss. See Note 17 for further
details.
On April
6, 2010, we completed an initial public offering of its common shares (see Note
18). With a portion of the net proceeds from the offering, on April
9, 2010, we settled the outstanding portion of the interest rate swap, for a
payment of $1,850,000.
10. Common
shares
At
December 31, 2009, the Company had 1,500 registered shares authorized and issued
with a par value of $1.00 per share. These shares provide the holders with
rights to dividends and voting rights.
On March
17, 2010, the board of directors amended and restated the Articles of
Incorporation to (i) authorize 275,000,000 registered shares of which
250,000,000 were designated as common shares with a par value of $0.01 and
25,000,000 were designated as preferred shares with a par value of $0.01, and
(ii) authorize a stock split of 3,726.098 to 1 for the issued and outstanding
common shares, which increased the number of shares from 1,500 common shares
issued and outstanding to 5,589,147 common shares issued and outstanding. All
common share amounts in the consolidated financial statements have been
retroactively adjusted for all periods presented, to give effect to the stock
split.
On April
6, 2010, we completed an initial public offering of its common shares on the New
York Stock Exchange. In connection with the offering, the Company
issued and sold 12,500,000 additional common shares. On May 4, 2010,
the underwriters of the initial public offering exercised their over-allotment
option to purchase an additional 450,000 shares. Net proceeds from
the issuance of the common shares of 12,950,000, including the over-allotment,
were $155.0 million Prior to the offering, the Lolli-Ghetti Family,
of which Emanuele Lauro, our Chairman and Chief Executive Officer, is a
member, owned 100% of our outstanding common shares and maintained a controlling
interest in Scorpio Tankers Inc. As a result of the offering, the
exercise of the underwriters' over-allotment and the issuance of restricted
shares (see Note 18), the Lolli-Ghetti Family now owns 30% of our common stock
and no longer maintains a controlling interest (see Note 18).
11. Related
party transactions
Transactions
with subsidiaries of Simon (herein referred to as Simon subsidiaries) and
transactions with entities outside of Simon but controlled by members of the
Lolli-Ghetti family (herein referred to as related party affiliates) in the
consolidated income statements are as follows:
|
|
For
the year ended December 31,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
revenue from pools (A)
|
|
|
10,415,332
|
|
|
|
20,980,233
|
|
|
|
19,759,614
|
|
Vessel
revenue from time charters (B)
|
|
|
8,288,767
|
|
|
|
8,879,913
|
|
|
|
8,273,324
|
|
Vessel
operating costs (C)
|
|
|
(600,000
|
)
|
|
|
(765,422
|
)
|
|
|
(739,994
|
)
|
General
and administrative expenses (D)
|
|
|
(344,162
|
)
|
|
|
(619,421
|
)
|
|
|
(536,910
|
)
|
(A)
|
These
transactions relate to revenue earned in the Scorpio Panamax Tanker Pool
(the Pool). The Pool is operated by Scorpio Panamax Tanker Pool
Limited, which is a subsidiary of
Simon.
|
(B)
|
The
revenue earned was for
Noemi's
time charter
with King Dustin, which is 50% jointly controlled by a Simon
subsidiary. The time charter began in January 2007 and expires
in January 2012.
|
(C)
|
These
transactions represent technical management fees charged by SSM, a related
party affiliate, and included in the vessel operating costs in the
consolidated income statement. The Company's fees under
technical management arrangements with SSM were not at market rates for
the years ended December 31, 2008 and 2007. The Company
estimates that its technical management fees for the years ended December
31, 2008 and 2007 would have been $601,704 and $600,060, respectively, and
would have increased net income for the periods by $163,718 and $139,934,
respectively, had the Company operated as an unaffiliated entity. The
Company's estimate is based upon the rates charged to third party
participants by SSM in 2007 and
2008.
|
The
Company believes its technical management fees for the year ended December 31,
2009 were at market rates. Additionally, in December 2009, the Company signed a
Technical Management Agreement for each ship with SSM. Each ship will
pay $548 per day for technical management. This fee is the same
charged to third parties by SSM, and therefore the Company believes it
represents a market rate for such services.
(D)
|
These
transactions represent commercial management fees charged by SCM (prior to
October 1, 2009, a Simon subsidiary, and from October 1, 2009, a related
party affiliate) and administrative fees charged by SSM and are both
included in general and administrative expenses in the consolidated income
statement
|
●
The
Company incurred commercial management fees of $70,418, $37,996 and $56,287 for
the years ended December 31, 2009, 2008 and 2007, respectively. The
Company's commercial management fees for vessels not in the Pool were not at
market rates in 2009, 2008 and 2007. The Company estimates that its
commercial management fees for the years ended December 31, 2009, 2008 and 2007
would have been $397,546, $411,675 and $240,219, respectively, and would have
decreased net income for the periods by $327,128, $373,679 and $183,932,
respectively, had the Company operated as an unaffiliated entity. The
Company's estimate is based upon the rates charged to third party participants
in the Pool for 2009, 2008 and 2007.
In
December 2009, the Company signed the commercial management agreement with
SCM. Each of the vessels will pay $250 per day and 1.25% of their
revenue when the vessels are not in the Pool. When the Company's
vessels are in the Pool, SCM, the pool manager, charges all vessels in the Pool
(including third party participants) $250 per day and 1.25% of their
revenue. The Company therefore believes that the commercial
management agreement represents a market rate for such services.
●
The
Company incurred administrative services fees of $273,744, $581,425 and
$1,042,203 for the years ended December 31, 2009, 2008 and 2007,
respectively. The administrative fee included services for
accounting, administrative, information technology and management of the
Company. The Company's fees under administrative services
arrangements may not have been at market rates. The Company cannot
estimate what the cost would have been if we operated as an unaffiliated party,
but believes the costs for the years ended December 31, 2009, 2008 and 2007 were
reasonable and appropriate for the services provided.
Prior to
December 2009, SSM provided administrative services directly to the
Company. In December 2009, the Company signed an administrative
services agreement for each vessel with Liberty. The Company will pay
the administrator (Liberty) a fixed monthly fee calculated at cost with no
profit for providing the Company with administrative services, and will
reimburse it for the reasonable direct or indirect expenses it incurs in
providing the Company with such services. The Company will also pay
the administrator a fee for arranging vessel purchases and sales, on behalf of
the Company, equal to 1% of the gross purchase or sale price, payable upon the
consummation of any such purchase or sale. SSM continues to provide
administrative services to the Company under this agreement, but now does so on
behalf of Liberty.
The
Company had the following assets and liabilities with related parties which have
been included in the consolidated balance sheets:
|
|
As
of December 31,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable (Note 2)
|
|
|
1,133,030
|
|
|
|
3,581,581
|
|
Shareholder
receivable (E)
|
|
|
1,928,253
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable (Note 7)
|
|
|
-
|
|
|
|
129,844
|
|
Related
party payable (F)
|
|
|
-
|
|
|
|
27,406,408
|
|
Shareholder
payable (G)
|
|
|
-
|
|
|
|
22,028,323
|
|
(E)
|
During
December 2009, the Company advanced $1,928,253 to the shareholder, which
was a receivable on the Balance sheet as of December 31, 2009. The
receivable was due upon demand and was non-interest bearing and unsecured.
The amount was repaid to the Company in the first quarter of
2010.
|
(F)
|
The
related party payable at December 31, 2008 and 2007 was $27,406,408 and
was owed to a subsidiary of Simon. The payable was repayable upon demand
and was non-interest bearing and unsecured. The outstanding balance as of
November 18, 2009 of $27,406,408 was converted to equity as a capital
contribution.
|
(G)
|
The
shareholder payable was owed to Simon. Historically, the Company and Simon
transferred cash depending on the need of each entity and the excess cash
available. The payable was non-interest bearing and unsecured. On November
18, 2009, the outstanding balance of $18,865,931 was converted to equity
as a capital contribution; therefore, the Company had no outstanding
liability to Simon as of December 31,
2009.
|
Key
management remuneration
Executive
management of the Company was provided by a related party affiliate and included
in the management fees described in (D) above. The Company did not have any
employees throughout the periods presented. If the Company
was not part of Simon, and had the same ownership structure and a contract for
administrative services, the Company estimates its general and administrative
costs would have been comparable with the general and administrative costs
presented on the consolidated income statement for the years ended December 31,
2009, 2008 and 2007.
12. Vessel
revenue
During
2009, 2008 and 2007, the Company had two vessels that were time chartered
out. The remaining revenue was from vessels operating in the
Pool.
Revenue
sources
|
|
For
the year ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Time
charter revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noem
i
|
|
|
8,288,767
|
|
|
|
8,878,913
|
|
|
|
8,273,324
|
|
Senatore
|
|
|
8,914,942
|
|
|
|
9,415,050
|
|
|
|
2,284,200
|
|
Pool
revenue
|
|
|
10,415,332
|
|
|
|
20,980,233
|
|
|
|
19,759,614
|
|
|
|
|
27,619,041
|
|
|
|
39,274,196
|
|
|
|
30,317,138
|
|
Time
charter out contracts (i):
|
Time
Charter Out
|
|
|
|
Vessel
|
Start
|
End
(ii)
|
|
Daily
rate
|
|
Noemi
|
Jan.
2007
|
Jan.
2012
|
|
$
|
24,500
|
|
Senatore
|
Sept.
2007
|
Sept.
2010
|
|
$
|
26,000
|
|
(i)
|
When
Noemi
and
Senatore
were not on
time charter, the vessels participated in the
Pool.
|
(ii)
|
The
time charter contracts terminate plus or minus 30 days from the end
date.
|
The
estimated minimum future time charter revenue to be received is as
follows:
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
|
16,144,500
|
|
|
|
18,432,500
|
|
|
|
18,483,000
|
|
Between
1 and 5 years
|
|
|
9,457,000
|
|
|
|
25,601,500
|
|
|
|
44,034,000
|
|
|
|
|
25,601,500
|
|
|
|
44,034,000
|
|
|
|
62,517,000
|
|
13. Charter
hire expense
On May
29, 2008, one of the vessels owned by the Company that was chartered out was
chartered-in until May 1, 2009 at a rate of $26,750 per day and treated as an
operating lease. The vessel operated in the Pool until the time
charter ended on May 1, 2009. The time charter contract also included a profit
and loss sharing arrangement where (i) the Company agreed to pay 50% of the
vessel's earnings from the pool in excess of $26,750 per day (an increase in
charter hire expense) to the charterer, and (ii) the charterer agreed to pay 50%
of the vessel's earnings from the Pool below $26,750 per day (a decrease in
charter hire expense). The profit sharing arrangement resulted in
additional income of $108,426 in 2009, and an expense of $1,007,000 in
2008.
The
minimum lease payments (excluding any adjustment for the profit and loss
arrangement) as of December 31, 2008 for 2009 were $4,012,500. There
were no payments due after May 2009.
Prior to
the charter in arrangement described above, the Company has not historically
entered into any other charter in agreements. Since the completion of the
charter-in arrangement in May 2009, the Company has not entered into any similar
arrangements and does not expect to enter into any future charter-in
arrangements.
14.
Vessel operating costs
Vessel
operating costs primarily represents crew related costs, stores, routine
maintenance and repairs, insurance, technical management fees, and other related
costs. The procurement of these services is managed on the Company's
behalf by its technical manager, SSM (see Note 11).
15. Tax
Scorpio
Tankers Inc. and its subsidiaries are incorporated in the Republic of the
Marshall Islands, and in accordance with the income tax laws of the Marshall
Islands, are not subject to Marshall Islands' income tax. The Company
is also exempt from income tax in other jurisdictions including the United
States of America due to tax treaties; therefore, the Company did not have any
tax charges, benefits, or balances at December 31, 2009, 2008 and
2007.
16. Earnings
per share
The
calculation for both basic and diluted earnings per share is based on net income
attributable to equity holders of the parent of $ 3,418,037 in 2009 ($12,185,924
in 2008 and $12,053,792 in 2007) and a weighted average number of ordinary
shares of 5,589,147 in 2009 (5,589,147 in 2008 and 2007). There were no dilutive
instruments in any of these periods.
17. Financial
instruments
Funding
and capital risk management
The
Company manages its funding and capital resources to ensure the Company's
ability to continue as a going concern while maximizing the return to the
shareholder through optimization of the debt and equity balance.
The
Company does not currently have any gearing targets and is not subject to
externally imposed capital requirements.
17. Financial
instruments (continued)
Categories
of financial instruments
|
|
Carrying
value
As
of December 31
|
|
|
|
|
2009
|
|
|
|
2008
|
|
Financial
assets
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
444,496
|
|
|
|
3,607,635
|
|
Loans
and receivable
|
|
|
3,367,251
|
|
|
|
3,701,980
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
Fair
value through profit and loss - Derivative financial
instruments
|
|
|
1,685,310
|
|
|
|
2,641,430
|
|
Other
liabilities
|
|
|
41,409,534
|
|
|
|
94,171,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments, comprised solely of interest rate swaps, are measured at
the present value of future cash flows estimated and discounted based on the
applicable yield curves derived from quoted interest rates to determine the fair
value.
IFRS 7
requires classification of fair value measures into Levels 1, 2 and 3. Level 1
fair value measurements are those derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2 fair value
measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair
value measurements are those derived from valuation techniques that include
inputs for the asset or liability that are not based on observable market data
(unobservable inputs). In accordance with IFRS 7, the fair value measurement for
the interest rate swap is classified as level 2.
The fair
value of other financial assets and liabilities are approximately equal to their
carrying values.
Financial
risk management objectives
The
Company identifies and evaluates significant risks on an ongoing basis with the
objective of managing the sensitivity of the Company's results and financial
position to those risks. These risks include market risk, credit risk and
liquidity risk.
The use
of financial derivatives is governed by the Company's policies approved by the
board of directors.
Market
risk
The
Company's activities expose it to the financial risks of changes in interest
rates. See Note 9 for a description of the interest rate risk.
The
Company enters into interest rate swaps to mitigate the risk of rising interest
rates.
The
consolidated income statement includes the following material items in respect
of such instruments:
|
|
For
the year ended December 31
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
loss on interest rate swaps
|
|
|
808,085
|
|
|
|
405,691
|
|
|
|
523,694
|
|
Unrealized
(gain)/loss on interest rate swaps
|
|
|
(956,120
|
)
|
|
|
2,057,957
|
|
|
|
1,245,472
|
|
|
|
|
(148,035
|
)
|
|
|
2,463,648
|
|
|
|
1,769,166
|
|
17. Financial
instruments (continued)
Sensitivity
analysis – Interest rate swap
The
sensitivity analyses below have been determined based on the exposure to
interest rates for both derivatives and non-derivative instruments at the
balance sheet date. For floating rate liabilities, the analysis is prepared
assuming the amount of liability outstanding at balance sheet date was
outstanding for the whole year.
If
interest rates had been 1% higher/lower and all other variables were held
constant, the Company's net income for the year ended December 31, 2009 would
have decreased/increased by $1.0 million (2008: decreased/increased by $1.0
million and 2007: decreased/increased by $1.1 million). This is mainly
attributable to the Company's exposure to interest rate movements for the
portion of the 2005 Credit Facility that is not hedged by the interest rate swap
(see Note 8 and Note 9).
Credit
risk
Credit
risk is the potential exposure of the Company to loss in the event of
non-performance by customers and derivative instrument
counterparties.
Accounts
receivable are generally not collateralized; however, the Company believes that
the credit risk is partially offset by the creditworthiness of the Company's
counterparties including the commercial and technical managers. The Company did
not experience material credit losses on its accounts receivables portfolio in
the years ended December 31, 2009, 2008 and 2007.
The
carrying amount of financial assets recorded in the consolidated financial
statements represents the Company's maximum exposure to credit risk without
taking account of the value of any collateral obtained. The Company did not
experience any impairment losses on financial assets in the years ended December
31, 2009, 2008 and 2007.
The
Company monitors exposure to credit risk, and they believe that there is no
substantial credit risk arising from counterparties.
Liquidity
risk
Liquidity
risk is the risk that an entity will encounter difficulty in raising funds to
meet commitments associated with financial instruments.
The
Company manages liquidity risk by maintaining adequate reserves and borrowing
facilities and by continuously monitoring forecast and actual cash
flows.
Current
economic conditions make forecasting difficult, and there is the possibility
that the Company's actual trading performance during the coming year may be
materially different from the Company's expectations.
Based on
internal forecasts and projections that take into account reasonably possible
changes in the Company's trading performance, the Company believes that the
Company has adequate financial resources to continue in operation for a period
of at least twelve months from the date of approval of these consolidated
financial statements. Accordingly, the Company continues to adopt the going
concern basis in preparing the Company's financial statements.
Remaining
contractual maturity on secured bank loan (Note 8)
The
following tables detail the Company's remaining contractual maturity for its
secured bank loan. The amounts have been drawn up based on the undiscounted cash
flows of the financial liability based on the earliest date on which the Company
can be required to pay. The table includes both interest and principal cash
flows.
17. Financial
instruments (continued)
As the
interest cash flows are not fixed, the interest amount included has been
determined by reference to the projected interest rates as illustrated by the
yield curves existing at the reporting date.
To be
repaid as follows:
|
|
As
of December 31
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Less
than 1 month
|
|
|
-
|
|
|
|
-
|
|
1-3
months
|
|
|
1,273,280
|
|
|
|
238,320
|
|
3
months to 1 year
|
|
|
3,757,572
|
|
|
|
3,977,818
|
|
1-5
years
|
|
|
18,786,996
|
|
|
|
20,986,779
|
|
5+
years
|
|
|
22,200,479
|
|
|
|
22,813,613
|
|
|
|
|
46,018,327
|
|
|
|
48,016,530
|
|
Liquidity
analysis on interest rate swap
The
following table details the Company's liquidity analysis for its interest rate
swap. The table has been drawn up based on the undiscounted net cash
inflows/(outflows) on the derivative instrument that settles on a net
basis. As the amount payable or receivable is not fixed, the amount
disclosed has been determined by reference to the projected interest rates as
illustrated by the yield curves existing at the reporting date.
|
|
As
of December 31
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Less
than 1 month
|
|
|
-
|
|
|
|
-
|
|
1-3
months
|
|
|
(92,557
|
)
|
|
|
(146,472
|
)
|
3
months to 1 year
|
|
|
(262,232
|
)
|
|
|
(563,627
|
)
|
1-5
years
|
|
|
(1,087,784
|
)
|
|
|
(1,716,177
|
)
|
5+
years
|
|
|
(99,301
|
)
|
|
|
(334,697
|
)
|
|
|
|
(1,541,874
|
)
|
|
|
(2,760,973
|
)
|
18. Subsequent
events
Initial
public offering
On April
6, 2010, we closed on the initial public offering of 12,500,000 shares of common
stock at $13.00 per share. The stock trades on the New York Stock
Exchange under the symbol STNG. After deducting underwriters'
discounts and paying offering expenses, the net proceeds were approximately
$149.6 million.
On May 4,
2010, we closed the issuance of 450,000 shares of common stock at $13.00 and
received $5.4 million, after deducting underwriters' discounts, when the
underwriters in the Company's initial public offering partially exercised their
over-allotment option.
Restricted
stock issuance
On June
18, 2010, we issued 559,458 shares of restricted stock to the executive
officers. The share price at the date of issue was $10.99 per share,
and the restricted stock has an exercise price of $0.00 per
share. The vesting schedule of the restricted stock for the
executive officers is (i) one-third of the shares vest on April 6, 2013, (ii)
one-third of the shares vest on April 6, 2014, and (iii) one-third of the shares
vest on April 6, 2015. These shares were approved prior to the
initial public offering, and the IFRS 2 expense in the future periods will
be:
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$922,124
for the year ended December 31,
2010
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$1,702,383
for the year ended December 31,
2011
|
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$1,702,383
for the year ended December 31,
2012
|
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$1,151,776
for the year ended December 31,
2013
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$562,848
for the year ended December 31,
2014
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$106,929
for the year ended December 31,
2015
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On June
18, 2010, we issued 9,000 shares to our independent directors. The
share price at the date of issue was $10.99 per share, and the restricted stock
has an exercise price of $0.00 per share. The total value of
restricted stock for the directors is $98,910. These shares vest on
April 6, 2011 and were approved prior to the initial public
offering.
Outstanding
Shares
As a
result of the issuance of the new shares, the number of issued and authorized
shares increased from 5,589,147 to 19,107,605 as of June 23,
2010. The Lolli-Ghetti Family, of which Mr. Lauro, our Chairman
and Chief Executive Officer, is a member, now owns 30% of the Company's existing
shares.
New
credit facility
On June
2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting
through its New York branch, DnB NOR Bank ASA, acting through its New York
branch, and Fortis Bank Nederland, or the lead arrangers, for a senior secured
term loan facility of up to $150 million. Borrowings under the
credit facility are available until December 2, 2011 and bear interest at LIBOR
plus an applicable margin of 3.00% per annum when our debt to
capitalization (total debt plus equity) ratio is equal to or less than 50% and
3.50% per annum when our debt to capitalization ratio is greater than 50%.
A commitment fee equal to 40% of the applicable margin is payable on the unused
daily portion of the credit facility. The credit facility matures on June 2,
2015 and can only be used to finance the cost of future vessel acquisitions,
which vessels would be the collateral for the credit facility.
Borrowings
for each vessel financed under this facility, represent a separate tranche, with
repayment terms dependent on the age of the vessel at acquisition. Each tranche
under the new credit facility is repayable in equal quarterly installments, with
a lump sum payment at maturity, based on a full repayment of such tranche when
the vessel to which it relates is fifteen years of age. Our subsidiaries, which
may at any time own one or more of our initial vessels, will act as guarantors
under the credit facility. As of June 23, 2010, we have drawn down $19.0 million
under this facility.
The
credit facility requires us to comply with a number of covenants, including
financial covenants; delivery of quarterly and annual financial statements and
annual projections; maintaining adequate insurances; compliance with laws
(including environmental); compliance with ERISA; maintenance of flag and class
of the initial vessels; restrictions on consolidations, mergers or sales of
assets; prohibitions on changes in the Manager of our initial vessels;
limitations on liens; limitations on additional indebtedness; prohibitions on
paying dividends if a covenant breach or an event of default has occurred or
would occur as a result of payment of a dividend; prohibitions on transactions
with affiliates; and other customary covenants.
The
financial covenants include:
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The
ratio of debt to capitalization shall be no greater than 0.60 to
1.00.
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Consolidated
tangible net worth shall be no less than US$ 150,000,000 plus 25% of
cumulative positive net income (on a consolidated basis) for each fiscal
quarter from July 1, 2010 going forward and 75% of the value of any new
equity issues from July 1, 2010 going
forward.
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The
ratio of EBITDA to actual interest expense shall be no less than 2.50 to
1.00 commencing with the fifth fiscal quarter following the closing of the
credit facility. Such ratio shall be calculated quarterly on a trailing
quarter basis from and including the fifth fiscal quarter however for the
ninth fiscal quarter and periods thereafter the ratio shall be calculated
on a trailing four quarter basis.
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Unrestricted
cash and cash equivalents including amounts on deposit with the lead
arrangers for the first five fiscal quarters following the closing of our
initial public offering shall at all times be no less than the higher of
(i) US$ 2,000,000 per vessel or (ii) US$ 10,000,000 and thereafter
unrestricted cash and cash equivalents shall at all times be no less than
the higher of (i) US$ 1,000,000 per vessel or (ii) US$
10,000,000.
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The
aggregate fair market value of the collateral vessels shall at all times
be no less than 150% of the then aggregate outstanding principal amount of
loans under the credit facility.
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Vessel
acquisitions
On June
9, 2010, we announced that we took delivery of three products tanker vessels
that were previously agreed to be acquired. Two of the tankers are LR1 ice class
1A sister ships,
STI
Harmony
and
STI
Heritage,
which were acquired for an aggregate price of $92.0 million,
which includes an estimated $2.5 million related to the value of the existing
time charter contracts. The third vessel delivered was
STI Conqueror
, which is an
ice class 1B ship, and was acquired for $26.0 million.
The
Company has agreed to acquire three additional Handymax tankers that are
scheduled to be delivered by the end of September 2010 for an aggregate price of
$73.0 million.
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.
|
Scorpio
Tankers Inc.
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|
(Registrant)
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Dated: June
29, 2010
|
/s/
Emanuele
Lauro
|
|
|
Emanuele
Lauro
|
|
|
Chief
Executive Officer
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SK 26596 0004 1107665
v4
Exhibit 1.2
SCORPIO
TANKERS INC.
(the
"Corporation")
AMENDED
AND RESTATED BYLAWS
As
Adopted March 17, 2010
The
principal place of business of the Corporation shall be at such place or places
as the Directors shall from time to time determine. The Corporation
may also have an office or offices at such other places within or without the
Marshall Islands as the Board of Directors (the "Board") may from time to time
appoint or the business of the Corporation may require.
Section
1.
Annual
Meeting
: The annual meeting of shareholders of the Corporation
shall be held on such day and at such time and place within or without the
Marshall Islands as the Board of Directors may determine for the purpose of
electing Directors and of transacting such other business as may properly be
brought before the meeting. The Chairman of the Board (the “Chairman") or, in
the Chairman’s absence, another person designated by the Board shall act as the
Chairman of all annual meetings of shareholders.
Section
2.
Nature
of Business at Annual Meetings of Shareholders
: No business
may be transacted at an annual meeting of shareholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board (or any duly authorized committee
thereof); (b) otherwise properly brought before the annual meeting by or at the
direction of the Board (or any duly authorized committee thereof); or (c)
otherwise properly brought before the annual meeting by any shareholder of the
Corporation (i) who is a shareholder of record on the date of the giving of the
notice provided for in Section 2 of this Article II and has remained a
shareholder of record through the record date for the determination of
shareholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in Section 2 of this Article II.
In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, such shareholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation (the "Secretary").
To be
timely a shareholder’s notice to the Secretary must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
one-hundred fifty (150) days nor more than one-hundred eighty (180) days prior
to the one-year anniversary of the immediately preceding annual meeting of
shareholders. In no event shall the public disclosure of any
adjournment of an annual meeting of the shareholders commence a new time period
for the giving of the shareholder’s notice described herein.
To be in
proper written form, a shareholder’s notice to the Secretary must set forth as
to each matter such shareholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of such shareholder along with such shareholder’s
tax identification number, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such shareholder, (iv) a description of all arrangements or understandings
between such shareholder and any other person or persons (including their names)
in connection with the proposal of such business by such shareholder and any
material interest of such shareholder in such business and (v) a representation
that such shareholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting. In addition,
notwithstanding anything in Section 2 of this Article II to the contrary, a
shareholder intending to nominate one or more persons for election as a Director
at an annual meeting must comply with Article III Section 3 of these Bylaws for
such nomination or nominations to be properly brought before such
meeting.
No
business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures set
forth in Section 2 of this Article II; provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in Section 2 of this Article II shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman
of an annual meeting determines that business was not properly brought before
the annual meeting in accordance with the foregoing procedures, the Chairman of
the meeting shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be
transacted.
Section
3.
Special
Meeting
: Special meetings of shareholders, unless otherwise
prescribed by law, may be called for any purpose or purposes at any time by the
Chairman, a majority of the Board, or any officer of the Corporation who is also
a Director. No other person or persons are permitted to call a special meeting,
unless otherwise prescribed by law. No business may be conducted at
the special meeting other than business brought before the meeting by the Board.
Such meetings shall be held at such place and on a date and at such time as may
be designated in the notice thereof by the officer of the Corporation designated
by the Board of Directors to deliver the notice of such
meeting. The business transacted at any special meeting shall be
limited to the purposes stated in the notice.
Section
4.
Notice
of Meetings
: Notice of every annual and special meeting of
shareholders, other than any meeting the giving of notice of which is otherwise
prescribed by law, stating the date, time, place and purpose thereof, and in the
case of special meetings, the name of the person or persons at whose direction
the notice is being issued, shall be given personally or sent by mail, telefax,
telegraph, cablegram, telex, or teleprinter at least fifteen (15) but not more
than sixty (60) days before such meeting, to each shareholder of record entitled
to vote thereat and to each shareholder of record who, by reason of any action
proposed at such meeting would be entitled to have his shares appraised if such
action were taken, and the notice shall include a statement of that purpose and
to that effect. If mailed, notice shall be deemed to have been given when
deposited in the mail, directed to the shareholder at his address as the same
appears on the record of shareholders of the Corporation or at such address as
to which the shareholder has given notice to the Secretary. Notice of
a meeting need not be given to any shareholder who submits a signed waiver of
notice, whether before or after the meeting, or who attends the meeting without
protesting prior to the conclusion thereof the lack of notice to
him. If the Corporation shall issue any class of bearer shares,
notice for all meetings shall be given in the manner proved in the Articles of
Incorporation.
Section 5.
Adjournments
: Any
meeting of shareholders, annual or special, may adjourn from time to time to
reconvene at the same or some other place, and notice need not be given of any
such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting
the Corporation may transact any business which might have been transacted at
the original meeting. If the meeting is adjourned for lack of quorum,
notice of the new meeting shall be given to each shareholder of record entitled
to vote at the meeting. If after an adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record on the new record date entitled to notice in
Section 4 of this Article II.
Section
6.
Quorum
: At
all meetings of shareholders for the transaction of business, the number of
shares of capital stock issued and outstanding and entitled to vote thereat,
present either in person or represented by proxy, which is provided in the
Articles of Incorporation or, if not in the Articles of Incorporation, by
statute, shall be requisite and shall constitute a quorum. If less
than a quorum is present, a majority of those shares present either in person or
by proxy shall have power to adjourn any meeting until a quorum shall be
present.
Section
7.
Voting
: If
a quorum is present, and except as otherwise expressly provided by law, the
Corporation’s Articles of Incorporation then in effect or these bylaws, the
affirmative vote of a majority of the votes cast by holders of shares of stock
represented at the meeting shall be the act of the shareholders. At
any meeting of shareholders each shareholder entitled to vote any shares on any
matter to be voted upon as such meeting shall be entitled to one vote on such
matter for each such share, and may exercise such voting right either in person
or by proxy. Any action required to be permitted to be taken at a
meeting, may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof.
Section
8.
Fixing
of Record Date
: The Board of Directors may fix a time not more
than sixty (60) nor less than fifteen (15) days prior to the date of any meeting
of shareholders, or more than sixty (60) days prior to the last day on which the
consent or dissent of shareholders may be expressed for any purpose without a
meeting, as the time as of which shareholders entitled to notice of and to vote
at such a meeting or whose consent or dissent is required or may be expressed
for any purpose, as the case may be, shall be determined, and all persons who
were holders of record of voting shares at such time and no others shall be
entitled to notice of and to vote at such meeting or to express their consent or
dissent, as the case may be. The Board of Directors may fix a time
not exceeding sixty days preceding the date fixed for the payment of any
dividend, the making of any distribution, the allotment of any rights or the
taking of any other action, as a record time for the determination of the
shareholders entitled to receive any such dividend, distribution, or allotment
or for the purpose of such other action.
Section
1.
Number
: The
affairs, business and property of the Corporation shall be managed by its Board
of Directors. The number of Directors is determined according to the
Articles of Incorporation. The Directors need not be residents of the Marshall
Islands nor shareholders of the Corporation. Corporations may, to the extent
permitted by law, be elected Directors.
Section
2.
How
Elected
: The Board of Directors shall be elected as specified
in the Articles of Incorporation.
Section
3.
Nomination of
Directors
: Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors of the
Corporation, except as may be otherwise provided in the Articles of
Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board may be made at
any annual meeting of shareholders (a) by or at the direction of the Board (or
any duly authorized committee thereof) or (b) by any shareholders of the
Corporation (i) who is a shareholder of record on the date of the giving of the
notice provided for in Section 3 of this Article III and on the record date for
the determination of shareholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in Section 3 of this Article
III.
In
addition to any other applicable requirements, for a nomination to be made by a
shareholder, such shareholder must have given timely notice thereof in proper
written form to the Secretary.
To be
timely, a shareholder's notice to the Secretary must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
one-hundred fifty (150) days nor more than one-hundred eighty (180) days prior
to the one-year anniversary date of the immediately preceding annual meeting of
shareholders.
To be in
proper written form, a shareholder's notice to the Secretary must set forth; (a)
as to each person whom the shareholder proposes to nominate for election as a
Director (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person and (iv) any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of Directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder applicable to issuers that are not foreign
private issuers and (b) as to the shareholder giving the notice (i) the name and
record address of such shareholder along with such shareholder’s tax
identification number, (ii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially and of record by such
shareholder, (iii) a description of all arrangements or understandings between
such shareholder and each proposed nominee and any other person and persons
(including their names) pursuant to which the nomination(s) are to be made by
such shareholder, (iv) a representation that such shareholder intends to appear
in person or by proxy at the meeting to nominate the person or persons named in
its notice and (v) any other information relating to such shareholder that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of Directors of
companies other than foreign private issuers pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a Director if
elected.
No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the procedures set forth in Section 3 of this Article
III. If the Chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Notwithstanding
any other provisions of the Articles of Incorporation or these bylaws (and
notwithstanding the fact that some lesser percentage may be specified by law,
the Articles of Incorporation or these bylaws), the vote of not less than
two-thirds of the entire Board of Directors shall be required to amend, alter,
change or repeal this Article III Section 3.
Section
4.
Removal
: Removal
of Directors is governed by Articles of Incorporation Section I.
No
proposal by a shareholder to remove a Director shall be voted upon at a meeting
of the shareholders unless such shareholder has given timely notice thereof in
proper written form to the Secretary. To be timely, a shareholder’s
notice to the Secretary must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than one hundred and
fifty (150) days nor more than one hundred eighty (180) days prior to the
one-year anniversary date of the immediately preceding annual meeting of the
shareholders. To be in proper written form, a shareholder’s notice
must set forth: (a) a statement of the grounds, if any, on which such Director
is proposed to be removed, (b) evidence reasonably satisfactory to the Secretary
of such shareholder’s status as such and of the number of shares of each class
of capital stock of the Corporation beneficially owned by such shareholder, and
(c) a list of the names and addresses of other shareholders of the Corporation,
if any, with whom such shareholder is acting in concert, and the number of
shares of each class of capital stock of the Corporation beneficially owned by
each such shareholder.
No
shareholder proposal to remove a Director shall be voted upon at an annual
meeting of the shareholders unless proposed in accordance with the procedures
set forth in Section 4 of this Article III. If the Chairman of the
meeting determines, based on the facts, that a shareholder proposal to remove a
Director was not made in accordance with the foregoing procedures, the Chairman
shall declare to the meeting that a proposal to remove a Director of the
Corporation was not made in accordance with the procedures prescribed by these
Bylaws, and such defective proposal shall be disregarded.
Section
5.
Vacancies
: Any
vacancies in the Board of Directors shall be governed by the Articles of
Incorporation.
Section
6.
Regular
Meetings
: Regular meetings of the Board of Directors may be
held at such time and place as may be determined by resolution of the Board of
Directors and no notice shall be required for any regular
meeting. Except as otherwise provided by law, any business may be
transacted at any regular meeting.
Section
7.
Special
Meetings
: Special meetings of the Board of Directors may,
unless otherwise prescribed by law, be called from time to time by the Chairman,
a majority of the Board, or any officer of the Corporation who is also a
Director. The President or the Secretary shall call a special meeting
of the Board upon written request directed to either of them by any two
Directors stating the time, place, and purpose of such special
meeting. Special meetings of the Board shall be held on a date and at
such time and at such place as may be designated in the notice thereof by the
officer calling the meeting.
Section
8.
Notice
of Special Meetings
: Notice of the date, time and place of
each special meeting of the Board of Directors shall be given to each Director
at least forty-eight (48) hours prior to such meeting, unless the notice is
given orally or delivered in person, in which case it shall be given at least
twenty-four (24) hours prior to such meeting. For the purpose of this
section, notice shall be deemed to be duly given to a Director if given to him
personally (including by telephone) or if such notice be delivered to such
Director by mail, telegraph, telefax, cablegram, telex, or teleprinter to his
last known address. Notice of a meeting need not be given to any
Director who submits a signed waiver of notice, whether before or after the
meeting or who attends the meeting without protesting, prior to the conclusion
thereof, the lack of notice to him.
Section
9.
Quorum
: A
majority of the Directors at the time in office, present in person or by proxy
or by conference telephone, shall constitute a quorum for the transaction of
business.
Section
10.
Interested
Directors
. No contract or transaction between the Corporation
and one or more of its Directors or officers, or between the Corporation and any
other corporation, partnership, association or other organization in which one
or more of its Directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the Director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are counted for such
purpose, 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 or the committee and the Board of Directors or committee 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 BCA, by unanimous vote of the disinterested Directors; or (ii)
the material facts as to his relationship or interest and as to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or (iii) the contract or
transaction is fair as to the Corporation 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.
Section
11.
Voting
: The
vote of the majority of the Directors, present in person, by proxy, or by
conference telephone, at a meeting at which a quorum is present shall be the act
of the Directors. Any action required or permitted to be taken at a
meeting may be taken without a meeting if all members of the Board consent
thereto in writing.
Section
12.
Compensation of Directors
and Members of Committees
: The Board may from time to time, in
its discretion, fix the amounts which shall be payable to members of the Board
of Directors and to members of any committee, for attendance at the meetings of
the Board or of such committee and for services rendered to the
Corporation.
The Board
of Directors may, by resolution or resolutions passed by a majority of the
entire Board, designate from among its members an executive committee to consist
of one or more of the Directors of the Corporation, which, to the extent
provided in said resolution or resolutions, or in these Bylaws, shall have and
may exercise, to the extent permitted by law, the powers of the Board of
Directors in the management of the business and affairs of the Corporation, and
may have power to authorize the seal of the Corporation to be affixed to all
papers which may require it, provided, however, that no committee shall have the
power or authority to (i) fill a vacancy in the Board or in a committee thereof,
(ii) amend or repeal any Bylaw or adopt any new Bylaw, (iii) amend or repeal any
resolution of the entire Board, (iv) or increase the number of Directors on the
Board, or (v) remove any Director. In addition, the Board of
Directors may, by resolution or resolutions passed by a majority of the entire
Board designate from among its members other committees to consist of one or
more of the Directors of the Corporation, each of which shall perform such
function and have such authority and powers as shall be delegated to it by said
resolutions or as provided for in these Bylaws, except that only the executive
committee may have and exercise the powers of the Board of
Directors. Members of the executive committee and any other committee
shall hold office for such period as may be prescribed by the vote of a majority
of the entire Board of Directors. Vacancies in membership of such committees
shall be filled by vote of the board of Directors. Committees may
adopt their own rules of procedure and may meet at stated times or on such
notice as they may determine. Each committee shall keep a record of
its proceedings and report the same to the Board when
requested.
Section
1.
Number
of Designation:
The Board of Directors shall appoint a
President, Secretary and Treasurer and such other officers with such duties as
it may deem necessary. Officers may be of any nationality, need not
be residents of the Marshall Islands and may be, but are not required to be,
Directors. Officers of the Corporation shall be natural persons
except the secretary may be a corporate entity. Any two or more
offices may be held by the same natural person.
The
salaries of the officers and any other compensation paid to them shall be fixed
from time to time by the Board of Directors. The Board of Directors
may at any meeting appoint additional officers. Each officer shall
hold office until his successor shall have been duly appointed and qualified,
except in the event of the earlier termination of his term of office, through
death, resignation, removal or otherwise. Any officer may be removed
by the Board at any time with or without cause. Any vacancy in an
office may be filled for the unexpired portion of the term of such office by the
Board of Directors at any regular or special meeting.
Section
2
.
President:
The
President shall have general management of the affairs of the Corporation
together with the powers and duties usually incident to the office of President,
except as specifically limited by appropriate written resolution of the Board of
Directors and shall have such other powers and perform such other duties as may
be assigned to him by the Board of Directors. The President shall
preside at all meetings of shareholders at which he is present and, if he is a
Director, at all meetings of the Directors.
Section
3.
Treasurer:
The
Treasurer shall be the chief financial officer of the Corporation and shall have
general supervision over the care and custody of the funds, securities, and
other valuable effects of the Corporation and shall deposit the same or cause
the same to be deposited in the name of the Corporation in such depositories as
the Board of Directors may designate, shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall have supervision
over the accounts of all receipts and disbursements of the Corporation, shall,
whenever required by the Board, render or cause to be rendered financial
statements of the Corporation, shall have the power and perform the duties
usually incident to the office of Treasurer, and shall have such powers and
perform such other duties as may be assigned to him by the Board of Directors or
the President.
Section
4.
Secretary:
The
Secretary shall act as Secretary of all meetings of the shareholders and of the
Board of Directors at which he is present, shall have supervision over the
giving and serving of notices of the Corporation, shall be the custodian of the
corporate records and of the corporate seal of the Corporation, shall be
empowered to affix the corporate seal to those documents, the execution of
which, on behalf of the Corporation under its seal, is duly authorized and when
so affixed may attest the same, and shall exercise the powers and perform such
other duties as may be assigned to him by the Board of Directors or the
President. If the Secretary is a corporation, the duties of the
Secretary may be carried out by any authorized representative of such
corporation.
Section
5.
Other
Officers:
Officers other than those treated in Sections 2
through 4 of this Article shall exercise such powers and perform such duties as
may be assigned to them by the Board of Directors or the
President.
Section
6.
Bond:
The
Board of Directors shall have power to the extent permitted by law, to require
any officer, agent or employee of the Corporation to give bond for the faithful
discharge of his duties in such form and with such surety or sureties as the
Board of Directors may deem advisable.
ARTICLE
VI
CERTIFICATES
FOR SHARES
Section
1.
Form and
Issuance:
The shares of the Corporation shall be represented
by certificates in a form meeting the requirements of law and approved by the
Board of Directors. Certificates shall be signed by (i) the Chairman,
Chief Executive Officer, President or a Vice President and by (ii) the Secretary
or any Assistant Secretary or the Treasurer or any Assistant
Treasurer. These signatures may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or its employees. Shares may also be represented
in uncertificated form, and, specifically, the Corporation may issue shares to
be represented in any manner permitted or required by the rules of the stock
exchange on which the Corporation may be listed.
Section
2.
Transfer:
The
Board of Directors shall have power and authority to make such rules and
regulations as they may deem expedient concerning the issuance, registration and
transfer of shares of the Corporation’s stock, and may appoint transfer agents
and registrars thereof.
Section
3.
Loss of
Stock Certificates:
The Board of Directors may direct a new
certificate or certificates of stock to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
Dividends
may be declared in conformity with law by, and at the discretion of, the Board
of Directors at any regular or special meeting. Dividends may be
declared and paid in cash, stock, or other property of the
Corporation.
ARTICLE
VIII
INDEMNIFICATION
Section
1.
Indemnification
. Any
person who is or was a Director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another,
partnership, joint venture, trust or other enterprise shall be entitled to be
indemnified by the Corporation upon the same terms, under the same conditions,
and to the same extent as authorized by Section 60 of the BCA, if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The Corporation shall have the power to pay in
advance expenses a director or officer incurred while defending a civil or
criminal proceeding, provided that the director or officer will repay the amount
if it shall ultimately be determined that he or she is not entitled to
indemnification under this section.
Section
2.
Insurance
. The
Corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a Director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer against any
liability asserted against such person and incurred by such person in such
capacity whether or not the Corporation would have the power to indemnify such
person against such liability by law or under the provisions of these
Bylaws.
ARTICLE
IX
CORPORATE
SEAL
The seal
of the Corporation, if any, shall be circular in form, with the name of the
Corporation in the circumference and such other appropriate legend as the Board
of Directors may from time to time determine.
ARTICLE
X
FISCAL
YEAR
The
fiscal year of the Corporation shall be such period of twelve consecutive months
as the Board of Directors may by resolution designate.
The Board
of Directors of the Corporation are expressly authorized to make, alter or
repeal these bylaws of the Corporation by a vote of not less than a majority of
the entire Board of Directors, unless otherwise provided in these
bylaws.
Exhibit 4.1
Execution Version
Date: as of June 2, 2010
SCORPIO TANKERS INC.
as Borrower
NOEMI SHIPPING COMPANY LIMITED, SENATORE SHIPPING COMPANY LIMITED
and VENICE SHIPPING COMPANY LIMITED
as Joint and Several Guarantors
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 1
as Lenders
THE BANKS AND FINANCIAL INSTITUTIONS
listed in Schedule 2
as Swap Banks
NORDEA BANK FINLAND PLC, NEW YORK BRANCH
as Agent
and as Security Trustee
– and –
NORDEA BANK FINLAND PLC, NEW YORK BRANCH,
DNB NOR BANK ASA and FORTIS BANK (NEDERLAND) N.V.
as Lead Arrangers
relating to a Senior Term Loan Facility
in the Initial Principal Amount of up to US$150,000,000
Watson, Farley & Williams
New York
INDEX
|
|
|
|
Clause
|
|
Page
|
|
|
|
1
|
INTERPRETATION
|
2
|
|
|
|
2
|
FACILITY
|
24
|
|
|
|
3
|
POSITION OF THE LENDERS AND SWAP BANKS
|
26
|
|
|
|
4
|
DRAWDOWN
|
28
|
|
|
|
5
|
INTEREST
|
29
|
|
|
|
6
|
INTEREST PERIODS
|
31
|
|
|
|
7
|
DEFAULT INTEREST
|
31
|
|
|
|
8
|
REPAYMENT AND PREPAYMENT
|
33
|
|
|
|
9
|
CONDITIONS PRECEDENT
|
36
|
|
|
|
10
|
REPRESENTATIONS AND WARRANTIES
|
39
|
|
|
|
11
|
GENERAL AFFIRMATIVE AND NEGATIVE COVENANTS
|
45
|
|
|
|
12
|
FINANCIAL COVENANTS
|
53
|
|
|
|
13
|
MARINE INSURANCE COVENANTS
|
54
|
|
|
|
14
|
SHIP COVENANTS
|
59
|
|
|
|
15
|
COLLATERAL MAINTENANCE RATIO
|
64
|
|
|
|
16
|
GUARANTEE
|
65
|
|
|
|
17
|
PAYMENTS AND CALCULATIONS
|
68
|
|
|
|
18
|
APPLICATION OF RECEIPTS
|
70
|
|
|
|
19
|
APPLICATION OF EARNINGS, SALE PROCEEDS AND INSURANCE PROCEEDS
|
72
|
|
|
|
20
|
EVENTS OF DEFAULT
|
74
|
|
|
|
21
|
FEES AND EXPENSES
|
77
|
|
|
|
22
|
INDEMNITIES
|
79
|
|
|
|
23
|
NO SET-OFF OR TAX DEDUCTION
|
81
|
|
|
|
24
|
ILLEGALITY, ETC
|
83
|
|
|
|
25
|
INCREASED COSTS
|
83
|
|
|
|
26
|
SET OFF
|
85
|
|
|
|
27
|
TRANSFERS AND CHANGES IN LENDING OFFICES
|
86
|
|
|
|
28
|
VARIATIONS AND WAIVERS
|
89
|
|
|
|
29
|
NOTICES
|
90
|
|
|
|
30
|
SUPPLEMENTAL
|
93
|
|
|
|
31
|
THE SERVICING BANKS
|
93
|
|
|
|
32
|
LAW AND JURISDICTION
|
97
|
|
|
|
33
|
WAIVER OF JURY TRIAL
|
98
|
|
|
|
34
|
PATRIOT ACT NOTICE
|
99
|
EXECUTION PAGE
|
|
1
|
|
|
|
SCHEDULE 1 LENDERS AND COMMITMENTS
|
|
101
|
|
|
|
SCHEDULE 2 SWAP BANKS
|
|
101
|
|
|
|
SCHEDULE 3 DRAWDOWN NOTICE
|
|
|
|
|
|
SCHEDULE 4 CONDITION PRECEDENT DOCUMENTS
|
|
|
|
|
|
SCHEDULE 5 TRANSFER CERTIFICATE
|
|
|
|
|
|
SCHEDULE 6 DESIGNATION NOTICE
|
|
|
|
|
|
SCHEDULE 7 LIST OF APPROVED BROKERS
|
|
|
|
|
|
SCHEDULE 8 COMMITMENT INCREASE AGREEMENT
|
|
|
|
|
|
SCHEDULE 9 GUARANTOR ACCESSION AGREEMENT
|
|
|
|
|
|
SCHEDULE 10 LENDER ACCESSION AGREEMENT
|
|
|
|
|
|
SCHEDULE 11 SWAP BANK ACCESSION AGREEMENT
|
|
|
|
|
|
APPENDIX A FORM OF CHARTER ASSIGNMENT
|
|
|
|
|
|
APPENDIX B FORM OF COMPLIANCE CERTIFICATE
|
|
|
|
|
|
APPENDIX C FORM OF EARNINGS ACCOUNT PLEDGE
|
|
|
|
|
|
APPENDIX D FORM OF EARNINGS ASSIGNMENT
|
|
|
|
|
|
APPENDIX E FORM OF INSURANCE ASSIGNMENT
|
|
|
|
|
|
APPENDIX F FORM OF MANAGER'S UNDERTAKING
|
|
|
|
|
|
APPENDIX G FORM OF MARHSALL ISLANDS SHIP MORTGAGE
|
|
|
|
|
|
APPENDIX H FORM OF NOTE
|
|
|
|
|
|
APPENDIX I FORM OF RETENTION ACCOUNT PLEDGE
|
|
|
|
|
|
APPENDIX J FORM OF SHARES PLEDGE
|
|
|
THIS LOAN AGREEMENT (this "
Agreement
") is made as of June 2, 2010
AMONG
(1)
|
SCORPIO TANKERS INC., a corporation incorporated and existing under the laws of the Republic of The Marshall Islands whose principal office is at 9, Boulevard Charles III, Monaco, 98000, as borrower (the "
Borrower
");
|
(2)
|
NOEMI SHIPPING COMPANY LIMITED, SENATORE SHIPPING COMPANY LIMITED and VENICE SHIPPING COMPANY LIMITED, each a corporation incorporated and existing under the laws of the Republic of The Marshall Islands with its registered address at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960, as joint and several guarantors (together with any other person that becomes a guarantor party hereto pursuant to a Guarantor Accession Agreement (as defined below), the "
Guarantors
");
|
(3)
|
THE BANKS AND FINANCIAL INSTITUTIONS listed in Schedule 1, as lenders (together with any other person that becomes a lender party hereto pursuant to a Lender Accession Agreement (as defined below), the "
Lenders
", which expression includes their respective successors, transferees and assigns);
|
(4)
|
THE BANKS AND FINANCIAL INSTITUTIONS listed in Schedule 2, as swap banks (together with any other person that becomes a swap bank party hereto pursuant to a Swap Bank Accession Agreement (as defined below), the "
Swap Banks
", which expression includes their respective successors, transferees and assigns);
|
(5)
|
NORDEA BANK FINLAND PLC, NEW YORK BRANCH, acting in such capacity through its office at 437 Madison Avenue, 21
st
Floor, New York, New York 10022, as agent for the Lenders (in such capacity, the "
Agent
", which expression includes its successors, transferees and assigns);
|
(6)
|
NORDEA BANK FINLAND PLC, NEW YORK BRANCH, acting in such capacity through its office at 437 Madison Avenue, 21
st
Floor, New York, New York 10022, as security trustee for the Lenders and the Swap Banks (in such capacity, the "
Security Trustee
", which expression includes its successors, transferees and assigns); and
|
(7)
|
NORDEA BANK FINLAND PLC, NEW YORK BRANCH, DNB NOR BANK ASA, and FORTIS BANK (NEDERLAND) N.V. as lead arrangers (the "
Lead Arrangers
", which expression includes their respective successors, transferees and assigns).
|
BACKGROUND
(A)
|
The Lenders have agreed to make available to the Borrower a senior term loan facility in the aggregate principal amount of up to the amount of the Total Commitments for the purpose of financing the lesser of 50% of the Fair Market Value of each Ship and 50% of the purchase price of each Ship.
|
(B)
|
At their discretion, the Swap Banks may make available to the Borrower interest rate swap transactions from time to time to hedge the Borrower's exposure under this Agreement to interest rate fluctuations.
|
(C)
|
The Lenders and the Swap Banks have agreed to share in the security to be granted to the Security Trustee pursuant to this Agreement with the interest of the Swap Banks being secured on a subordinated basis.
|
IT IS AGREED
as follows:
1.1
|
Definitions.
Subject to Clause 1.5, in this Agreement:
|
"
Acceptable Accounting Firm
" means Deloitte LLP, or such other recognized accounting firm as the Agent may, with the consent of the Majority Lenders (such consent not to be unreasonably withheld or delayed), approve from time to time in writing;
"
Account Bank
" means Fortis Bank (Nederland) N.V., acting through its office at Coolsingel 93, P.O. Box 749, 3000 AS Rotterdam, The Netherlands;
"
Additional Commitment
" has the meaning given in Clause 2.2;
"
Additional Ship
" means any vessel which:
|
(a)
|
is either a clean or crude oil double-hull tanker;
|
|
(b)
|
with a deadweight tonnage between 35,000 dwt and 200,000 dwt;
|
|
(c)
|
no older than seven (7) years of age on its Delivery Date; and
|
|
(d)
|
is classed with a Classification Society, free of overdue recommendations and conditions affecting that vessel's class;
|
"
Advance
" means the principal amount of each borrowing by the Borrower under this Agreement;
"
Affiliate
" means, as to any person, any other person that, directly or indirectly, controls, is controlled by or is under common control with such person or is a director or officer of such person, and for purposes of this definition, the term "
control
" (including the terms "
controlling
", "
controlled by
" and "
under common control with
") of a person means the possession, direct or indirect, of the power to vote 20% or more of the voting stock of such person or to direct or cause direction of the management and policies of such person, whether through the ownership of voting stock, by contract or otherwise;
"
Agreed Form
" means in relation to any document, that document in the form approved by the Agent with the consent of the Majority Lenders, or as otherwise approved in accordance with any other approval procedure specified in any relevant provision of any Finance Document;
"
Approved Broker
" means any of the companies listed on Schedule 7 or such other company proposed by the Borrower which the Agent may approve from time to time for the purpose of valuing a Ship, who shall act as an expert and not as arbitrator and whose valuation shall be conclusive and binding on all parties to this Agreement;
"
Approved Flag
" means the Bahamian, Cypriot, Maltese, Marshall Islands, Liberian, Panamanian or Singaporean flag or such other flag as the Agent may, with the consent of the Majority Lenders, approve from time to time in writing as the flag on which a Ship shall be registered;
"
Approved Management Agreement
" means, in relation to a Ship in respect of its commercial and technical management, a management agreement which the Agent may reasonably approve and which shall be on the BIMCO Shipman 98 form or such other form of management agreement, in each case between the Borrower or the Guarantor that owns a Ship and each Approved Manager;
"
Approved Manager
" means each of SSM and SCM or any other company proposed by the Borrower which the Agent may reasonably approve from time to time as the technical and/or commercial manager of a Ship;
"
Availability Period
" means the period commencing on the Effective Date and ending on:
|
(a)
|
the date which is 18 months after the Effective Date (or such later date as the Agent may, with the consent of the Majority Lenders, agree with the Borrower); or
|
|
(b)
|
if earlier, the date on which the Total Commitments are fully borrowed, cancelled or terminated;
|
"
Bank Secrecy Act
" has the meaning given in Clause 10.21;
"
Business Day
" means a day on which banks are open in London and, in respect of a day on which a payment is required to be made under a Finance Document, also in New York City, Amsterdam, The Netherlands and [add locations as necessary per instructions of Agent];
"
Capitalized Lease
" means, as applied to any person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such person, as lessee, in conformity with IFRS, is required to be capitalized on the balance sheet of such person; and "
Capitalized Lease Obligation
" is defined to mean the rental obligations, as aforesaid, under a Capitalized Lease;
"
Cash Equivalents
" means:
|
(a)
|
securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof);
|
|
(b)
|
time deposits, certificates of deposit or deposits in the interbank market of any commercial bank of recognized standing organized under the laws of the United States of America, any state thereof or any foreign jurisdiction having capital and surplus in excess of $500,000,000; and
|
|
(c)
|
such other securities or instruments as the Majority Lenders shall agree in writing;
|
and in respect of both (a) and (b) above, with a Rating Category of at least "A+" by S&P and "A" by Moody's (or the equivalent used by another Rating Agency) in each case having maturities of not more than ninety (90) days from the date of acquisition;
"
Change of Control
" means, in respect of the Borrower:
|
(a)
|
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than any holders of the Borrower's Equity Interests as of the date of this Agreement, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act and including by reason of any change in the ultimate "beneficial ownership" of the Equity Interests of the Borrower) of more than 35% of the total voting power of the Voting Stock of the Borrower (calculated on a fully diluted basis); or
|
|
(b)
|
individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors or equivalent governing body of the Borrower (together with any new directors (or equivalent) whose election by such Board of Directors or equivalent governing body or whose nomination for election was approved by a vote of at least two-thirds of the members of such Board of Directors or equivalent governing body then still in office who either were members of such Board of Directors or equivalent governing body at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least 50% of the members of such Board of Directors or equivalent governing body then in office;
|
"
Charter
" means, in relation to a Ship, a time or consecutive voyage charter in respect of such Ship for a term which exceeds, or which by virtue of any optional extensions may exceed, 12 months;
"
Charter Assignment
"
means, in relation to a Ship, an assignment of the Charter for such Ship, in the form set out in Appendix A;
"
Classification Society
" means, in relation to a Ship, American Bureau of Shipping, Det Norske Veritas or such other first-class vessel classification society that is a member of the International Association of Classification Societies that the Agent may approve from time to time;
"
Closing Date
" means, for purposes of the Fee Letter and Clauses 21.1(a) (arrangement fee) and 21.1(c) (annual agency fee), on or before June 15, 2010;
"
Code
" means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder;
"
Collateral
" means all property (including, without limitation, any proceeds thereof) referred to in the Finance Documents that is subject to any Security Interest in favor of the Security Trustee, for the benefit of the Lenders and the Swap Banks, securing the Secured Liabilities;
"
Collateral Maintenance Ratio
" has the meaning given in Clause 15.2;
"
Commission
" or "
SEC
" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act;
"
Commitment
" means, in relation to a Lender, the amount set opposite its name in Schedule 1, or, as the case may require, the amount specified in the relevant Transfer Certificate or Lender Accession Agreement, as that amount may be increased, reduced, cancelled or terminated in accordance with this Agreement (and "
Total Commitments
" means the aggregate of the Commitments of all the Lenders);
"
Commitment Increase Agreement
" means an agreement providing for the increase of a Lender's Commitment in the form set out in Schedule 8 hereto;
"
Compliance Certificate
" means a certificate executed by an authorized person of the Borrower, in the form set out in Appendix B;
"
Confirmation
" and "
Early Termination Date
", in relation to any continuing Designated Transaction, have the meanings given in the relevant Master Agreement;
"
Consolidated EBITDA
" means, for any accounting period, the consolidated net income of the Borrower for that accounting period:
|
(a)
|
plus
, to the extent deducted in computing the net income of the Borrower for that accounting period, the sum, without duplication, of:
|
|
(i)
|
all federal, state, local and foreign income taxes and tax distributions;
|
|
(ii)
|
Consolidated Net Interest Expense;
|
|
(iii)
|
depreciation, depletion, amortization of intangibles and other non-cash charges or non-cash losses (including non-cash transaction expenses and the amortization of debt discounts) and any extraordinary losses not incurred in the ordinary course of business;
|
|
(iv)
|
expenses incurred in connection with a special or intermediate survey of a Ship during such period; and
|
|
(v)
|
any drydocking expenses;
|
|
(b)
|
minus
, to the extent added in computing the consolidated net income of the Borrower for that accounting period, (i) any non-cash income or non-cash gains and (ii) any extraordinary gains on asset sales not incurred in the ordinary course of business;
|
"
Consolidated Funded Debt
" means, for any accounting period, the sum of the following for the Borrower determined (without duplication) on a consolidated basis for such period and in accordance with IFRS consistently applied:
|
(a)
|
all Financial Indebtedness; and
|
|
(b)
|
all obligations to pay a specific purchase price for goods or services whether or not delivered or accepted (including take-or-pay and similar obligations which in accordance with IFRS would be shown on the liability side of a balance sheet);
|
provided that
balance sheet accruals for future drydock expenses shall not be classified as Consolidated Funded Debt;
"
Consolidated
Liquidity
" means, on a consolidated basis at any time, the sum of (a) cash and (b) Cash Equivalents, in each case held by the Borrower on a freely available and unencumbered basis;
"
Consolidated
Net Interest Expense
" means the aggregate of all interest, commissions, discounts and other costs, charges or expenses accruing that are due from the Borrower and all of its subsidiaries during the relevant accounting period less (i) interest income received and (ii) amortization of deferred charges and arrangement fees, determined on a consolidated basis in accordance with IFRS and as shown in the consolidated statements of income for the Borrower;
"
Consolidated Tangible Net Worth
" means, on a consolidated basis, the total shareholders' equity (including retained earnings) of the Borrower, minus goodwill;
"
Consolidated Total Capitalization
" means Consolidated Tangible Net Worth plus Consolidated Funded Debt;
"
Contractual Currency
" has the meaning given in Clause 22.4;
"
Contribution
" means, in relation to a Lender, the part of the Loan which is owing to that Lender;
"
Creditor Party
" means the Agent, the Security Trustee, any Lender, any Swap Bank or any Lead Arranger, whether as at the date of this Agreement or at any later time;
"
Currency Agreement
" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect a person or any of its subsidiaries against fluctuations in currency values to or under which such person or any of its subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary thereafter;
"
Deed of Covenant
" means a deed of covenant in Agreed Form collateral to a Mortgage that is in statutory form;
"
Delivery Date
" has the meaning given in Clause 9.2(b);
"
Designated Transaction
" means a Transaction which fulfils the following requirements:
|
(a)
|
it is entered into by the Borrower pursuant to a Master Agreement with a Swap Bank;
|
|
(b)
|
its purpose is the hedging of the Borrower's exposure under this Agreement to fluctuations in LIBOR arising from the funding of the Loan (or any part thereof) for a period expiring no later than the Maturity Date; and
|
|
(c)
|
it is designated by the Borrower, by delivery by the Borrower to the Agent of a notice of designation in the form set out in Schedule 6, as a Designated Transaction for the purposes of the Finance Documents;
|
"
Disbursement Authorization
" has the meaning given in Clause 9.2(b);
"
Dollars
" and "
$
" means the lawful currency for the time being of the United States of America;
"
Drawdown Date
" means, in relation to an Advance, the date requested by the Borrower for the Advance to be made, or (as the context requires) the date on which the Advance is actually made;
"
Drawdown Notice
" means a notice in the form set out in Schedule 3 (or in any other form which the Agent approves or reasonably requires);
"
Earnings
" means, in relation to a Ship, all moneys whatsoever which are now, or later become, payable (actually or contingently) to the Guarantor owning that Ship or the Security Trustee and which arise out of the use or operation of that Ship, including (but not limited to):
|
(a)
|
except to the extent that they fall within paragraph (b):
|
|
(i)
|
all freight, hire and passage moneys;
|
|
(ii)
|
compensation payable to the Guarantor owning that Ship or the Security Trustee in the event of requisition of that Ship for hire;
|
|
(iii)
|
remuneration for salvage and towage services;
|
|
(iv)
|
demurrage and detention moneys;
|
|
(v)
|
damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of that Ship; and
|
|
(vi)
|
all moneys which are at any time payable under Insurances in respect of loss of hire; and
|
|
(b)
|
if and whenever that Ship is employed on terms whereby any moneys falling within paragraphs (a)(i) to (vi) are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to that Ship;
|
"
Earnings Account
" means, in relation to a Ship, an account in the name of the Guarantor owning such Ship with the Account Bank and designated as the "Earnings Account" for such Ship, or any other account (with the Account Bank or the Agent or with another bank or financial institution acceptable to the Agent) which is designated as the Earnings Account in relation to that Ship for the purposes of this Agreement;
"
Earnings Account Pledge
" means a pledge of an Earnings Account, in the form set out in Appendix C;
"
Earnings Assignment
"
means an assignment of the Earnings and any Requisition Compensation of the Ship, in the form set out in Appendix D;
"
EDGAR
" means the Electronic Data Gathering, Analysis, and Retrieval system maintained by the SEC;
"
Effective Date
" means the date on which this Agreement is executed and delivered by the parties hereto;
"
Environmental Claim
" means:
|
(a)
|
any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law; or
|
|
(b)
|
any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident,
|
and "
claim
" means a claim for damages, compensation, fines, penalties or any other payment of any kind whether or not similar to the foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset;
"
Environmental Incident
" means:
|
(a)
|
any release of Environmentally Sensitive Material from a Ship; or
|
|
(b)
|
any incident in which Environmentally Sensitive Material is released from a vessel other than a Ship and which involves a collision between a Ship and such other vessel or some other incident of navigation or operation, in either case, in connection with which such Ship is actually or potentially liable to be arrested, attached, detained or injuncted and/or such Ship and/or the Borrower and/or the Guarantor owning such Ship and/or any operator or manager of such Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or
|
|
(c)
|
any other incident in which Environmentally Sensitive Material is released otherwise than from a Ship and in connection with which such Ship is actually or potentially liable to be arrested and/or where the Borrower and/or the Guarantor owning such Ship and/or any operator or manager of such Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action;
|
"
Environmental Law
" means any law relating to pollution or protection of the environment, to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material;
"
Environmental Permit
" means any permit, approval, identification number, license or other authorization required under any Environmental Law;
"
Environmentally Sensitive Material
" means oil, oil products and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous;
"
Equity Interests
" of any person means:
|
(a)
|
any and all shares and other equity interests (including common stock, preferred stock, limited liability company interests and partnership interests) in such person; and
|
|
(b)
|
all rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) such shares or other interests in such person;
|
"
Equity Proceeds
" means the net cash proceeds from the issuance of common or preferred stock of the Borrower;
"
ERISA
" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations promulgated and rulings issued thereunder;
"
ERISA Affiliate
" means a trade or business (whether or not incorporated) that, together with the Borrower or any subsidiary of it, would be deemed to be a single employer under Section 414 of the Code;
"
ERISA Funding Event
" means:
|
(a)
|
any failure by any Plan to satisfy the minimum funding standards (for purposes of Section 412 of the Code or Section 302 of ERISA), whether or not waived;
|
|
(b)
|
the filing pursuant to Section 412 of the Code or Section 303 of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan;
|
|
(c)
|
the failure by the Borrower or any subsidiary of it or any ERISA Affiliate to make any required contribution to a Multiemployer Plan;
|
|
(d)
|
a determination that any Plan is, or is expected to be, in "at risk" status (within the meaning of Section 430(i) of the Code);
|
|
(e)
|
the incurrence by the Borrower or any subsidiary of it or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or
|
|
(f)
|
a determination that a Multiemployer Plan is, or is expected to be, in endangered status within the meaning of Section 432 of the Code or Section 305 of ERISA;
|
"
ERISA Termination Event
" means:
|
(a)
|
the imposition of any lien in favor of the PBGC of any Plan or Multiemployer Plan;
|
|
(b)
|
the receipt by the Borrower or any subsidiary of it or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Multiemployer Plan or to appoint a trustee to administer any Plan or Multiemployer Plan under Section 4042 of ERISA;
|
|
(c)
|
the receipt by the Borrower or any subsidiary of it or ERISA Affiliate of any notice that a Multiemployer Plan is in critical status within the meaning of Section 432 of the Code or Section 305 of ERISA;
|
|
(d)
|
the filing of a notice of intent to terminate a Plan under Section 4041 of ERISA; or
|
|
(e)
|
the occurrence of any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan;
|
"
Estate
" has the meaning assigned such term in Clause 31.1(b)(ii);
"
Event of Default
" means any of the events or circumstances described in Clause 20.1;
"
Exchange Act
" means the Securities Exchange Act of 1934, as amended, and any successor act thereto, and (unless the context otherwise requires) includes the rules and regulations of the Commission promulgated thereunder;
"
Executive Order
" means an executive order issued by the President of the United States of America;
"
Fair Market Value
" means, in relation to each Ship, the market value of such Ship at any date that is shown by the average of two (2) valuations each prepared and addressed to the Agent:
|
(a)
|
as at a date not more than 30 days prior to the date such valuation is delivered to the Agent;
|
|
(b)
|
by an Approved Broker;
|
|
(c)
|
with or without physical inspection of that Ship (as the Agent may require); and
|
|
(d)
|
on the basis of a sale for prompt delivery for cash on normal arm's length commercial terms as between a willing seller and a willing buyer, free of any existing charter or other contract of employment (and with no value to be given to any pooling arrangements);
|
"
Fee Letter
"
means the letter dated March 9, 2010 from the Lead Arrangers to the Borrower;
"
Finance Documents
" means:
|
(b)
|
all Charter Assignments;
|
|
(c)
|
all Earnings Account Pledges;
|
|
(d)
|
all Earnings Assignments;
|
|
(e)
|
all Insurance Assignments;
|
|
(f)
|
all Mortgages and, if applicable, the Deed of Covenant collateral thereto;
|
|
(h)
|
the Retention Account Pledge;
|
|
(i)
|
all Shares Pledges; and
|
|
(j)
|
any other document (whether creating a Security Interest or not) which is executed at any time by any person as security for, or to establish any form of subordination or priorities arrangement in relation to, any amount payable to the Lenders and/or the Swap Banks under this Agreement or any of the other documents referred to in this definition;
|
"
Financial Indebtedness
" means, with respect to any person (the "
debtor
") at any date of determination (without duplication):
|
(a)
|
all obligations of the debtor for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor;
|
|
(b)
|
all obligations of the debtor evidenced by bonds, debentures, notes or other similar instruments;
|
|
(c)
|
all obligations of the debtor in respect of any acceptance credit, guarantee or letter of credit facility or equivalent made available to the debtor (including reimbursement obligations with respect thereto);
|
|
(d)
|
all obligations of the debtor to pay the deferred purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereto or the completion of such services, except trade payables;
|
|
(e)
|
all Capitalized Lease Obligations of the debtor as lessee;
|
|
(f)
|
all Financial Indebtedness of persons other than the debtor secured by a Security Interest on any asset of the debtor, whether or not such Financial Indebtedness is assumed by the debtor,
provided that
the amount of such Financial Indebtedness shall be the lesser of (i) the fair market value of such asset at such date of determination and (ii) the amount of such Financial Indebtedness; and
|
|
(g)
|
all Financial Indebtedness of persons other than the debtor under any guarantee, indemnity or similar obligation entered into by the debtor to the extent such Financial Indebtedness is guaranteed, indemnified, etc. by the debtor.
|
The amount of Financial Indebtedness of any debtor at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation,
provided that
(i) the amount outstanding at any time of any Financial Indebtedness issued with an original issue discount is the face amount of such Financial Indebtedness less the remaining unamortized portion of such original issue discount of such Financial Indebtedness at such time as determined in conformity with IFRS, and (ii) Financial Indebtedness shall not include any liability for federal, state, local, foreign or other taxes;
"
Fiscal Year
" means, in relation to any person, each period of one (1) year commencing on January 1 of each year and ending on December 31 of such year in respect of which its accounts are or ought to be prepared;
"
Guaranteed Obligations
" has the meaning given in Clause 16.1;
"
Guarantor Accession Agreement
" means an agreement providing for the accession of a person to this Agreement as a Guarantor in the form set out in Schedule 9 hereto;
"
IFRS
" means International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB);
"
Initial Ships
" means, collectively, the NOEMI, SENATORE and VENICE;
|
"
Insurances
" means in relation to a Ship:
|
|
(a)
|
all policies and contracts of insurance, including entries of that Ship in any protection and indemnity or war risks association, effected in respect of that Ship, the Earnings or otherwise in relation to that Ship; and
|
|
|
|
|
(b)
|
all rights and other assets relating to, or derived from, any of the foregoing, including any rights to a return of a premium;
|
"
Insurance Assignment
" means, in relation to a Ship, an assignment of the Insurances, in the form set out in Appendix E;
"
Interest Period
" means a period determined in accordance with Clause 6;
"
ISM Code
" means the International Safety Management Code (including the guidelines on its implementation), adopted by the International Maritime Organization, as the same may be amended or supplemented from time to time (and the terms "
safety management system
", "
Safety Management Certificate
" and "
Document of Compliance
" have the same meanings as are given to them in the ISM Code);
"
ISM Code Documentation
" includes, in respect of a Ship:
|
(a)
|
the Document of Compliance and Safety Management Certificate issued pursuant to the ISM Code in relation to that Ship within the periods specified by the ISM Code;
|
|
(b)
|
all other documents and data which are relevant to the safety management system and its implementation and verification which the Agent may require; and
|
|
(c)
|
any other documents which are prepared or which are otherwise relevant to establish and maintain that Ship's compliance or the compliance of the Guarantor that owns that Ship or the relevant Approved Manager with the ISM Code which the Agent may require;
|
"
ISPS Code
" means the International Ship and Port Facility Security Code as adopted by the International Maritime Organization, as the same may be amended or supplemented from time to time;
"
ISPS Code Documentation
" includes:
|
(b)
|
all other documents and data which are relevant to the ISPS Code and its implementation and verification which the Agent may require;
|
"
ISSC
" means a valid and current International Ship Security Certificate issued under the ISPS Code;
"
Lender Accession Agreement
" means an agreement providing for the accession of a person to this Agreement as a Lender in the form set out in Schedule 10 hereto;
"
Lending Office
" means, with respect to any Lender, the office of such Lender specified as its "Lending Office" under its name on Schedule 1 or in the relevant Transfer Certificate or other instrument pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent;
"
LIBOR
" means, in relation to any period for which an interest rate is to be determined under any provision of a Finance Document:
|
(a)
|
the applicable Screen Rate; or
|
|
(b)
|
if no Screen Rate is available for that period, the rate per annum determined by the Agent to be the arithmetic mean (rounded upwards to four (4) decimal places) of the rates, as supplied to the Agent at its request, quoted by each Reference Bank to leading banks in the London Interbank Market;
|
as of 11:00 a.m. (London time) on the Quotation Date for that period for the offering of deposits in the relevant currency and for a period comparable to that period;
"
Loan
" means the principal amount from time to time outstanding under this Agreement;
"
Major Casualty
" means, in relation to a Ship, any casualty to that Ship in respect of which the claim or the aggregate of the claims against all insurers, before adjustment for any relevant franchise or deductible, exceeds $5,000,000 or the equivalent in any other currency;
"
Majority Lenders
" means:
|
(a)
|
before the Loan has been made, Lenders whose Commitments total 66.66% of the Total Commitments; and
|
|
(b)
|
after the Loan has been made, Lenders whose Contributions total 66.66% of the Loan;
|
"
Manager's Undertaking
" means, in relation to a Ship, the letter executed and delivered by each Approved Manager, in the form set out in Appendix F;
"
Margin
" means:
|
(a)
|
3.00% per annum, if the ratio of Consolidated Funded Debt to Consolidated Total Capitalization is less than or equal to 50%; and
|
|
(b)
|
3.50% per annum, if the ratio of Consolidated Funded Debt to Consolidated Total Capitalization is greater than 50%;
|
"
Margin Stock
" has the meaning specified in Regulation U of the Board of Governors of the Federal Reserve System and any successor regulations thereto, as in effect from time to time;
"
Master Agreement
" means each master agreement (on the 2002 ISDA (Multicurrency - Crossborder) form) in the Agreed Form made between the Borrower and a Swap Bank and includes all Designated Transactions from time to time entered into and Confirmations from time to time exchanged under the master agreement;
"
Maturity Date
" means May 15, 2015;
"
MOA
" means, in respect of the sale and purchase of a Ship, a Memorandum of Agreement entered into between the Seller of such Ship and a Guarantor;
"
Moody's
" means Moody's Investors Service, Inc., a subsidiary of Moody's Corporation, and its successors;
"
Mortgage
" means, in relation to a Ship, the first priority or preferred ship mortgage on that Ship, in Agreed Form;
provided that
a mortgage in respect of a Ship registered on Marshall Islands flag shall be in the form set out in Appendix G;
"
Multiemployer Plan
" means, at any time, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any subsidiary of it or any ERISA Affiliate has any liability or obligation to contribute or has within any of the six preceding plan years had any liability or obligation to contribute;
"
NOEMI
" means the 2004-built, double hull Panamax tanker of 41,526 gross tons and 20,970 net tons registered in the ownership of Noemi Shipping Company Limited under Marshall Islands flag with the name "NOEMI", Official Number 2335 and IMO Number 9286023;
"
Non-Consenting Lender
" has the meaning given in Clause 3.5(c);
"
Note
" means a promissory note of the Borrower, payable to the order of the Agent, evidencing the aggregate indebtedness of the Borrower under this Agreement, in the form set out in Appendix H;
"
Notifying Lender
" has the meaning given in Clause 24.1 or Clause 25.1 as the context requires;
"
OFAC
" has the meaning assigned such term in Clause 10.19;
"
pari passu
", when used with respect to the ranking of any Financial Indebtedness of any person in relation to other Financial Indebtedness of such person, means that each such Financial Indebtedness:
|
(a)
|
either (i) is not subordinated in right of payment to any other Financial Indebtedness of such person or (ii) is subordinate in right of payment to the same Financial Indebtedness of such person as is the other and is so subordinate to the same extent; and
|
|
(b)
|
is not subordinate in right of payment to the other or to any Financial Indebtedness of such person as to which the other is not so subordinate;
|
"
PATRIOT Act
" has the meaning given in Clause 9.1;
"
Payment Currency
" has the meaning given in Clause 22.4;
"
PBGC
" means the Pension Benefits Guarantee Corporation and its successors;
"
Permitted Security Interests
" means:
|
(a)
|
Security Interests created by the Finance Documents;
|
|
(b)
|
pledges of certificates of deposit or other cash collateral securing any Security Party's reimbursement obligations in connection with letters of credit now or hereafter issued for the account of such Security Party in connection with the establishment of the financial responsibility of such Security Party under 33 C.F.R. Part 130 or 46 C.F.R. Part 540, as the case may be, as the same may be amended or replaced;
|
|
(c)
|
Security Interests to secure obligations under workmen's compensation laws or similar legislation, deposits to secure public or statutory obligations, warehousemen's or other like liens, or deposits to obtain the release of such liens and deposits to secure surety, appeal or customs bonds on which the Borrower or a Guarantor is the principal, as to all of the foregoing, only to the extent arising and continuing in the ordinary course of business;
|
|
(d)
|
Security Interests for loss, damage or expense which are fully covered by insurance, subject to applicable deductibles satisfactory to the Mortgagee;
|
|
(e)
|
Security Interests for unpaid master's and crew's wages in accordance with usual maritime practice;
|
|
(f)
|
Security Interests for salvage;
|
|
(g)
|
Security Interests arising by operation of law for not more than two (2) months' prepaid hire under any charter or other contract of employment in relation to the Ship not prohibited by this Agreement or any other Finance Document;
|
|
(h)
|
Security Interests for master's disbursements incurred in the ordinary course of trading and any other Security Interests arising by operation of law or otherwise in the ordinary course of its business,
provided
such Security Interests do not secure amounts more than 30 days overdue (unless the overdue amount is being contested by the Borrower or the Guarantor that owns such Ship in good faith by appropriate steps) and subject, in the case of Security Interests for repair or maintenance, to Clause 14.13(g);
|
|
(i)
|
any Security Interest created in favor of a plaintiff or defendant in any proceedings or arbitration as security for costs and expenses where the relevant Security Party is actively prosecuting or defending such proceedings or arbitration in good faith and such Security Interest does not (and is not likely to) result in any sale, forfeiture or loss of the Ship;
|
|
(j)
|
Security Interests arising by operation of law in respect of taxes which are not overdue for payment or in respect of taxes being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made; and
|
|
(k)
|
other liens, charges and encumbrances incidental to the conduct of the business of each such party, the ownership of any such party's property and assets and which do not in the aggregate materially detract from the value of each such party's property or assets or materially impair the use thereof in the operation of its business.
|
"
Pertinent Document
" means:
|
(a)
|
any Finance Document;
|
|
(b)
|
any policy or contract of insurance contemplated by or referred to in Clause 13 or any other provision of this Agreement or another Finance Document;
|
|
(c)
|
any other document contemplated by or referred to in any Finance Document; and
|
|
(d)
|
any document which has been or is at any time sent by or to a Servicing Bank in contemplation of or in connection with any Finance Document or any policy, contract or document falling within paragraphs (b) or (c);
|
"
Pertinent Jurisdiction
", in relation to a company, means:
|
(a)
|
the jurisdiction under the laws of which the company is incorporated or formed;
|
|
(b)
|
a jurisdiction in which the company has the center of its main interests or in which the company's central management and control is or has recently been exercised;
|
|
(c)
|
a jurisdiction in which the overall net income of the company is subject to corporation tax, income tax or any similar tax;
|
|
(d)
|
a jurisdiction in which assets of the company (other than securities issued by, or loans to, related companies) having a substantial value are situated, in which the company maintains a branch or permanent place of business, or in which a Security Interest created by the company must or should be registered in order to ensure its validity or priority; and
|
|
(e)
|
a jurisdiction the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company whether as a main or territorial or ancillary proceedings or which would have such jurisdiction if their assistance were requested by the courts of a country referred to in paragraphs (a) or (b) above;
|
"
Pertinent Matter
" means:
|
(a)
|
any transaction or matter contemplated by, arising out of, or in connection with a Pertinent Document; or
|
|
(b)
|
any statement relating to a Pertinent Document or to a transaction or matter falling within paragraph (a),
|
and covers any such transaction, matter or statement, whether entered into, arising or made at any time before the signing of this Agreement or on or at any time after that signing;
"
Plan
" means any employee benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect to which the Borrower or any subsidiary of it or ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA;
"
Potential Event of Default
" means an event or circumstance which, with the giving of any notice and/or, the lapse of time, would constitute an Event of Default;
"
Quotation Date
" means, in relation to any period for which an interest rate is to be determined under any provision of a Finance Document, the day which is two (2) Business Days before the first day of that period, unless market practice differs in the London Interbank Market for a currency, in which case the Quotation Date will be determined by the Agent in accordance with market practice in the London Interbank Market (and if quotations would normally be given by leading banks in the London Interbank Market on more than one day, the Quotation Date will be the last of those days);
"
Rating Category
" means:
|
(a)
|
with respect to S&P, any of the following categories (any of which may include a "+" or "-"): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories);
|
|
(b)
|
with respect to Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and
|
|
(c)
|
the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable;
|
"
Reference Banks
" means the reference banks chosen from time to time by the British Bankers' Association;
"
Repayment Date
" means a date on which a repayment is required to be made under Clause 8;
"
Replacement Ship
" has the meaning given in Clause 8.8(b);
"
Reportable Event
" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsections 22, 23, 25, 27, or 28 of PBGC Regulation Section 4043;
"
Requisition Compensation
" includes all compensation or other moneys payable by reason of any act or event such as is referred to in paragraph (b) of the definition of "
Total Loss
";
"
Retention Account
" means an account in the name of the Borrower with the Agent in New York designated "Scorpio Tankers - Retention Account", or any other account (with that or another office of the Agent or with another bank or financial institution acceptable to the Agent) which is designated as the Retention Account for the purposes of this Agreement;
"
Retention
Account Pledge
" means a pledge of the Retention Account, in the form set out in Appendix I;
"
S&P
" means Standard & Poor's Ratings Services, a division of The McGraw Hill Companies Inc., and its successors;
"
SCM
" means Scorpio Commercial Management S.A.M., a Monaco company, as commercial manager of the Ships;
"
Screen Rate
" means, in relation to any period for which an interest rate is to be determined under any provision of a Finance Document, the British Bankers' Association Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Reuters screen. If the agreed page is replaced or service ceases to be available, the Agent may specify another page or service displaying the appropriate rate after consultation with the Borrower and the Majority Lenders;
"
Secured Liabilities
" means all liabilities which the Borrower, the other Security Parties or any of them have, at the date of this Agreement or at any later time or times, under or in connection with any Finance Document or the Master Agreements or any judgment relating to any Finance Documents or the Master Agreements; and for this purpose, there shall be disregarded any total or partial discharge of these liabilities, or variation of their terms, which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any country;
"
Securities Act
" means the United States Securities Act of 1933, as amended, and any successor act thereto, and (unless the context otherwise requires) includes the rules and regulations of the Commission promulgated thereunder;
"
Security Interest
" means:
|
(a)
|
a mortgage, charge (whether fixed or floating) or pledge, any maritime or other lien or any other security interest of any kind;
|
|
(b)
|
the security rights of a plaintiff under an action
in rem
; and
|
|
(c)
|
any arrangement entered into by a person (A) the effect of which is to place another person (B) in a position which is similar, in economic terms, to the position in which B would have been had he held a security interest over an asset of A; but this paragraph (c) does not apply to a right of set off or combination of accounts conferred by the standard terms of business of a bank or financial institution;
|
"
Security Party
" means the Borrower and any other person (except a Creditor Party) who, as a surety, guarantor mortgagor, assignor or pledgor, as a party to any subordination or priorities arrangement, or in any similar capacity, executes a Finance Document;
"
Security Period
" means the period commencing on the date of this Agreement and ending on the date on which:
|
(a)
|
all amounts which have become due for payment by the Borrower or any other Security Party under the Finance Documents and the Master Agreements have been paid;
|
|
(b)
|
no amount is owing or has accrued (without yet having become due for payment) under any Finance Document or any Master Agreement; and
|
|
(c)
|
neither the Borrower nor any other Security Party has any liability under Clause 21, 22 or 23 or any other provision of this Agreement or another Finance Document or a Master Agreement;
|
"
Seller
" means, in respect of an MOA, the seller of Ship named therein;
"
Seller's Bank
" has the meaning given in Clause 9.2(b);
"
SENATORE
" means the 2004-built, double hull Panamax tanker of 41,526 gross tons and 20,970 net tons registered in the ownership of Senatore Shipping Company Limited under Marshall Islands flag with the name "SENATORE", Official Number 2334 and IMO Number 9282998;
"
Servicing Bank
" means, as the context may require, the Agent or the Security Trustee;
"
Shares Pledge
" means a pledge of the Equity Interests of each Guarantor, in the form set out in Appendix J;
"
Ship
" means, as the context may require:
|
(c)
|
any Replacement Ship; and
|
|
(d)
|
any Substitute Collateral Ship;
|
"
SSM
" means Scorpio Ship Management S.A.M., a Monaco company, as technical manager of the Ships;
"
Substitute Collateral Ship
" has the meaning given in clause 8.9(b);
"
Swap Bank Accession Agreement
" means an agreement providing for the accession of a person to this Agreement as a Swap Bank in the form set out in Schedule 11 hereto;
"
Swap Counterparty
" means, at any relevant time and in relation to a continuing Designated Transaction, the Swap Bank which is a party to that Designated Transaction;
"
Swap Exposure
" means, as at any relevant date and in relation to a Swap Counterparty, the amount certified by the Swap Counterparty to the Agent to be the aggregate net amount in Dollars which would be payable by the Borrower to the Swap Counterparty under (and calculated in accordance with) section 6(e) (Payments on Early Termination) of the Master Agreement entered into by the Swap Counterparty with the Borrower if an Early Termination Date had occurred on the relevant date in relation to all continuing Designated Transactions entered into between the Borrower and the Swap Counterparty;
"
Total Loss
" means in relation to a Ship:
|
(a)
|
actual, constructive, compromised, agreed or arranged total loss of that Ship;
|
|
(b)
|
any expropriation, confiscation, requisition or acquisition of that Ship, whether for full consideration, a consideration less than its proper value, a nominal consideration or without any consideration, which is effected by any government or official authority or by any person or persons claiming to be or to represent a government or official authority, unless it is within one (1) month redelivered to the full control of the Guarantor owning that Ship; or
|
|
(c)
|
any arrest, capture, seizure or detention of that Ship (including any hijacking or theft) unless it is within one (1) month redelivered to the full control of the Guarantor owning that Ship;
|
"
Total Loss Date
" means in relation to a Ship:
|
(a)
|
in the case of an actual loss of that Ship, the date on which it occurred or, if that is unknown, the date when that Ship was last heard of;
|
|
(b)
|
in the case of a constructive, compromised, agreed or arranged total loss of that Ship, the earliest of:
|
|
(i)
|
the date on which a notice of abandonment is given to the insurers; and
|
|
(ii)
|
the date of any compromise, arrangement or agreement made by or on behalf of the Guarantor owning that Ship with the Ship's insurers in which the insurers agree to treat the Ship as a total loss; and
|
|
(c)
|
in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the total loss occurred;
|
"
Transaction
" has the meaning given in each Master Agreement;
"
Transfer Certificate
" has the meaning given in Clause 27.2;
"
Transferee Lender
" has the meaning given in Clause 27.2;
"
Transferor Lender
" has the meaning given in Clause 27.2;
"
UCC
" means the Uniform Commercial Code of the State of New York;
"
VENICE
" means the 2001-built, double hull Panamax tanker of 43,822 gross tons and 26,307 net tons registered in the ownership of Venice Shipping Company Limited under Marshall Islands flag with the name "VENICE", Official Number 2060 and IMO Number 9179634; and
"
Voting Stock
" of any person as of any date means the Equity Interests of such person that is at the time entitled to vote in the election of the board of directors or similar governing body of such person.
1.2
|
Construction of certain terms.
In this Agreement:
|
"
approved
" means, for the purposes of Clause 13, approved in writing by the Agent;
"
asset
" includes every kind of property, asset, interest or right, including any present, future or contingent right to any revenues or other payment;
"
company
" includes any corporation, limited liability company, partnership, joint venture, unincorporated association, joint stock company and trust;
"
consent
" includes an authorization, consent, approval, resolution, license, exemption, filing, registration, notarization and legalization;
"
contingent liability
" means a liability which is not certain to arise and/or the amount of which remains unascertained;
"
document
" includes a deed; also a letter, email or fax;
"
excess risks
" means, in relation to a Ship, the proportion of claims for general average, salvage and salvage charges not recoverable under the hull and machinery policies in respect of that Ship in consequence of its insured value being less than the value at which that Ship is assessed for the purpose of such claims;
"
expense
" means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any applicable value added or other tax;
"
law
" includes any order or decree, any form of delegated legislation, any treaty or international convention and any regulation or resolution of the United States of America, any state thereof, the Council of the European Union, the European Commission, the United Nations or its Security Council or any other Pertinent Jurisdiction;
"
legal or administrative action
" means any legal proceeding or arbitration and any administrative or regulatory action or investigation;
"
liability
" includes every kind of debt or liability (present or future, certain or contingent), whether incurred as principal or surety or otherwise;
"
months
" shall be construed in accordance with Clause 1.3;
"
obligatory insurances
" means, in relation to a Ship, all insurances effected, or which the Guarantor owning that Ship is obliged to effect, under Clause 13 or any other provision of this Agreement or another Finance Document;
"
parent company
" has the meaning given in Clause 1.4;
"
person
" includes natural persons; any company; any state, political sub-division of a state and local or municipal authority; and any international organization;
"
policy
", in relation to any insurance, includes a slip, cover note, certificate of entry or other document evidencing the contract of insurance or its terms;
"
protection and indemnity risks
" means the usual risks covered by a protection and indemnity association, including pollution risks and the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable under the hull and machinery policies by reason of the incorporation in them of clause 6 of the International Time Clauses (Hulls)(1/11/02 or 1/11/03) or clause 8 of the Institute Time Clauses (Hulls) (1/10/83) or the Institute Amended Running Down Clause (1/10/71) or any equivalent provision;
"
regulation
" includes any regulation, rule, official directive, request or guideline, whether or not having the force of law, of any governmental body, intergovernmental or supranational, agency, department or regulatory, self-regulatory or other authority or organization;
"
subsidiary
" has the meaning given in Clause 1.4;
"
successor
" includes any person who is entitled (by assignment, novation, merger or otherwise) to any other person's rights under this Agreement or any other Finance Document (or any interest in those rights) or who, as administrator, liquidator or otherwise, is entitled to exercise those rights; and in particular references to a successor include a person to whom those rights (or any interest in those rights) are transferred or pass as a result of a merger, division, reconstruction or other reorganization of it or any other person;
"
tax
" includes any present or future tax, duty, impost, levy or charge of any kind which is imposed by any state, any political sub-division of a state or any local or municipal authority (including any such imposed in connection with exchange controls), and any connected penalty, interest or fine; and
"
war risks
" includes the risk of mines and all risks excluded by clause 29 of the Institute Hull Clauses (1/11/02 or 1/11/03) or clause 24 of the Institute Time clauses (Hulls) (1/11/1995) or clause 23 of the Institute Time Clauses (Hulls) (1/10/83).
1.3
|
Meaning of "month".
A period of one or more "
months
" ends on the day in the relevant calendar month numerically corresponding to the day of the calendar month on which the period started ("
the numerically corresponding day
"), but:
|
(a)
|
on the Business Day following the numerically corresponding day if the numerically corresponding day is not a Business Day or, if there is no later Business Day in the same calendar month, on the Business Day preceding the numerically corresponding day; or
|
(b)
|
on the last Business Day in the relevant calendar month, if the period started on the last Business Day in a calendar month or if the last calendar month of the period has no numerically corresponding day,
|
and "
month
" and "
monthly
" shall be construed accordingly.
1.4
|
Meaning of "subsidiary".
A company (S) is a subsidiary of another company (P) if:
|
(a)
|
a majority of the issued Equity Interests in S (or a majority of the issued Equity Interests in S which carry unlimited rights to capital and income distributions) are directly owned by P or are indirectly attributable to P; or
|
(b)
|
P has direct or indirect control over a majority of the voting rights attaching to the issued Equity Interests of S; or
|
(c)
|
P has the direct or indirect power to appoint or remove a majority of the directors of S; or
|
(d)
|
P otherwise has the direct or indirect power to ensure that the affairs of S are conducted in accordance with the wishes of P;
|
and any company of which S is a subsidiary is a parent company of S.
1.5
|
General interpretation.
In this Agreement:
|
(a)
|
references to, or to a provision of, a Finance Document or any other document are references to it as amended or supplemented, whether before the date of this Agreement or otherwise;
|
(b)
|
references in Clause 1.1 to a document being in the form of a particular Appendix include references to that form with any modifications to that form which the Agent approves or reasonably requires and which are acceptable to the Borrower;
|
(c)
|
references to, or to a provision of, any law include any amendment, extension, re-enactment or replacement, whether made before the date of this Agreement or otherwise;
|
(d)
|
words denoting the singular number shall include the plural and vice versa; and
|
(e)
|
Clauses 1.1 to 1.5 apply unless the contrary intention appears.
|
1.6
|
Headings.
In interpreting a Finance Document or any provision of a Finance Document, all clause, sub-clause and other headings in that and any other Finance Document shall be entirely disregarded.
|
1.7
|
Accounting terms
. Unless otherwise specified herein, all accounting terms used in this Agreement and in the other Finance Documents shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to any Creditor Party under this Agreement shall be prepared, in accordance with IFRS as from time to time in effect.
|
1.8
|
Inferences regarding materiality
. To the extent that any representation, warranty, covenant or other undertaking of the Borrower, a Guarantor or any other Security Party in this Agreement or any other Finance Document is qualified by reference to those matters which are not reasonably expected to result in a "material adverse effect" or language of similar import, no inference shall be drawn therefrom that any Creditor Party has knowledge or approves of any noncompliance by such party with any law or regulation.
|
2.1
|
Amount of facility.
Subject to the other provisions of this Agreement, the Lenders severally agree to make available to the Borrower a loan facility in the principal amount of up to $150,000,000.
|
2.2
|
Upsize option.
Subject to the following conditions, from time to time during the period between the Effective Date and first anniversary of the first Drawdown Date, the Borrower may by notice to the Agent, without the consent of the Lenders (except as provided in Clause 2.2(b) and Clause 2.3(d)), increase the Total Commitments by either:
|
(a)
|
causing one or more banks or financial institutions to become a Lender hereunder (with all the rights and obligations of a Lender attendant thereto), in which case such bank or financial institution shall execute and deliver to the Agent a Lender Accession Agreement to cause such bank or financial institution to accede to the rights and obligations of a Lender hereunder; or
|
(b)
|
agreeing with one or more Lenders, in each such Lender's sole discretion, to increase such Lender's Commitment, in which case such Lender shall execute and deliver to the Agent a Commitment Increase Agreement to cause such Lender's Commitment to be increased.
|
|
Any such increase of the Total Commitments pursuant to Clause 2.2(a) or (b) shall be referred to as an "
Additional Commitment
".
|
2.3
|
Conditions precedent to exercise of upsize option.
The conditions referred to in Clause 2.2 are that:
|
(a)
|
the total of the Additional Commitments shall not exceed $100,000,000 in the aggregate;
|
(b)
|
unless provided by a Lead Arranger (acting as a Lender), no Additional Commitment shall be less than $25,000,000;
|
(c)
|
the Borrower shall have raised Equity Proceeds equal to or exceeding the amount of each Additional Commitment;
|
(d)
|
no Lender's Commitment shall be increased without the consent of such Lender;
|
(e)
|
the Security Parties and such of the Creditor Parties (including any new Lender) as may be necessary in the sole discretion of the Agent shall execute and deliver an amendment, or an amendment and restatement, of this Agreement and such of the other Finance Documents as the Agent shall deem necessary, such amendment or amendment and restatement, if any, to be in form and substance satisfactory to the Majority Lenders; and
|
(f)
|
on the date the Additional Commitment is to become effective the Borrower shall execute and deliver to the Agent an officer's certificate certifying that:
|
|
(i)
|
all of the representations and warranties contained in this Agreement and in the other Finance Documents are true and correct in all material respects as of such date (unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);
|
|
(ii)
|
no Event of Default or Potential Event of Default has occurred or would result from such Additional Commitment; and
|
|
(iii)
|
there has been no material change in the consolidated financial condition, operations or business prospects of the Borrower since the date on which the Borrower most recently provided information concerning those topics to the Agent and/or any Lender and no material change would occur as a result of the Additional Commitment.
|
2.4
|
Reduction and cancellation of Commitments.
|
(a)
|
Upon not less than three (3) days written notice to the Agent, the Borrower may reduce any unutilized Commitment.
|
(b)
|
All unutilized Commitments shall be cancelled and terminated automatically on the expiration date of the Availability Period.
|
2.5
|
Lenders' participations in Advances.
Subject to the other provisions of this Agreement, each Lender shall participate in each Advance in the proportion which, as at the relevant Drawdown Date, its Commitment bears to the Total Commitments,
provided that
no Lender shall be required to participate in any Advance if doing so would require such Lender to exceed its Commitment.
|
2.6
|
Purpose of Advances.
The Borrower undertakes with each Creditor Party to use each Advance only for the purpose of financing the lesser of 50% of the Fair Market Value of each Ship and 50% of the purchase price of each Ship.
|
3
|
POSITION OF THE LENDERS AND SWAP BANKS
|
3.1
|
Interests several.
The rights of the Lenders and of the Swap Banks under this Agreement and under the Master Agreements are several.
|
3.2
|
Individual right of action.
Each Lender and each Swap Bank shall be entitled to sue for any amount which has become due and payable by the Borrower to it under this Agreement or under a Master Agreement without joining the Agent, the Security Trustee, any other Lender or any other Swap Bank as additional parties in the proceedings.
|
3.3
|
Proceedings requiring Majority Lender consent.
Except as provided in Clause 3.2, no Lender and no Swap Bank may commence proceedings against the Borrower or any other Security Party in connection with a Finance Document or a Master Agreement without the prior consent of the Majority Lenders.
|
3.4
|
Obligations several.
The obligations of the Lenders under this Agreement and of the Swap Banks under any Master Agreement to which each is a party are several; and a failure of a Lender to perform its obligations under this Agreement or a failure of a Swap Bank to perform its obligations under the Master Agreement to which it is a party shall not result in:
|
(a)
|
the obligations of the other Lenders or Swap Banks being increased; nor
|
(b)
|
the Borrower, any other Security Party, any other Lender or any other Swap Bank being discharged (in whole or in part) from its obligations under any Finance Document or under any Master Agreement,
|
and in no circumstances shall a Lender or a Swap Bank have any responsibility for a failure of another Lender or another Swap Bank to perform its obligations under this Agreement or a Master Agreement.
3.5
|
Replacement of a Lender.
|
|
(i)
|
any Lender becomes a Non-Consenting Lender (as defined in paragraph (c) below); or
|
|
(ii)
|
the Borrower or any other Security Party becomes obliged in the absence of an Event of Default to repay any amount in accordance with Clause 24 or to pay additional amounts pursuant to Clause 23 or Clause 25 to any Lender in excess of amounts payable to other Lenders generally,
|
then the Borrower may, on 30 Business Days' prior written notice to the Agent and such Lender, replace such Lender by requiring such Lender to (and such Lender shall) transfer pursuant to Clause 27 all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank, financial institution, trust, fund or other entity (a "
Replacement Lender
") selected by the Borrower, which is acceptable to the Agent with the consent of the Majority Lenders (other than the Lender the Borrower desires to replace, which confirms its willingness to assume and by its execution of a Transfer Certificate does assume all the obligations of the transferring Lender (including the assumption of the transferring Lender's participations on the same basis as the transferring Lender) for a purchase price in cash payable at the time of transfer equal to the outstanding principal amount of such Lender's participation in the outstanding Advances and all accrued interest and/or breakages costs and other amounts payable in relation thereto under the Finance Documents.
(b)
|
The replacement of a Lender pursuant to this Clause 3.5 shall be subject to the following conditions:
|
|
(i)
|
the Borrower shall have no right to replace the Agent or the Security Trustee;
|
|
(ii)
|
neither the Agent nor any Lender shall have any obligation to the Borrower to find a Replacement Lender;
|
|
(iii)
|
in the event of a replacement of a Non-Consenting Lender such replacement must take place no later than 30 days after the date the Borrower notifies the Non-Consenting Lender and the Agent of its intent to replace the Non-Consenting Lender pursuant to Clause 3.5(a); and
|
|
(iv)
|
in no event shall the Lender replaced under this paragraph (b) be required to pay or surrender to such Replacement Lender any of the fees received by such Lender pursuant to the Finance Documents.
|
(c)
|
For purposes of this Clause 3.5, in the event that:
|
|
(i)
|
the Borrower or the Agent has requested the Lenders to give a consent in relation to or to agree to a waiver or amendment of any provisions of the Finance Documents;
|
|
(ii)
|
the consent, waiver or amendment in question requires the approval of all Lenders; and
|
|
(iii)
|
Lenders whose Commitments aggregate more than 66.66% percent of the Total Commitments have consented to or agreed to such waiver or amendment,
|
then any Lender who does not and continues not to consent or agree to such wavier or amendment shall be deemed a "
Non-Consenting Lender
".
4.1
|
Request for Advance.
Subject to the following conditions, the Borrower may request an Advance to be made by delivering to the Agent a completed Drawdown Notice not later than 11:00 a.m. (New York time) three (3) Business Days prior to the intended Drawdown Date.
|
4.2
|
Availability.
The conditions referred to in Clause 4.1 are that:
|
(a)
|
the Drawdown Date must be a Business Day during the Availability Period;
|
(b)
|
there shall be no more than one Advance in respect of each Ship;
|
(c)
|
the amount of each Advance shall not exceed the lesser of 50% of the Fair Market Value of the Ship to which such Advance relates and 50% of the purchase price stated in the MOA in respect of the Ship to which such Advance relates, and shall be used only to partially finance the acquisition of the Ships pursuant to the MOAs or reimburse the Borrower or respective Guarantor for costs incurred in connection therewith; and
|
(d)
|
the applicable conditions precedent stated in Clause 9 hereof shall have been satisfied or waived as provided therein.
|
4.3
|
Notification to Lenders of receipt of a Drawdown Notice.
The Agent shall promptly notify the Lenders that it has received a Drawdown Notice and shall inform each Lender of:
|
(a)
|
the amount of the Advance and the Drawdown Date;
|
(b)
|
the amount of that Lender's participation in the Advance; and
|
(c)
|
the duration of the first Interest Period.
|
4.4
|
Drawdown Notice irrevocable.
A Drawdown Notice must be signed by an officer or a duly authorized attorney-in-fact of the Borrower and once served, a Drawdown Notice cannot be revoked without the prior consent of the Agent, acting on the authority of the Majority Lenders.
|
4.5
|
Lenders to make available Contributions.
Subject to the provisions of this Agreement, each Lender shall, before 11:00 a.m. (New York City time) on and with value on the Drawdown Date, make available to the Agent for the account of the Borrower the amount due from that Lender under Clause 2.5.
|
4.6
|
Disbursement of Advance.
Subject to the provisions of this Agreement, the Agent shall on the Drawdown Date pay to the Borrower the amounts which the Agent receives from the Lenders under Clause 4.5 and that payment to the Borrower shall be made:
|
(a)
|
to the account which the Borrower specifies in the Drawdown Notice; and
|
(b)
|
in the like funds as the Agent received the payments from the Lenders.
|
4.7
|
Disbursement of Advance to third party.
The payment by the Agent under Clause 4.6 to the account of a third party designated by the Borrower in a Drawdown Notice shall constitute the making of the Advance and the Borrower shall at that time become indebted, as principal and direct obligor, to each Lender in an amount equal to that Lender's Contribution.
|
5.1
|
Normal rate of interest.
Subject to the provisions of this Agreement, the rate of interest on each Advance in respect of an Interest Period shall be the aggregate of the applicable Margin and LIBOR for that Interest Period.
|
5.2
|
Payment of normal interest.
Subject to the provisions of this Agreement, interest on the Loan in respect of each Interest Period shall be paid by the Borrower on the last day of that Interest Period.
|
5.3
|
Payment of accrued interest.
In the case of an Interest Period longer than three (3) months, accrued interest shall be paid every three (3) months during that Interest Period and on the last day of that Interest Period.
|
5.4
|
Notification of Interest Periods and rates of normal interest.
The Agent shall notify the Borrower and each Lender of:
|
(a)
|
each rate of interest; and
|
(b)
|
the duration of each Interest Period,
|
as soon as reasonably practicable after each is determined.
5.5
|
Intentionally omitted.
|
5.6
|
Absence of quotations by Reference Banks.
If any Reference Bank fails to supply a quotation, the Agent shall determine the relevant LIBOR on the basis of the quotations supplied by the other Reference Bank or Banks but if two (2) or more of the Reference Banks fail to provide a quotation, the relevant rate of interest shall be set in accordance with the following provisions of this Clause 5.
|
5.7
|
Market disruption.
The following provisions of this Clause 5 apply if:
|
(a)
|
no Screen Rate is available for an Interest Period and two (2) or more of the Reference Banks do not, before 1:00 p.m. (London time) on the Quotation Date, provide quotations to the Agent in order to fix LIBOR; or
|
(b)
|
at least one (1) Business Day before the start of an Interest Period, Lenders having Contributions together amounting to more than 50% of the Loan (or, if an Advance has not been made, Commitments amounting to more than 50% of the Total Commitments) notify the Agent that LIBOR fixed by the Agent would not accurately reflect the cost to those Lenders of funding their respective Contributions (or any part of them) during the Interest Period in the London Interbank Market at or about 11:00 a.m. (London time) on the Quotation Date for the Interest Period.
|
5.8
|
Notification of market disruption.
The Agent shall promptly notify the Borrower, each of the Lenders and each of the Swap Counterparties stating the circumstances falling within Clause 5.7 which have caused its notice to be given.
|
5.9
|
Intentionally omitted.
|
5.10
|
Intentionally omitted.
|
5.11
|
Intentionally omitted.
|
5.12
|
Alternative rate of interest during market disruption.
For so long as the circumstances falling within Clause 5.7 are continuing, the Agent shall, on behalf of the Lenders, negotiate with the Borrower in good faith with a view to modifying this Agreement to provide a substitute basis for determining the rate of interest and if no such agreement can be reached by the Borrower and the Agent prior to the expiry of the then current Interest Period, the Agent shall with the agreement of each Lender, for each one month period, set an interest rate representing the actual cost of funding of the Lenders in Dollars of their respective Contribution plus the applicable Margin. The procedure provided for by this Clause 5.12 shall be repeated if the relevant circumstances are continuing at the end of each such one month period.
|
5.13
|
Notice of prepayment.
If the Borrower does not agree with an interest rate set by the Agent under Clause 5.12, the Borrower may give the Agent not less than 15 Business Days' notice of its intention to prepay (without premium or penalty) the Loan at the end of the interest period set by the Agent.
|
5.14
|
Prepayment; termination of Commitments.
A notice under Clause 5.13 shall be irrevocable; the Agent shall promptly notify the Lenders of the Borrower's notice of intended prepayment and:
|
(a)
|
on the date on which the Agent serves that notice, the Total Commitments shall be cancelled; and
|
(b)
|
on the last Business Day of the interest period set by the Agent, the Borrower shall prepay (without premium or penalty) the Loan, together with accrued interest thereon at the applicable rate plus the Margin.
|
5.15
|
Application of prepayment.
The provisions of Clause 8 shall apply in relation to the prepayment.
|
6.1
|
Commencement of Interest Periods.
The first Interest Period applicable to an Advance shall commence on the Drawdown Date and each subsequent Interest Period shall commence on the expiry of the preceding Interest Period.
|
6.2
|
Duration of normal Interest Periods.
Subject to Clauses 6.3 and 6.4, each Interest Period shall be:
|
(a)
|
3 or 6 months as notified by the Borrower to the Agent not later than 11:00 a.m. (New York time) three (3) Business Days before the commencement of the Interest Period;
|
(b)
|
in the case of the first Interest Period applicable to each Advance other than the first Advance, a period ending on the last day of the Interest Period applicable to the prior Advances then outstanding, whereupon all Advances shall be consolidated and treated as a single Advance;
|
(c)
|
3 months, if the Borrower fails to notify the Agent by the time specified in paragraph (a); or
|
(d)
|
such other period as the Agent may, with the authorization of the Majority Lenders, agree with the Borrower.
|
6.3
|
Duration of Interest Periods for repayment installments.
In respect of an amount due to be repaid under Clause 8 on a particular Repayment Date, an Interest Period shall end on that Repayment Date.
|
6.4
|
Non-availability of matching deposits for Interest Period selected.
If, after the Borrower has selected and the Lenders have agreed an Interest Period longer than three (3) months, any Lender notifies the Agent by 11:00 a.m. (New York time) on the third Business Day before the commencement of the Interest Period that it is not satisfied that deposits in Dollars for a period equal to the Interest Period will be available to it in the London Interbank Market when the Interest Period commences, the Interest Period shall be of three (3) months.
|
7.1
|
Payment of default interest on overdue amounts.
The Borrower shall pay interest in accordance with the following provisions of this Clause 7 on any amount payable by the Borrower under any Finance Document which the Agent, the Security Trustee or the other designated payee does not receive on or before the relevant date, that is:
|
(a)
|
the date on which the Finance Documents provide that such amount is due for payment; or
|
(b)
|
if a Finance Document provides that such amount is payable on demand, the date on which the demand is served; or
|
(c)
|
if such amount has become immediately due and payable under Clause 20.4, the date on which it became immediately due and payable.
|
7.2
|
Default rate of interest.
Interest shall accrue on an overdue amount from (and including) the relevant date until the date of actual payment (as well after as before judgment) at the rate per annum determined by the Agent to be 2.00 percent above:
|
(a)
|
in the case of an overdue amount of principal, the higher of the rates set out at Clauses 7.3(a) and (b); or
|
(b)
|
in the case of any other overdue amount, the rate set out at Clause 7.3(b).
|
7.3
|
Calculation of default rate of interest.
The rates referred to in Clause 7.2 are:
|
(a)
|
the rate applicable to the overdue principal amount immediately prior to the relevant date (but only for any unexpired part of any then current Interest Period); and
|
(b)
|
the applicable Margin plus, in respect of successive periods of any duration (including at call) up to three (3) months which the Agent may select from time to time:
|
|
(ii)
|
if the Agent (after consultation with the Reference Banks) determines that Dollar deposits for any such period are not being made available to any Reference Bank by leading banks in the London Interbank Market in the ordinary course of business, a rate from time to time determined by the Agent by reference to the actual cost of funds to the Reference Banks from such other sources as the Agent (after consultation with the Reference Banks) may from time to time determine.
|
7.4
|
Notification of interest periods and default rates.
The Agent shall promptly notify the Lenders and the Borrower of each interest rate determined by the Agent under Clause 7.3 and of each period selected by the Agent for the purposes of paragraph (b) of that Clause; but this shall not be taken to imply that the Borrower is liable to pay such interest only with effect from the date of the Agent's notification.
|
7.5
|
Payment of accrued default interest.
Subject to the other provisions of this Agreement, any interest due under this Clause shall be paid on the last day of the period by reference to which it was determined; and the payment shall be made to the Agent for the account of the Creditor Party to which the overdue amount is due.
|
7.6
|
Intentionally omitted.
|
7.7
|
Application to Master Agreements.
For the avoidance of doubt, this Clause 7 does not apply to any amount payable under a Master Agreement in respect of any continuing Designated Transaction as to which section 2(e) (
Default Interest; Other Amounts
) of that Master Agreement shall apply.
|
8
|
REPAYMENT AND PREPAYMENT
|
8.1
|
Amount of repayment installments.
The Borrower shall repay each Advance in equal quarterly installments in such amounts as the Agent and the Borrower agree and the Agent shall notify the Borrower and the Lenders in writing on or before the Drawdown Date for each Advance. The amount of each such equal quarterly installment (and any necessary balloon payment on the Maturity Date) shall be calculated by the Agent on the basis of a linear repayment profile corresponding to full repayment of such Advance by the time the Ship to which such Advance relates attains 15 years of age and such calculation shall be final, conclusive and binding on the Borrower absent manifest error.
|
8.2
|
Repayment Dates.
The first repayment installment of each Advance shall be paid on the last day of the calendar quarter (March 31, June 30, September 30 and December 31) following the calendar quarter in which such Advance was made and the last repayment installment (together with any balloon payment) shall be paid on the Maturity Date.
|
8.3
|
Maturity Date.
On the Maturity Date, the Borrower shall additionally pay to the Agent for the account of the Creditor Parties all other sums then accrued or owing under any Finance Document.
|
8.4
|
Voluntary prepayment.
Subject to the conditions set forth in Clause 8.5, the Borrower may prepay the whole or any part of any Advance or the Loan without premium or penalty.
|
8.5
|
Conditions for voluntary prepayment.
The conditions referred to in Clause 8.4 are that:
|
(a)
|
a partial prepayment shall be $1,000,000 or a multiple of $1,000,000;
|
(b)
|
the Agent has received from the Borrower at least three (3) Business Days' prior written notice specifying the amount to be prepaid and the date on which the prepayment is to be made;
|
(c)
|
the Borrower has provided evidence satisfactory to the Agent that any consent required by the Borrower or any other Security Party in connection with the prepayment has been obtained and remains in force, and that any regulation relevant to this Agreement which affects the Borrower or any other Security Party has been complied with (which may be satisfied by the Borrower certifying that no consents are required and that no regulations need to be complied with); and
|
(d)
|
the Borrower has complied with Clause 8.13 on or prior to the date of prepayment.
|
8.6
|
Effect of notice of prepayment.
A prepayment notice may not be withdrawn or amended without the consent of the Agent, given with the authorization of the Majority Lenders, and the amount specified in the prepayment notice shall become due and payable by the Borrower on the date for prepayment specified in the prepayment notice.
|
8.7
|
Notification of notice of prepayment.
The Agent shall notify the Lenders promptly upon receiving a prepayment notice, and shall provide any Lender which so requests with a copy of any document delivered by the Borrower under Clause 8.5(c).
|
8.8
|
Mandatory prepayment.
|
(a)
|
Subject to paragraphs (b) and (c) below, if a Ship is sold or becomes a Total Loss, the Borrower shall prepay in full the Advance in respect of such Ship and comply with Clause 8.13:
|
|
(i)
|
in the case of a sale, on or before the date on which the sale is completed by delivery of such Ship to the buyer; or
|
|
(ii)
|
in the case of a Total Loss, on the earlier of the date falling 120 days after the Total Loss Date and the date of receipt by the Security Trustee of the proceeds of insurance relating to such Total Loss.
|
(b)
|
Notwithstanding the requirements of paragraph (a), if a Ship is sold or becomes a Total Loss the Borrower may elect by written notice to the Agent to cause the sale proceeds or insurance proceeds (as the case may be) to be deposited in the Retention Account as Collateral for the Secured Liabilities:
|
|
(i)
|
in the case of a sale, on or before the date on which the sale is completed by delivery of such Ship to the buyer; or
|
|
(ii)
|
in the case of a Total Loss, on the earlier of the date falling 120 days after the Total Loss Date and the date of receipt by the Security Trustee of the proceeds of insurance relating to such Total Loss.
|
Such proceeds shall be retained in the Retention Account until applied as required by either paragraph (c) or (d) below.
(c)
|
If within 90 days after the date on which the sale of the relevant Ship is completed or 180 days after the Total Loss Date (as the case may be) the Borrower (or a nominee of the Borrower) desires to purchase a vessel (a "
Replacement Ship
") that either:
|
|
(i)
|
meets the requirements stated in the definition of Additional Ship; or
|
|
(ii)
|
in the reasonable discretion of the Majority Lenders, is of substantially similar type, age, quality, condition and value as the Ship that was lost or sold,
|
then provided no Event of Default or Potential Event of Default has occurred and is continuing and the Borrower executes and/or delivers (or causes the execution and/or delivery of) the documents required by Part D of Schedule 4, then the Agent, upon the written request of the Borrower, shall release such sale proceeds or insurance proceeds (as the case may be) from the Retention Account to the Borrower or as the Borrower may direct in connection with the acquisition of the Replacement Ship and no mandatory prepayment of the Loan shall be required under Clause 8.8(a).
(d)
|
If, however, the Borrower (or a nominee of the Borrower) does not consummate the purchase of a Replacement Ship within 90 days after the date on which the sale of the relevant Ship is completed or 180 days after the Total Loss Date (as the case may be), then the sale proceeds or insurance proceeds (as the case may be) deposited in the Retention Account shall be applied by the Agent as a prepayment as required under Clause 8.8(a).
|
8.9
|
Release of Collateral and Collateral substitution.
Notwithstanding the requirements of Clause 8.8, a mandatory prepayment shall not be required in each of the following circumstances:
|
(a)
|
Upon the written request of the Borrower to the Agent, an Initial Ship shall be released as Collateral for the Loan provided that:
|
|
(i)
|
there has been no Advance made in respect of such Initial Ship or, if there has been an Advance in respect of such Initial Ship, such Advance has been repaid; and
|
|
(ii)
|
no Event of Default or Potential Event of Default has occurred and is continuing and the Security Parties are in compliance with all of their respective covenants under the Finance Documents.
|
(b)
|
Upon the written request of the Borrower to the Agent, a Ship (other than an Initial Ship) shall be released as Collateral for the Loan provided that:
|
|
(i)
|
no Event of Default or Potential Event of Default has occurred and is continuing and the Security Parties are in compliance with all of their respective covenants under the Finance Documents; and
|
|
(ii)
|
on or before the date such Ship is released, either:
|
|
(A)
|
an Initial Ship meeting the requirements stated in the definition of Additional Ship on such date and which has previously been released as Collateral pursuant to Clause 8.9(a); or
|
|
(B)
|
in the reasonable discretion of the Majority Lenders, a vessel that is of substantially similar type, age, quality, condition and value as the Ship that is to be released,
|
is provided as substitute Collateral (a "
Substitute Collateral Ship
") for the Ship that is to be released and the Borrower executes and/or delivers (or causes the execution and/or delivery of) the documents required by Part E of Schedule 4.
8.10
|
Amounts payable on prepayment.
A prepayment shall be made together with accrued interest (and any other amount payable under Clause 22 or otherwise) in respect of the amount prepaid and, if the prepayment is not made on the last day of an Interest Period together with any sums payable under Clause 22.1(b), but without premium or penalty.
|
8.11
|
Application of partial prepayment.
Each partial prepayment shall be applied against the repayment installments specified in Clause 8.1 in inverse order of maturity.
|
8.12
|
No reborrowing.
No amount prepaid may be reborrowed.
|
8.13
|
Unwinding of Designated Transactions.
On or prior to any repayment or prepayment of the Loan under this Clause 8 or any other provision of this Agreement, the Borrower shall 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 amortization) exceed the amount of the Loan as reducing from time to time thereafter pursuant to Clause 8.1.
|
9.1
|
Documents, fees and no default.
Each Lender's obligation to contribute to an Advance is subject to the following conditions precedent:
|
(a)
|
[intentionally omitted];
|
(b)
|
that, on or before the service of the first Drawdown Notice, the Agent receives:
|
|
(i)
|
the documents described in Part A of Schedule 4 in form and substance satisfactory to the Agent;
|
|
(ii)
|
such documentation and other evidence as is reasonably requested by the Agent or a Lender in order for each to carry out and be satisfied with the results of all necessary "know your customer" or other checks which it is required to carry out in relation to the transactions contemplated by this Agreement and the other Finance Documents, including without limitation obtaining, verifying and recording certain information and documentation that will allow the Agent and each of the Lenders to identify each Security Party in accordance with the requirements of the USA PATRIOT Act (Title III of Pub.: 107-56 (signed into law October 26, 2001)) (the "
PATRIOT Act
"); and
|
|
(iii)
|
such documentation and other evidence as is reasonably requested by the Agent to establish that the Borrower has successfully consummated an initial public offering of its capital stock, with a listing on the New York Stock Exchange or NASDAQ, pursuant to which the Borrower has raised Equity Proceeds of not less than $150,000,000.
|
(c)
|
that, on each Drawdown Date but prior to the making of an Advance in respect of an Initial Ship, the Agent receives or is satisfied that it will receive on the making of such Advance the documents described in Part B of Schedule 4 in form and substance satisfactory to it;
|
(d)
|
that, on each Drawdown Date but prior to the making of an Advance in respect of an Additional Ship, the Agent receives or is satisfied that it will receive on the making of such Advance the documents described in Part C of Schedule 4 in form and substance satisfactory to it;
|
(e)
|
that, on or before the service of the first Drawdown Notice, the Agent receives the arrangement fee referred to in Clause 21.1, any accrued commitment fee payable pursuant to Clause 21.1 and the first installment of the annual agency fee referred to in Clause 21.1 and has received payment of the expenses referred to in Clause 21.2; and
|
(f)
|
that both at the date of each Drawdown Notice and at each Drawdown Date:
|
|
(i)
|
no Event of Default or Potential Event of Default has occurred or would result from the borrowing of the Advance;
|
|
(ii)
|
the representations and warranties in Clause 10 and those of the Borrower or any other Security Party which are set out in the other Finance Documents (other than those relating to a specific date) would be true and not misleading if repeated on each of those dates with reference to the circumstances then existing,
provided that
the requirements of this Clause 9.1(f)(ii) shall apply in respect of the representations and warranties in Clause 10.22 only as of the acquisition date of the relevant Ship; and
|
|
(iii)
|
none of the circumstances contemplated by Clause 5.7 has occurred and is continuing, unless the Agent is satisfied that an alternative rate of interest can be set pursuant to Clause 5.12;
|
|
(iv)
|
there has been no material change in the consolidated financial condition, operations or business prospects of the Borrower since the date on which the Borrower provided information concerning those topics to the Agent and/or any Lender;
|
(g)
|
that, if the Collateral Maintenance Ratio were applied immediately following the making of such Advance, the Borrower would not be obliged to provide additional Collateral or prepay part of the Loan under that Clause; and
|
(h)
|
that the Agent has received, and found to be acceptable to it, any further opinions, consents, agreements and documents in connection with the Finance Documents which the Agent may, with the authorization of the Majority Lenders, request by notice to the Borrower prior to the Drawdown Date.
|
9.2
|
Waiver of conditions precedent.
Notwithstanding anything in Clause 9.1 to the contrary:
|
(a)
|
except with respect to the circumstances described in Clause 9.2(b), if the Agent, with the consent of the Majority Lenders, permits the Advance to be borrowed before certain of the conditions referred to in Clause 9.1 are satisfied, the Borrower shall ensure that such conditions are satisfied within ten (10) Business Days after such Drawdown Date (or such longer period as the Agent may specify); and
|
(b)
|
only if required under the terms of MOA or another contract for the acquisition of an Additional Ship, an Advance may be borrowed before the applicable conditions set forth in Clause 9.1 are satisfied and:
|
|
(i)
|
each Lender agrees to fund its Contribution on a day not more than five (5) Business Days prior to the date of the scheduled acquisition and delivery of such Ship (such date, the "
Delivery Date
"); and
|
|
(ii)
|
the Agent shall on the date on which such Advance is funded (or as soon thereafter as practicable) (A) preposition an amount equal to the aggregate principal amount of such Advance at a bank or other financial institution (the "
Seller's Bank
") satisfactory to the Agent, which funds shall be held at the Seller's Bank in the name and under the sole control of the Agent or one of its Affiliates and (B) issue a SWIFT MT 199 or other similar communication (each such communication, a "
Disbursement Authorization
") authorizing the release of such funds by the Seller's Bank on the relevant Delivery Date upon receipt of a Protocol of Delivery and Acceptance in respect of such Ship duly executed by the Seller and Borrower and countersigned by a representative of the Agent;
|
provided that
if delivery of such Ship does not occur within five (5) Business Days after the scheduled Delivery Date, the funds held at the Seller's Bank shall be returned to the Agent for further distribution to the Lenders.
For the avoidance of doubt, the parties hereto acknowledge and agree that:
|
(1)
|
the date on which the Lenders fund the Advance constitutes the Drawdown Date in respect of such Advance and all interest and fees thereon shall accrue from such date;
|
|
(2)
|
the Agent and the Lenders suspend fulfillment of the conditions precedent set forth in Schedule 4, Part C, Paragraphs 1, 10, 11 and 13 solely for the time period on and between such Drawdown Date and the relevant Delivery Date, and the Borrower acknowledges and agrees that fulfillment of such conditions precedent to the satisfaction of the Agent shall be required as a condition precedent to the countersignature by a representative of the Agent of the Protocol of Delivery and Acceptance referred to in Clause 9.2(b)(ii);
|
|
(3)
|
from the date the proceeds of the Advance are deposited at the Seller's Bank to the Delivery Date (or, if delivery of such Ship does not occur within the time prescribed in the Disbursement Authorization, the date on which the funds are returned to the Agent for further distribution to the Lenders), the Borrower shall be entitled to interest on the Advance at the applicable rate, if any, paid by the Seller's Bank for such deposited funds;
|
|
(4)
|
if such Ship is not delivered within the time prescribed in the Disbursement Authorization and the proceeds of the Advance are returned to the Agent and distributed to the Lenders, (i) the Borrower shall pay all accrued interest and fees in respect of such returned proceeds on the date such proceeds are returned to the Agent and (ii) the relevant available Commitment will be increased by an amount equal to the aggregate principal amount of the Loan proceeds so returned; and
|
|
(5)
|
if the Borrower has instructed the Agent to convert the aggregate principal amount of the Advance borrowed into a currency other than Dollars for deposit with the Seller's Bank and such Ship is not delivered within the time prescribed in the Disbursement Authorization and the proceeds of the Advance are returned to the Agent for further distribution to the Lenders, the Agent shall convert the aggregate principal amount of funds so returned back into Dollars and if such funds are less than the Dollar amount of the aggregate principal amount of the Advance incurred on the relevant Drawdown Date, the Borrower shall immediately repay the difference and, in any event, the Borrower shall pay any and all fees, charges and expenses arising from such conversion.
|
10
|
REPRESENTATIONS AND WARRANTIES
|
10.1
|
General.
Each of the Borrower and the Guarantors represents and warrants to each Creditor Party as of the Effective Date and each Drawdown Date as follows.
|
10.2
|
Status.
Each Security Party is:
|
(a)
|
duly incorporated or formed and validly existing and in good standing under the law of its jurisdiction of incorporation or formation; and
|
(b)
|
duly qualified and in good standing as a foreign company in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where, in each case, the failure to so qualify or be licensed and be in good standing could not reasonably be expected to have a material adverse effect on its business, assets or financial condition or which may affect the legality, validity, binding effect or enforceability of the Finance Documents,
|
|
and there are no proceedings or actions pending or contemplated by any Security Party, or to the knowledge of the Borrower or the Guarantors contemplated by any third party, to dissolve, wind-up or terminate the Borrower or any other Security Party.
|
10.3
|
Company power; consents.
Each Security Party has the capacity and has taken all action, and no consent of any person is required, for:
|
(a)
|
it to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted;
|
(b)
|
it to execute each Finance Document and each Master Agreement to which it is or is to become a party;
|
(c)
|
it to execute the MOA to which it is or is to become a party, to purchase and pay for the relevant Ship under such MOA and register the relevant Ship in its name;
|
(d)
|
it to comply with its obligations under each Finance Document to which it is or is to become a party and the Master Agreements;
|
(e)
|
it to grant the Security Interests granted by it pursuant to the Finance Documents to which it is a party and the Master Agreements;
|
(f)
|
the perfection or maintenance of the Security Interests created by the Finance Documents (including the first priority nature thereof); and
|
(g)
|
the exercise by any Creditor Party of their rights under any of the Finance Documents or the Master Agreements or the remedies in respect of the Collateral pursuant to the Finance Documents or the Master Agreements to which it is a party,
|
except, in each case, for consents which have been duly obtained, taken, given or made and are in full force and effect.
10.4
|
Consents in force.
All the consents referred to in Clause 10.3 remain in force and nothing has occurred which makes any of them liable to revocation.
|
10.5
|
Legal validity; effective Security Interests.
Subject to any relevant insolvency laws affecting creditors' rights generally:
|
(a)
|
the Finance Documents and the Master Agreements to which each Security Party is a party, constitute or, as the case may be, will constitute upon execution and delivery (and, where applicable, registration as provided for in the Finance Documents), such Security Party's legal, valid and binding obligations enforceable against it in accordance with their respective terms; and
|
(b)
|
the Finance Documents to which each Security Party is a party, creates or, as the case may be, will create upon execution and delivery (and, where applicable, registration as provided for in the Finance Documents), legal, valid and binding Security Interests enforceable in accordance with their respective terms over all the assets to which they, by their terms, relate.
|
10.6
|
No third party Security Interests.
Without limiting the generality of Clause 10.5, at the time of the execution and delivery of each Finance Document:
|
(a)
|
the relevant Security Party will have the right to create all the Security Interests which that Finance Document purports to create; and
|
(b)
|
no third party will have any Security Interest (except for Permitted Security Interests) or any other interest, right or claim over, in or in relation to any asset to which any such Security Interest, by its terms, relates.
|
10.7
|
No conflicts.
The execution of each Finance Document and each Master Agreement, and the borrowing of each Advance, and compliance with each Finance Document and each Master Agreement will not involve or lead to a contravention of:
|
(a)
|
any law or regulation; or
|
(b)
|
the constitutional documents of any Security Party; or
|
(c)
|
any contractual or other obligation or restriction which is binding on any Security Party or any of its assets.
|
(a)
|
All payments which a Security Party is liable to make under the Finance Documents to which it is a party are permitted under applicable law to be made without deduction or withholding for or on account of any tax payable under any law of any Pertinent Jurisdiction.
|
(b)
|
The Borrower and each other Security Party has filed or has caused to be filed all tax returns and other reports that it is required by applicable law or regulation to file in any Pertinent Jurisdiction, and has paid or caused to be paid all taxes, assessments and other similar charges that are due and payable in any Pertinent Jurisdiction, other than taxes and charges:
|
|
(i)
|
which are (A) not yet delinquent or (B) being contested in good faith by appropriate proceedings and for which adequate reserves have been established and in a manner that does not involve any risk of sale, forfeiture, loss, confiscation or seizure of a Ship; or
|
|
(ii)
|
the non-payment of which could not reasonably be expected to have a material adverse effect on such company.
|
The charges, accruals, and reserves on the books of the Borrower and each other Security Party respecting taxes are adequate in accordance with IFRS.
(c)
|
No material claim for any tax has been asserted in writing against the Borrower and each other Security Party by any Pertinent Jurisdiction or other taxing authority other than claims that are included in the liabilities for taxes in the most recent balance sheet of such company or disclosed in the notes thereto, if any.
|
(d)
|
The execution, delivery, filing and registration or recording (if applicable) of the Finance Documents and the consummation of the transactions contemplated thereby will not cause any of the Creditor Parties to be required to make any registration with, give any notice to, obtain any license, permit or other authorization from, or file any declaration, return, report or other document with any governmental authority in any Pertinent Jurisdiction.
|
(e)
|
No taxes are required by any governmental authority in any Pertinent Jurisdiction to be paid with respect to or in connection with the execution, delivery, filing, recording, performance or enforcement of any Finance Document.
|
(f)
|
The execution, delivery, filing, registration, recording, performance and enforcement of the Finance Documents by any of the Creditor Parties will not cause such Creditor Party to be deemed to be resident, domiciled or carrying on business in any Pertinent Jurisdiction or subject to taxation under any law or regulation of any governmental authority in any Pertinent Jurisdiction.
|
(g)
|
Other than the recording of the Mortgages in accordance with the laws of an Approved Flag and such filings as may be required in a Pertinent Jurisdiction in respect of certain of the Finance Documents, and the payment of fees consequent thereto, it is not necessary for the legality, validity, enforceability or admissibility into evidence of this Agreement or any other Finance Document that any of them or any document relating thereto be registered, filed recorded or enrolled with any court or authority in any relevant jurisdiction or that any stamp, registration or similar taxes be paid on or in relation to this Agreement or any of the other Finance Documents.
|
10.9
|
No default.
No Event of Default or Potential Event of Default has occurred or would result from the borrowing of the Advance.
|
10.10
|
Information.
All financial statements, information and other data furnished by or on behalf of a Security Party to any of the Creditor Parties:
|
(a)
|
was true and accurate at the time it was given;
|
(b)
|
such financial statements, if any, have been prepared in accordance with IFRS and accurately and fairly represent the financial condition of such Security Party as of the date or respective dates thereof and the results of operations of such Security Party for the period or respective periods covered by such financial statements;
|
(c)
|
there are no other facts or matters the omission of which would have made or make any such information false or misleading;
|
(d)
|
there has been no material adverse change in the financial condition, operations or business prospects of any Security Party since the date on which such information was provided other than as previously disclosed to the Agent in writing; and
|
(e)
|
none of the Security Parties has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data.
|
10.11
|
No litigation.
No legal or administrative action involving a Security Party (including any action relating to any alleged or actual breach of the ISM Code, the ISPS Code or any Environmental Law) has been commenced or taken by any person, or, to the Borrower's knowledge, is likely to be commenced or taken which, in either case, would be likely to have a material adverse effect on the business, assets or financial condition of a Security Party or which may affect the legality, validity, binding effect or enforceability of the Finance Documents.
|
10.12
|
ISM Code and ISPS Code compliance.
The relevant Guarantor has obtained or will obtain or will cause to be obtained all necessary ISM Code Documentation and ISPS Code Documentation in connection with the Ship owned by it and its operation and will be or will cause such Ship and the relevant Approved Manager to be in full compliance with the ISM Code and the ISPS Code.
|
10.13
|
Validity and completeness of MOA.
To the extent entered into on a relevant Drawdown Date and prior to the delivery of the Additional Ship to which it relates, each MOA constitutes valid, binding and enforceable obligations of the Seller and the relevant Guarantor that is a party thereto in accordance with its terms and:
|
(a)
|
the copy of such MOA delivered to the Agent is a true and complete copy; and
|
(b)
|
no amendments or additions to such MOA have been agreed (without any amendments or additions being disclosed to the Agent) nor has the relevant Guarantor or Seller waived any of their respective rights under such MOA.
|
10.14
|
No rebates etc.
There is no agreement or understanding to allow or pay any rebate, premium, commission, discount or other benefit or payment (howsoever described) to the Borrower, any Guarantor, any subsidiary or Affiliate of the Borrower, or any third party in connection with a MOA, other than as provided in such MOA and disclosed to the Agent in writing.
|
10.15
|
Margin Stock.
The Borrower and the Guarantors are not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock and no proceeds of the Advance will be used to buy or carry any Margin Stock or to extend credit to others for the purpose of buying or carrying any Margin Stock.
|
10.16
|
Compliance with law; Environmentally Sensitive Material.
Except to the extent the following could not reasonably be expected to have a material adverse effect on the business, assets or financial condition of the Borrower, or which may affect the legality, validity, binding effect or enforceability of the Finance Documents:
|
(a)
|
the operations and properties of each of the Security Parties comply with all applicable laws and regulations, including without limitation Environmental Laws, all necessary Environmental Permits have been obtained and are in effect for the operations and properties of each of the Security Parties and each of the Security Parties is in compliance in all material respects with all such Environmental Permits; and
|
(b)
|
none of the Security Parties has been notified in writing by any person that it or any of its subsidiaries or Affiliates is potentially liable for the remedial or other costs with respect to treatment, storage, disposal, release, arrangement for disposal or transportation of any Environmentally Sensitive Material, except for costs incurred in the ordinary course of business with respect to treatment, storage, disposal or transportation of such Environmentally Sensitive Material.
|
10.17
|
Ownership structure.
|
(a)
|
All of the Equity Interests of the Borrower have been validly issued, are fully paid, non-assessable.
|
(b)
|
All of the Equity Interests of each Guarantor have been validly issued, are fully paid, non-assessable and free and clear of all Security Interests other than Permitted Security Interests and are owned beneficially and of record by the Borrower.
|
(c)
|
None of the Equity Interests of the Borrower or any Guarantor are subject to any existing option, warrant, call, right, commitment or other agreement of any character to which the Borrower or any of the Guarantors is a party requiring, and there are no Equity Interests of the Borrower or any of the Guarantors outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional Equity Interests of the Borrower or any of the Guarantors or other Equity Interests convertible into, exchangeable for or evidencing the right to subscribe for or purchase Equity Interests of the Borrower or any of the Guarantors.
|
10.18
|
Investment company, Holding company, etc.
The Borrower is not:
|
(a)
|
an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended;
|
(b)
|
a "holding company" or a "subsidiary company" of a "holding company" or an affiliate of a "holding company" or of a "subsidiary company" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or
|
(c)
|
a "public utility" within the meaning of the Federal Power Act of 1920, as amended.
|
10.19
|
Asset Control.
The Borrower is not a "national" of any "designated foreign country", within the meaning of the Foreign Assets Control Regulations or the Cuban Asset Control Regulations of the U.S. Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, or a "specially designated national" listed by the Office of Foreign Assets Control ("
OFAC
"), the U.S. Department of the Treasury, or any regulations or rulings issued thereunder. Neither the making of any Advance nor the use of the proceeds thereof nor the performance by the Borrower or any Guarantor of its obligations under any of the Finance Documents to which it is a party violates any statute, regulation or Executive Order restricting loans to, investments in, or the export of assets to, foreign countries or entities doing business there.
|
(a)
|
None of the Security Parties is a party to any Plan or Multiemployer Plan.
|
(b)
|
The execution and delivery of this Agreement and the consummation of the transactions hereunder will not involve any "prohibited transaction" for purposes of Section 406 of ERISA or Section 4975 of the Code.
|
(c)
|
No ERISA Termination Event has occurred.
|
(d)
|
No ERISA Funding Event exists or has occurred.
|
10.21
|
No money laundering.
Without prejudice to the generality of Clause 2.3, in relation to the borrowing by the Borrower of an Advance, the performance and discharge of its obligations and liabilities under the Finance Documents, and the transactions and other arrangements affected or contemplated by the Finance Documents to which the Borrower is a party, the Borrower confirms that:
|
(a)
|
it is acting for its own account;
|
(b)
|
it will use the proceeds of each Advance for its own benefit, under its full responsibility and exclusively for the purposes specified in this Agreement; and
|
(c)
|
the foregoing will not involve or lead to a contravention of any law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of Directive 2005/60/EC of the European Parliament and of the Council) and comparable United States federal and state laws, including without limitation the PATRIOT Act and United States Bank Secrecy Act of 1970, as amended (the "
Bank Secrecy Act
").
|
10.22
|
Ships.
As of the acquisition date in respect of each Ship, such Ship will be:
|
(a)
|
in the sole and absolute ownership of a Guarantor and duly registered in such Guarantor's name, unencumbered save and except for the Mortgage thereon in favor of the Security Trustee recorded against it and as permitted thereby;
|
(b)
|
seaworthy for hull and machinery insurance warranty purposes and in every way fit for its intended service; and
|
(c)
|
insured in accordance with the provisions of this Agreement and the requirements hereof in respect of such Insurances will have been complied with.
|
10.23
|
Place of Business.
For purposes of the UCC, each Security Party has only one place of business located at, or, if it has more than one place of business, the chief executive office from which it manages the main part of its business operations and conducts its affairs is located at:
|
9, Boulevard Charles III
Monaco 98000
|
None of the Security Parties has a place of business in the United States of America, the District of Columbia, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States of America, other than its representative office at:
|
10.24
|
Solvency.
In the case of the Borrower and each of the Guarantors:
|
(a)
|
the sum of its assets, at a fair valuation, does and will exceed its liabilities (including guarantees), including, to the extent they are reportable as such in accordance with IFRS, contingent liabilities;
|
(b)
|
the present fair market saleable value of its assets is not and shall not be less than the amount that will be required to pay its probable liability on its then existing debts, including, to the extent they are reportable as such in accordance with IFRS, contingent liabilities, as they mature;
|
(c)
|
it does not and will not have unreasonably small working capital with which to continue its business; and
|
(d)
|
it has not incurred, does not intend to incur and does not believe it will incur, debts beyond its ability to pay such debts as they mature.
|
10.25
|
Borrower's business; Guarantors' business.
From the date of its incorporation until the date hereof, neither the Borrower nor any of the Guarantors has conducted any business other than in connection with, or for the purpose of, owning, chartering and operating the Ships.
|
11
|
GENERAL AFFIRMATIVE AND NEGATIVE COVENANTS
|
11.1
|
Affirmative covenants.
From the Effective Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full the Borrower and each of the Guarantors, as the case may be, undertakes with each Creditor Party to comply or cause compliance with the following provisions of this Clause 11.1 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing:
|
(a)
|
Performance of obligations.
Each Security Party shall duly observe and perform its obligations under each Charter and each Finance Document to which it is or is to become a party.
|
(b)
|
Notification of defaults (etc).
The Borrower shall promptly notify the Agent, upon becoming aware of the same, of:
|
|
(i)
|
the occurrence of an Event of Default or of any Potential Event of Default or any other event (including any litigation) which is likely to materially adversely affect any Security Party's ability to perform its obligations under each Charter and each Finance Document to which it is or is to become a party;
|
|
(ii)
|
any default by any party to a Charter; and
|
|
(iii)
|
any damage or injury caused by or to a Ship in excess of $5,000,000.
|
(c)
|
Confirmation of no default.
The Borrower will, within two (2) Business Days after service by the Agent of a written request, serve on the Agent a notice which is signed by an officer of the Borrower and which states that:
|
|
(i)
|
no Event of Default or Potential Event of Default has occurred; or
|
|
(ii)
|
no Event of Default or Potential Event of Default has occurred, except for a specified event or matter, of which all material details are given.
|
The Agent may serve requests under this Clause 11.1(c) from time to time but only if asked to do so by a Lender or Lenders having Contributions exceeding 33% of the Loan or (if no Advances have been made) Commitments exceeding 33% of the Total Commitments, and this Clause 11.1(c) does not affect the Borrower's obligations under Clause 11.1(b).
(d)
|
Notification of litigation.
The Borrower will provide the Agent with details of any legal or administrative action involving the Borrower, any other Security Party, any Approved Manager or any Ship, its Earnings or Insurances as soon as such action is instituted, unless it is likely that the legal or administrative action cannot be considered material in the context of any Finance Document.
|
(e)
|
Provision of further information.
The Borrower will, as soon as practicable after receiving the request, provide the Agent with any additional financial or other information relating to:
|
|
(i)
|
the Borrower and, its subsidiaries; or
|
|
(ii)
|
any other matter relevant to, or to any provision of, a Finance Document,
|
which may be requested by the Agent.
(f)
|
Books of record and account.
Each Security Party shall keep proper books of record and account, in which full and materially correct entries shall be made of all financial transactions and the assets and business of such Security Party in accordance with IFRS, and the Agent shall have the right to examine such books and records wherever the same may be kept from time to time as it sees fit, in its sole reasonable discretion, or to cause an examination to be made by a firm of accountants selected by it,
provided that
any examination shall be done without undue interference with the day to day business of such Security Party.
|
(g)
|
Financial reports.
Whether or not the Borrower is then subject to Sections 13(a) or 15(d) of the Exchange Act, the Borrower will furnish to the Agent:
|
|
(i)
|
within 75 days after the end of each of the first three fiscal quarters in each Fiscal Year, quarterly reports on Form 6-K (or any successor form) containing unaudited financial statements (including a balance sheet and statement of income, changes in stockholders' equity and cash flow) for and as of the end of such fiscal quarter (with comparable financial statements for the corresponding fiscal quarter of the immediately preceding Fiscal Year);
|
|
(ii)
|
within 120 days after the end of each Fiscal Year, an annual report on Form 20-F (or any successor form) containing the information required to be contained therein for such Fiscal Year;
|
|
(iii)
|
at or prior to such times as would be required to be filed or furnished to the SEC if the Borrower were then a "foreign private issuer" subject to Sections 13(a) or 15(d) of the Exchange Act, all such other reports and information that the Borrower would have been required pursuant thereto;
|
|
(iv)
|
together with the financial statements that the Borrower delivers in (i) and (ii) above, a Compliance Certificate;
|
|
(v)
|
no later than January 31 of each Fiscal Year of the Borrower, a copy of its one (1) year forecast and projection, certified to be true and complete by the chief financial officer of the Borrower; and
|
|
(vi)
|
such other financial statements, annual budgets and projections as may be reasonably requested by the Agent,
|
provided
that
to the extent that the Borrower ceases to qualify as a "foreign private issuer" within the meaning of the Exchange Act, whether or not the Borrower is then subject to Sections 13(a) or 15(d) of the Exchange Act, the Borrower will furnish to the Agent all reports and other information that it would be required to file with (or furnish to) the Commission pursuant Sections 13(a) or 15(d) of the Exchange Act if it were required to file such documents under the Exchange Act as follows:
|
(A)
|
if the Borrower is then subject to Sections 13(a) or 15(d) of the Exchange Act, within 30 days of the respective dates on which the Borrower is required to file such documents pursuant to the Exchange Act; or
|
|
(B)
|
if the Borrower is not then subject to Sections 13(a) or 15(d) under the Exchange Act, the applicable time periods described above with respect to quarterly, annual and other reports and information.
|
Notwithstanding the foregoing, the Borrower will be deemed to have furnished to the Agent such reports and information referred to above if the Borrower has filed such reports and information with the Commission via the EDGAR system (or any successor system) and such reports and information are publicly available.
|
(i)
|
within 75 days after the end of each of the first three quarters of each Fiscal Year, financial statements in respect of each such fiscal quarter, all in reasonable detail and prepared in accordance with IFRS, certified as having been reviewed by its chief financial officer;
|
|
(ii)
|
as soon as practicable, but not later than 120 days after the end of each Fiscal Year to which they relate, financial statements in respect of such Fiscal Year, all in reasonable detail and prepared in accordance with IFRS, certified as having been audited by an Acceptable Accounting Firm;
|
|
(iii)
|
together with the financial statements that the Borrower delivers in (i) and (ii) above, a Compliance Certificate; and
|
|
(iv)
|
such other financial statements, annual budgets and projections as may be reasonably requested by the Agent.
|
(h)
|
Appraisals of Fair Market Value.
The Borrower shall procure and deliver to the Agent two written appraisal reports setting forth the Fair Market Value of each Ship as follows:
|
|
(i)
|
at the Borrower's expense, for inclusion with each Compliance Certificate required to be delivered together with the second quarterly and the annual financial statements that the Borrower delivers under Clause 11.1(g)(i) and (ii); and
|
|
(ii)
|
at the Lenders' expense, at all other times upon the request of the Agent or the Majority Lenders, unless an Event of Default has occurred and is continuing, in which case the Borrower shall procure it at its expense as often as requested.
|
(i)
|
Taxes.
Each Security Party shall prepare and timely file all tax returns required to be filed by it and pay and discharge all taxes imposed upon it or in respect of any of its property and assets before the same shall become in default, as well as all lawful claims (including, without limitation, claims for labor, materials and supplies) which, if unpaid, might become a Security Interest upon the Collateral or any part thereof, except in each case, for any such taxes (i) as are being contested in good faith by appropriate proceedings or (ii) the failure of which to pay or discharge would not be likely to have a material adverse effect on the business, assets or financial condition of the Borrower or any other Security Party or to affect the legality, validity, binding effect or enforceability of the Finance Documents.
|
(j)
|
Consents.
Each Security Party shall obtain or cause to be obtained, maintain in full force and effect and comply with the conditions and restrictions (if any) imposed in connection with, every consent and do all other acts and things which may from time to time be necessary or required for the continued due performance of all of its obligations under any Charter and each Finance Document to which it is or is to become a party, and shall deliver a copy of all such consents to the Agent promptly upon its request.
|
(k)
|
Compliance with applicable law.
Each Security Party shall comply in all material respects with all applicable federal, state, local and foreign laws, ordinances, rules, orders and regulations now in force or hereafter enacted, including, without limitation, all Environmental Laws and regulations relating to thereto, the failure to comply with which would be likely to have a material adverse effect on the financial condition of the Borrower or affect the legality, validity, binding effect or enforceability of any Charter and each Finance Document to which it is or is to become a party.
|
(l)
|
Existence.
Each Security Party shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence in good standing under the laws of the jurisdiction of incorporation or formation.
|
(m)
|
Borrower's business.
The Borrower shall conduct business only in connection with, or for the purpose of, owning, managing, chartering and operating the Ships.
|
(n)
|
Properties.
Except to the extent the failure to do so could not reasonably be expected to have a material adverse effect on the business, assets or financial condition of the Security Parties or which may affect the legality, validity, binding effect or enforceability of the Finance Documents, each Security Party shall maintain and preserve all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted.
|
(o)
|
Loan proceeds.
The Borrower shall use the proceeds of each Advance solely to partially finance the acquisition of a Ship or to refinance a previously acquired Ship.
|
(p)
|
Change of place of business.
The Borrower shall notify promptly the Agent of any change in the location of the place of business where it or any other Security Party conducts its affairs and keeps its records.
|
(q)
|
Pollution liability.
Each Security Party shall take, or cause to be taken, such actions as may be reasonably required to mitigate potential liability to it arising out of pollution incidents or as may be reasonably required to protect the interests of the Creditor Parties with respect thereto.
|
(r)
|
Subordination of loans.
Each Security Party shall cause all loans made to it by any Affiliate or subsidiary and all sums and other obligations (financial or otherwise) owed by it to any Affiliate or subsidiary to be fully subordinated to all Secured Liabilities.
|
(s)
|
OFAC; Money laundering.
The Borrower shall to the best of its knowledge and ability:
|
|
(i)
|
ensure that no person who owns a controlling interest in or otherwise controls the Borrower or any subsidiary thereof is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by OFAC or included in any Executive Orders;
|
|
(ii)
|
comply, and cause each of its subsidiaries to comply, with any applicable law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of Directive 2005/60/EC of the European Parliament and of the Council) and comparable United States federal and state laws, including without limitation the PATRIOT Act and the Bank Secrecy Act.
|
|
(iii)
|
not use or permit the use of the proceeds of any Advance to violate any of the foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto.
|
(t)
|
ERISA.
Promptly upon:
|
|
(i)
|
the occurrence of any ERISA Termination Event;
|
|
(ii)
|
the occurrence or existence of any ERISA Funding Event; or
|
|
(iii)
|
the occurrence with respect to a Plan of a Reportable Event,
|
the Borrower shall furnish or cause to be furnished to the Agent, with copies for each of the Lenders, written notice thereof and the action, if any, which the Borrower has taken and proposes to take with respect thereto.
(u)
|
Information provided to be accurate.
All financial and other information which is provided in writing by or on behalf of any Security Party under or in connection with any Finance Document will be true and not misleading and will not omit any material fact or consideration.
|
(v)
|
Shareholder and creditor notices.
The Borrower will send the Agent, at the same time as they are dispatched, copies of all communications which are dispatched to the Borrower's shareholders or creditors or any class of them.
|
(w)
|
Maintenance of Security Interests.
The Borrower will:
|
|
(i)
|
at its own cost, do all that it reasonably can to ensure that any Finance Document validly creates the obligations and the Security Interests which it purports to create; and
|
|
(ii)
|
without limiting the generality of paragraph (i), at its own cost, promptly register, file, record or enroll any Finance Document with any court or authority in all Pertinent Jurisdictions, pay any stamp, registration or similar tax in all Pertinent Jurisdictions in respect of any Finance Document, give any notice or take any other step which, in the opinion of the Majority Lenders, is or has become necessary or desirable for any Finance Document to be valid, enforceable or admissible in evidence or to ensure or protect the priority of any Security Interest which it creates.
|
(x)
|
"Know your customer" checks.
If:
|
|
(i)
|
the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;
|
|
(ii)
|
any change in the status of the Borrower or any other Security Party after the date of this Agreement; or
|
|
(iii)
|
a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,
|
obliges the Agent or any Lender (or, in the case of paragraph (iii), any prospective new Lender) to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Agent or the Lender concerned supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or the Lender concerned (for itself or, in the case of the event described in paragraph (iii), on behalf of any prospective new Lender) in order for the Agent, the Lender concerned or, in the case of the event described in paragraph (iii), any prospective new Lender to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
(y)
|
Charter Assignment.
Each Guarantor who enters into a Charter for its Ship shall execute and deliver a Charter Assignment
provided that
a Charter Assignment shall not be required under this Agreement unless the Borrower, using reasonable commercial efforts, is able to obtain the consent of the charterer named in the relevant Charter to such Charter Assignment.
|
(z)
|
Further assurances.
From time to time, at its expense, the Borrower and each of the Guarantors shall duly execute and deliver to the Agent such further documents and assurances as the Majority Lenders or the Agent may request to effectuate the purposes of this Agreement, the other Finance Documents or obtain the full benefit of any of the Collateral.
|
11.2
|
Negative covenants.
From the Effective Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full the Borrower and each of the Guarantors, as the case may be, undertakes with each Creditor Party to comply or cause compliance with the following provisions of this Clause 11.2 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing, such approval not to be unreasonably withheld:
|
(a)
|
Security Interests.
Each Security Party will not create, assume or permit to exist any Security Interest whatsoever upon any of its properties or assets, whether now owned or hereafter acquired, except for Permitted Security Interests.
|
(b)
|
Sale of assets.
Each Security Party shall not sell, transfer or lease (other than in connection with a Charter) all of or a substantial portion of its properties and assets, or enter into any transaction of merger or consolidation or liquidate, windup or dissolve itself (or suffer any liquidation or dissolution).
|
(c)
|
Affiliate transactions.
No Security Party will enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate or subsidiary, other than on terms and conditions substantially as favorable to such person as would be obtainable by such person at the time in a comparable arm's-length transaction with a person other than an Affiliate or subsidiary.
|
(d)
|
Change of business.
The Borrower will not change the nature of its business or commence any business otherwise than in connection with, or for the purpose of, operating the Ships.
|
(e)
|
Change of Control; Negative pledge.
|
|
(i)
|
The Borrower will not permit any act, event or circumstance that would result in a Change of Control or would result in the Borrower owning directly or indirectly less than 100% of the issued and outstanding Equity Interests in each Guarantor.
|
|
(ii)
|
The Borrower will not permit any pledge or assignment of any Guarantor's Equity Interests except in favor of the Security Trustee to secure the Secured Liabilities.
|
(f)
|
Increases in capital.
None of the Guarantors will increase its capital by way of the issuance of any class or series of preferred securities or common or ordinary securities, or otherwise howsoever, or create any new class of equity, that is not subject to a Security Interest to secure the Secured Liabilities.
|
(g)
|
Financial Indebtedness.
No Guarantor will incur any Financial Indebtedness other than the Loan and the Swap Exposure.
|
(h)
|
Dividends.
The Borrower may not pay dividends if an Event of Default has occurred and is continuing or would result therefrom. None of the Guarantors will create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Guarantor to (i) pay dividends or make any other distributions on its capital stock to the Borrower or pay any Financial Indebtedness owed to the Borrower, (ii) make any loans or advances to the Borrower or (iii) transfer any of its property or assets to the Borrower.
|
(i)
|
Intentionally omitted.
|
(j)
|
Intentionally omitted.
|
(k)
|
Loans and investments.
The Guarantors shall not make any loan or advance to, make any investment in, or enter into any working capital maintenance or similar agreement with respect to any person, whether by acquisition of Equity Interests or indebtedness, by loan, guarantee or otherwise.
|
(l)
|
Acquisition of capital assets.
The Guarantors shall not acquire any capital assets (including any vessel other than a Ship) by purchase, charter or otherwise,
provided that
for the avoidance of doubt nothing in this Clause 11.2(l) shall prevent or be deemed to prevent capital improvements being made to a Ship.
|
(m)
|
Sale and leaseback.
No Guarantor shall enter into any arrangements, directly or indirectly, with any person whereby it shall sell or transfer any of its property, whether real or personal, whether now owned or hereafter acquired, if it, at the time of such sale or disposition, intends to lease or otherwise acquire the right to use or possess (except by purchase) such property or like property for a substantially similar purpose.
|
(n)
|
Changes to Fiscal Year and accounting policies.
The Borrower shall not change its Fiscal Year or make or permit any change in accounting policies affecting (i) the presentation of financial statements or (ii) reporting practices, except in either case in accordance with IFRS or pursuant to the requirements of applicable laws or regulations.
|
(o)
|
Jurisdiction of incorporation or formation; Amendment of constitutional documents.
No Security Party shall change the jurisdiction of its incorporation or formation or amend its constitutional documents.
|
(p)
|
Sale of Ship.
Except as otherwise provided in Clause 8.8 or 8.9, no Security Party will consummate the sale of its Ship without paying or causing to be paid all amounts due and owing under this Agreement and the other Finance Documents prior to or simultaneously with the consummation of such sale.
|
(q)
|
Change of location.
No Security Party shall change the location of its chief executive office or the office where its corporate records are kept or open any new office for the conduct of its business on less than thirty (30) days prior written notice to the Agent.
|
(r)
|
Money laundering.
The Borrower shall not contravene any law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of Directive 2005/60/EC of the European Parliament and of the Council and comparable United States federal and state laws, including without limitation the Bank Secrecy Act and the PATRIOT Act.
|
12.1
|
General
. From the Effective Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full the Borrower undertakes with each Creditor Party to comply or cause compliance with the following provisions of this Clause 12 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing.
|
12.2
|
Maximum leverage.
The Borrower shall maintain a ratio of Consolidated Funded Debt to Consolidated Total Capitalization of not more than 0.60 to 1.00, to be tested on the last day of each fiscal quarter.
|
12.3
|
Minimum tangible net worth.
The Borrower shall maintain a Consolidated Tangible Net Worth of not less than $150,000,000 plus (a) 25% of the Borrower's cumulative, positive consolidated net income for each fiscal quarter commencing on or after July 1, 2010 and (b) 75% of the value of the Equity Proceeds realized from any issuance of Equity Interests in the Borrower occurring on or after July 1, 2010.
|
12.4
|
Minimum interest coverage.
Commencing with the fifth fiscal quarter following the Effective Date, the Borrower shall maintain a ratio of Consolidated EBITDA to Consolidated Net Interest Expense of not less than 2.50 to 1.00. Such ratio shall be calculated quarterly on a trailing quarter basis from and including the fifth fiscal quarter following the Effective Date,
provided that
for the ninth fiscal quarter following the Effective Date and all periods thereafter such ratio shall be calculated on a trailing four quarter basis.
|
12.5
|
Free liquidity.
During the first five fiscal quarters following the Effective Date, the Borrower shall maintain Consolidated Liquidity, including all amounts on deposit with any Lead Arranger, of not less than the greater of (a) $2,000,000 per Ship and (b) $10,000,000. At all times thereafter, the Borrower shall maintain Consolidated Liquidity, including all amounts on deposit with any Lead Arranger, of not less than the greater of (a) $1,000,000 per Ship and (b) $10,000,000.
|
13
|
MARINE INSURANCE COVENANTS
|
13.1
|
General.
From the first Drawdown Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full, the Borrower and each of the Guarantors, as the case may be, undertakes with each Creditor Party to comply or cause compliance with the following provisions of this Clause 13 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing.
|
13.2
|
Maintenance of obligatory insurances.
Each Security Party shall keep the Ship owned by it insured at the expense of that Security Party against:
|
(a)
|
fire and usual marine risks (including hull and machinery and excess risks);
|
(c)
|
protection and indemnity risks; and
|
(d)
|
any other risks against which the Security Trustee considers, having regard to practices and other circumstances prevailing at the relevant time, it would in the opinion of the Security Trustee be reasonable for that Security Party to insure and which are specified by the Security Trustee by notice to the Borrower.
|
13.3
|
Terms of obligatory insurances.
The relevant Security Party shall effect such insurances in respect of the Ship owned by it:
|
(b)
|
in the case of fire and usual marine risks and war risks, in an amount on an agreed value basis at least the greater of:
|
|
(i)
|
when aggregated with the insured values of the other Ships then financed under this Agreement, 120% of the aggregate of the Loan and the Swap Exposure of each Swap Counterparty; and
|
|
(ii)
|
the Fair Market Value of the Ship owned by it;
|
provided that
not less than 80% of the insured value established pursuant to (i) or (ii) above shall be on a hull and machinery basis.
(c)
|
in the case of oil pollution liability risks, for an aggregate amount equal to the highest level of cover from time to time available under basic protection and indemnity club entry and in the international marine insurance market;
|
(d)
|
in relation to protection and indemnity risks in respect of the full tonnage of the Ship owned by it;
|
(e)
|
on approved terms; and
|
(f)
|
through approved brokers and with approved insurance companies and/or underwriters or, in the case of war risks and protection and indemnity risks, in approved war risks and protection and indemnity risks associations.
|
13.4
|
Further protections for the Creditor Parties.
In addition to the terms set out in Clause 13.3, each Security Party shall procure that the obligatory insurances effected by it shall:
|
(a)
|
subject always to paragraph (b), name the relevant Security Party as the sole named assured unless the interest of every other named assured is limited:
|
|
(i)
|
in respect of any obligatory insurances for hull and machinery and war risks;
|
|
(A)
|
to any provable out-of-pocket expenses that it has incurred and which form part of any recoverable claim on underwriters; and
|
|
(B)
|
to any third party liability claims where cover for such claims is provided by the policy (and then only in respect of discharge of any claims made against it); and
|
|
(ii)
|
in respect of any obligatory insurances for protection and indemnity risks, to any recoveries it is entitled to make by way of reimbursement following discharge of any third party liability claims made specifically against it;
|
|
and every other named assured has undertaken in writing to the Security Trustee (in such form as it requires) that any deductible shall be apportioned between the relevant Security Party and every other named assured in proportion to the gross claims made or paid by each of them and that it shall do all things necessary and provide all documents, evidence and information to enable the Security Trustee to collect or recover any moneys which at any time become payable in respect of the obligatory insurances;
|
(b)
|
whenever the Security Trustee requires, name (or be amended to name) the Security Trustee as additional named assured for its rights and interests, warranted no operational interest and with full waiver of rights of subrogation against the Lenders, but without the Security Trustee thereby being liable to pay (but having the right to pay) premiums, calls or other assessments in respect of such insurance;
|
(c)
|
name the Security Trustee as loss payee with such directions for payment as the Security Trustee may specify;
|
(d)
|
provide that all payments by or on behalf of the insurers under the obligatory insurances to the Security Trustee shall be made without set-off, counterclaim or deductions or condition whatsoever;
|
(e)
|
provide that such obligatory insurances shall be primary without right of contribution from other insurances which may be carried by the Security Trustee or any other Creditor Party; and
|
(f)
|
provide that the Security Trustee may make proof of loss if the Borrower fails to do so.
|
13.5
|
Renewal of obligatory insurances.
The Borrower shall:
|
(a)
|
at least 14 days before the expiry of any obligatory insurance:
|
|
(i)
|
notify the Security Trustee of the brokers (or other insurers) and any protection and indemnity or war risks association through or with whom the Borrower or the relevant Security Party proposes to renew that obligatory insurance and of the proposed terms of renewal; and
|
|
(ii)
|
obtain the Security Trustee's approval to the matters referred to in paragraph (i);
|
(b)
|
at least 7 days before the expiry of any obligatory insurance, renew that obligatory insurance in accordance with the Security Trustee's approval pursuant to paragraph (a); and
|
(c)
|
procure that the approved brokers and/or the war risks and protection and indemnity associations with which such a renewal is effected shall promptly after the renewal notify the Security Trustee in writing of the terms and conditions of the renewal.
|
13.6
|
Copies of policies; letters of undertaking.
The relevant Security Party shall ensure that all approved brokers provide the Security Trustee with pro forma copies of all policies relating to the obligatory insurances which they are to effect or renew and of a letter or letters or undertaking in a form required by the Security Trustee and including undertakings by the approved brokers that:
|
(a)
|
they will have endorsed on each policy, immediately upon issue, a loss payable clause and a notice of assignment complying with the provisions of Clause 13.4;
|
(b)
|
they will hold such policies, and the benefit of such insurances, to the order of the Security Trustee in accordance with the said loss payable clause;
|
(c)
|
they will advise the Security Trustee immediately of any material change to the terms of the obligatory insurances;
|
(d)
|
they will notify the Security Trustee, not less than 14 days before the expiry of the obligatory insurances, in the event of their not having received notice of renewal instructions from the relevant Security Party or its agents and, in the event of their receiving instructions to renew, they will promptly notify the Security Trustee of the terms of the instructions; and
|
(e)
|
they will not set off against any sum recoverable in respect of a claim relating to the Ship owned by that Security Party under such obligatory insurances any premiums or other amounts due to them or any other person whether in respect of that Ship or otherwise, they waive any lien on the policies, or any sums received under them, which they might have in respect of such premiums or other amounts, and they will not cancel such obligatory insurances by reason of non-payment of such premiums or other amounts, and will arrange for a separate policy to be issued in respect of that Ship forthwith upon being so requested by the Security Trustee.
|
13.7
|
Copies of certificates of entry.
The relevant Security Party shall ensure that any protection and indemnity and/or war risks associations in which the Ship owned by it is entered provides the Security Trustee with:
|
(a)
|
a certified copy of the certificate of entry for that Ship;
|
(b)
|
a letter or letters of undertaking in such form as may be required by the Security Trustee;
|
(c)
|
where required to be issued under the terms of insurance/indemnity provided by the protection and indemnity association, but only if and when so requested by the Agent, a certified copy of each United States of America voyage quarterly declaration (or other similar document or documents) made by the relevant Security Party in relation to that Ship in accordance with the requirements of such protection and indemnity association; and
|
(d)
|
a certified copy of each certificate of financial responsibility for pollution by oil or other Environmentally Sensitive Material issued by the relevant certifying authority in relation to the Ship.
|
13.8
|
Deposit of original policies.
The relevant Security Party shall ensure that all policies relating to obligatory insurances are deposited with the approved brokers through which the insurances are effected or renewed.
|
13.9
|
Payment of premiums.
The relevant Security Party shall punctually pay all premiums or other sums payable in respect of the obligatory insurances and produce all relevant receipts when so required by the Security Trustee.
|
13.10
|
Guarantees.
The relevant Security Party shall ensure that any guarantees required by a protection and indemnity or war risks association are promptly issued and remain in full force and effect.
|
13.11
|
Compliance with terms of insurances.
The relevant Security Party shall neither do nor omit to do (nor permit to be done or not to be done) any act or thing which would or might render any obligatory insurance invalid, void, voidable or unenforceable or render any sum payable under an obligatory insurance repayable in whole or in part; and, in particular:
|
(a)
|
the relevant Security Party shall take all necessary action and comply with all requirements which may from time to time be applicable to the obligatory insurances, and (without limiting the obligation contained in Clause 13.6(c)) ensure that the obligatory insurances are not made subject to any exclusions or qualifications to which the Security Trustee has not given its prior approval;
|
(b)
|
the relevant Security Party shall not make any changes relating to the classification or the Classification Society or manager or operator of the Ship owned by it unless approved by the underwriters of the obligatory insurances;
|
(c)
|
the relevant Security Party shall make (and promptly supply copies to the Agent of) all quarterly or other voyage declarations which may be required by the protection and indemnity risks association in which the Ship owned by it is entered to maintain cover for trading to the United States of America and Exclusive Economic Zone (as defined in the United States Oil Pollution Act 1990 or any other applicable legislation); and
|
(d)
|
the relevant Security Party shall not employ the Ship owned by it, nor allow it to be employed, otherwise than in conformity with the terms and conditions of the obligatory insurances, without first obtaining the consent of the insurers and complying with any requirements (as to extra premium or otherwise) which the insurers specify.
|
13.12
|
Alteration to terms of insurances.
The relevant Security Party shall neither make or agree to any alteration to the terms of any obligatory insurance nor waive any right relating to any obligatory insurance.
|
13.13
|
Settlement of claims.
The relevant Security Party shall not settle, compromise or abandon any claim under any obligatory insurance for Total Loss or for a Major Casualty, and shall do all things necessary and provide all documents, evidence and information to enable the Security Trustee to collect or recover any moneys which at any time become payable in respect of the obligatory insurances.
|
13.14
|
Provision of copies of communications.
The relevant Security Party shall provide the Security Trustee, at the time of each such communication, copies of all written communications between such Security Party and:
|
(a)
|
the approved brokers;
|
(b)
|
the approved protection and indemnity and/or war risks associations; and
|
(c)
|
the approved insurance companies and/or underwriters, which relate directly or indirectly to:
|
|
(i)
|
such Security Party's obligations relating to the obligatory insurances including, without limitation, all requisite declarations and payments of additional premiums or calls; and
|
|
(ii)
|
any credit arrangements made between such Security Party and any of the persons referred to in paragraphs (a) or (b) relating wholly or partly to the effecting or maintenance of the obligatory insurances.
|
13.15
|
Provision of information.
In addition, the relevant Security Party shall promptly provide the Security Trustee (or any persons which it may designate) with any information which the Security Trustee (or any such designated person) requests for the purpose of:
|
(a)
|
obtaining or preparing any report from an independent marine insurance broker as to the adequacy of the obligatory insurances effected or proposed to be effected; and/or
|
(b)
|
effecting, maintaining or renewing any such insurances as are referred to in Clause 13.16 or dealing with or considering any matters relating to any such insurances;
|
and such Security Party shall, forthwith upon demand, indemnify the Security Trustee in respect of all fees and other expenses incurred by or for the account of the Security Trustee in connection with any such report as is referred to in paragraph (a).
13.16
|
Mortgagee's interest, additional perils and political risk insurances.
The Security Trustee shall be entitled from time to time to effect, maintain and renew a mortgagee's interest additional perils insurance, a mortgagee's political risks insurance and a mortgagee's interest marine insurance in such amounts, on such terms, through such insurers and generally in such manner as the Security Trustee may from time to time consider appropriate and the relevant Security Party shall upon demand fully indemnify the Security Trustee in respect of all premiums and other expenses which are incurred in connection with or with a view to effecting, maintaining or renewing any such insurance or dealing with, or considering, any matter arising out of any such insurance.
|
13.17
|
Review of insurance requirements.
The Security Trustee may and, on instruction of the Majority Lenders, shall review, at the expense of the Borrower, the requirements of this Clause 13 from time to time in order to take account of any changes in circumstances after the date of this Agreement which are, in the opinion of the Agent or the Majority Lenders significant and capable of affecting the relevant Security Party or a Ship and its insurance (including, without limitation, changes in the availability or the cost of insurance coverage or the risks to which the relevant Security Party may be subject.)
|
13.18
|
Modification of insurance requirements.
The Security Trustee shall notify the Borrower of any proposed modification under Clause 13.17 to the requirements of this Clause 13 which the Security Trustee may or, on instruction of the Majority Lenders, shall reasonably consider appropriate in the circumstances and such modification shall take effect on and from the date it is notified in writing to the Borrower as an amendment to this Clause 13 and shall bind the Security Parties accordingly.
|
13.19
|
Compliance with instructions.
The Security Trustee shall be entitled (without prejudice to or limitation of any other rights which it may have or acquire under any Finance Document) to require a Ship to remain at any safe port or to proceed to and remain at any safe port designated by the Security Trustee until the relevant Security Party implements any amendments to the terms of the obligatory insurances and any operational changes required as a result of a notice served under Clause 13.18.
|
14.1
|
General.
From the first Drawdown Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full, the Borrower and each of the Guarantors, as the case may be, undertakes with each Creditor Party to comply or cause compliance with the following provisions of this Clause 14 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing.
|
14.2
|
Ship's name and registration.
Each Security Party shall keep the Ship owned by it registered in its name under the law of the Approved Flag on which such Ship was registered when it became subject to a Mortgage; shall not do, omit to do or allow to be done anything as a result of which such registration might be cancelled or imperiled; and shall not change the name or port of registry of the Ship.
|
14.3
|
Repair and classification.
Each Security Party shall keep the Ship owned by it in a good and safe condition and state of repair:
|
(a)
|
consistent with first-class ship ownership and management practice;
|
(b)
|
so as to maintain the highest class for such Ship with the Classification Society, free of overdue recommendations and conditions affecting that Ship's class; and
|
(c)
|
so as to comply with all laws and regulations applicable to vessels registered under the law of the Approved Flag on which such Ship was registered when it became subject to a Mortgage or to vessels trading to any jurisdiction to which that Ship may trade from time to time, including but not limited to the ISM Code and the ISPS Code.
|
14.4
|
Classification Society undertaking.
The relevant Security Party shall instruct the Classification Society referred to in Clause 14.3(b) (and procure that the Classification Society undertakes with the Security Trustee):
|
(a)
|
to send to the Security Trustee, following receipt of a written request from the Security Trustee, certified true copies of all original class records held by the Classification Society in relation to the Ship owned by that Security Party;
|
(b)
|
to allow the Security Trustee (or its agents), at any time and from time to time, to inspect the original class and related records of that Security Party and that Ship at the offices of the Classification Society and to take copies of them;
|
(c)
|
to notify the Security Trustee immediately in writing if the Classification Society:
|
|
(i)
|
receives notification from that Security Party or any other person that that Ship's Classification Society is to be changed; or
|
|
(ii)
|
becomes aware of any facts or matters which may result in or have resulted in a change, suspension, discontinuance, withdrawal or expiry of that Ship's class under the rules or terms and conditions of that Security Party's or that Ship's membership of the Classification Society;
|
(d)
|
following receipt of a written request from the Security Trustee:
|
|
(i)
|
to confirm that that Security Party is not in default of any of its contractual obligations or liabilities to the Classification Society and, without limiting the foregoing, that it has paid in full all fees or other charges due and payable to the Classification Society; or
|
|
(ii)
|
if that Security Party is in default of any of its contractual obligations or liabilities to the Classification Society, to specify to the Security Trustee in reasonable detail the facts and circumstances of such default, the consequences of such default, and any remedy period agreed or allowed by the Classification Society.
|
14.5
|
Modification.
The relevant Security Party shall not make any modification or repairs to, or replacement of, the Ship owned by it or equipment installed on that Ship which would or is reasonably likely to materially reduce its value.
|
14.6
|
Removal of parts.
The relevant Security Party shall not remove any material part of the Ship owned by it, or any item of equipment installed on, that Ship unless the part or item so removed is forthwith replaced by a suitable part or item which is in the same condition as or better condition than the part or item removed, is free from any Security Interest or any right in favor of any person other than the Security Trustee and becomes on installation on that Ship the property of that Security Party and subject to the security constituted by the Mortgage (and Deed of Covenant where applicable),
provided that
the relevant Security Party may install equipment owned by a third party if the equipment can be removed without any risk of damage to the Ship owned by it.
|
14.7
|
Surveys.
The relevant Security Party shall submit the Ship owned by it regularly to all periodical or other surveys which may be required for classification purposes and, if so required by the Security Trustee, provide the Security Trustee with copies of all survey reports.
|
14.8
|
Inspection.
The relevant Security Party shall permit the Security Trustee (by surveyors or other persons appointed by it for that purpose) to board the Ship owned by it at all reasonable times to inspect its condition or to satisfy themselves about proposed or executed repairs and shall afford all proper facilities for such inspections.
|
14.9
|
Prevention of and release from arrest.
The relevant Security Party shall promptly discharge:
|
(a)
|
all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against the Ship owned by it, or its Earnings or Insurances;
|
(b)
|
all taxes, dues and other amounts charged in respect of the Ship owned by it, or its Earnings or Insurances; and
|
(c)
|
all other outgoings whatsoever in respect of the Ship owned by it, or its Earnings or Insurances,
|
and, forthwith upon receiving notice of the arrest of the Ship owned by it, or of its detention in exercise or purported exercise of any lien or claim, the relevant Security Party shall procure its release by providing bail or otherwise as the circumstances may require.
14.10
|
Compliance with laws etc.
The relevant Security Party shall:
|
(a)
|
comply, or procure compliance with the ISM Code, the ISPS Code, all Environmental Laws and all other laws or regulations relating to the Ship owned by it, its ownership, operation and management or to the business of such Security Party;
|
(b)
|
not employ the Ship owned by it nor allow its employment in any manner contrary to any law or regulation in any relevant jurisdiction including but not limited to the ISM Code and the ISPS Code; and
|
(c)
|
in the event of hostilities in any part of the world (whether war is declared or not), not cause or permit the Ship owned by it to enter or trade to any zone which is declared a war zone by any government or by that Ship's war risks insurers unless the prior written consent of the Security Trustee has been given and the relevant Security Party has (at its expense) effected any special, additional or modified insurance cover which the Security Trustee may require.
|
14.11
|
Provision of information.
The relevant Security Party shall promptly provide the Security Trustee with any information which it requests regarding:
|
(a)
|
the Ship owned by it, its employment, position and engagements;
|
(b)
|
that Ship's Earnings and payments and amounts due to that Ship's master and crew;
|
(c)
|
any expenses incurred, or likely to be incurred, in connection with the operation, maintenance or repair of that Ship and any payments made in respect of that Ship;
|
(d)
|
any towages and salvages; and
|
(e)
|
the relevant Security Party's, the relevant Approved Manager's or that Ship's compliance with the ISM Code and the ISPS Code,
|
and, upon the Security Trustee's request, provide copies of any current charter relating to that Ship, of any current charter guarantee and copies of the relevant Security Party's or the relevant Approved Manager's Document of Compliance.
14.12
|
Notification of certain events.
The relevant Security Party shall immediately notify the Security Trustee by fax or email, confirmed forthwith by letter, of:
|
(a)
|
any casualty which is or is likely to be or to become a Major Casualty;
|
(b)
|
any occurrence as a result of which the Ship owned by it has become or is, by the passing of time or otherwise, likely to become a Total Loss;
|
(c)
|
any requirement or condition made by any insurer or the Classification Society or by any competent authority which is not immediately complied with;
|
(d)
|
any arrest or detention of the Ship owned by it, any exercise or purported exercise of any Security Interest on that Ship or its Earnings or any requisition of that Ship for hire;
|
(e)
|
any intended dry docking of the Ship owned by it;
|
(f)
|
any Environmental Claim made against the relevant Security Party or in connection with the Ship owned by it, or any Environmental Incident;
|
(g)
|
any claim for breach of the ISM Code or the ISPS Code being made against the relevant Security Party, the relevant Approved Manager or otherwise in connection with the Ship owned by it; or
|
(h)
|
any other matter, event or incident, actual or threatened, the effect of which will or could lead to the ISM Code or the ISPS Code not being complied with;
|
and the relevant Security Party shall keep the Security Trustee advised in writing on a regular basis and in such detail as the Security Trustee shall require of the relevant Security Party's, the relevant Approved Manager's or any other person's response to any of those events or matters.
14.13
|
Restrictions on chartering, appointment of managers etc.
The relevant Security Party shall not:
|
(a)
|
let the Ship owned by it on demise charter for any period;
|
(b)
|
enter into any charter in relation to the Ship owned by it under which more than two (2) months' hire (or the equivalent) is payable in advance;
|
(c)
|
charter the Ship owned by it otherwise than on bona fide arm's length terms at the time when that Ship is fixed;
|
(d)
|
appoint a manager of the Ship owned by it other than an Approved Manager or agree to any material alteration to the terms of the Approved Management Agreement; or
|
(e)
|
put the Ship owned by it into the possession of any person for the purpose of work being done upon it in an amount exceeding or likely to exceed $1,000,000 (or the equivalent in any other currency) unless that person has first given to the Security Trustee and in terms satisfactory to it a written undertaking not to exercise any Security Interest on that Ship or the Earnings for the cost of such work or for any other reason.
|
14.14
|
Notice of Mortgage.
The relevant Security Party shall keep the Mortgage registered against the Ship owned by it as a valid first priority mortgage, carry on board that Ship a certified copy of the Mortgage and place and maintain in a conspicuous place in the navigation room and the Master's cabin of that Ship a framed printed notice stating that such Ship is mortgaged by that Security Party to the Security Trustee.
|
14.15
|
Intentionally Omitted.
|
14.16
|
ISPS Code.
The relevant Security Party shall comply with the ISPS Code and in particular, without limitation, shall:
|
(a)
|
procure that the Ship owned by it and the company responsible for that Ship's compliance with the ISPS Code comply with the ISPS Code; and
|
(b)
|
maintain for the Ship an ISSC; and
|
(c)
|
notify the Agent immediately in writing of any actual or threatened withdrawal, suspension, cancellation or modification of the ISSC.
|
15
|
COLLATERAL MAINTENANCE RATIO
|
15.1
|
General.
From the first Drawdown Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full, the Borrower undertakes with each Creditor Party to comply with the following provisions of this Clause 15 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing.
|
15.2
|
Collateral Maintenance Ratio.
If, at any time, the Agent notifies the Borrower that:
|
(a)
|
the aggregate Fair Market Value of the Ships; plus
|
(b)
|
the net realizable value of any additional Collateral previously provided under this Clause 15,
|
is below 150 percent of the Loan (such ratio being the "
Collateral Maintenance Ratio
"), the Agent (acting upon the instruction of the Majority Lenders) shall have the right to require the Borrower to comply with the requirements of Clause 15.3.
15.3
|
Provision of additional security; prepayment.
If the Agent serves a notice on the Borrower under Clause 15.2, the Borrower shall, within one (1) month after the date on which the Agent's notice is served, either:
|
(a)
|
provide, or ensure that a third party provides, additional Collateral which, in the opinion of the Majority Lenders, has a net realizable value at least equal to the shortfall and is documented in such terms as the Agent may, with the authorization of the Majority Lenders, approve or require; or
|
(b)
|
prepay the Loan in such amount as will eliminate the shortfall.
|
15.4
|
Value of additional vessel security.
The net realizable value of any additional Collateral which is provided under Clause 15.3 and which consists of a Security Interest over a vessel shall be that shown by a valuation complying with the definition of Fair Market Value.
|
15.5
|
Valuations binding.
Any valuation under Clause 15.3 or 15.4 shall be binding and conclusive as regards the Borrower and the Lenders, as shall be any valuation which the Majority Lenders make of any additional security which does not consist of or include a Ship.
|
15.6
|
Provision of information.
The Borrower shall promptly provide the Agent and any Approved Broker or other expert acting under Clause 15.4 with any information which the Agent or the Approved Broker or other expert may request for the purposes of the valuation; and, if the Borrower fails to provide the information by the date specified in the request, the valuation may be made on any basis and assumptions which the Approved Broker or the Majority Lenders (or the expert appointed by them) consider prudent.
|
15.7
|
Payment of valuation expenses.
Without prejudice to the generality of the Borrower's obligations under Clauses 21.2, 21.3 and 22.3, the Borrower shall, on demand, pay the Agent the amount of the fees and expenses of any Approved Broker or other expert instructed by the Agent under this Clause and all legal and other expenses incurred by any Creditor Party in connection with any matter arising out of this Clause.
|
15.8
|
Application of prepayment.
Clause 8 shall apply in relation to any prepayment pursuant to Clause 15.3(b).
|
16.1
|
Guarantee and indemnity.
In order to induce the Lenders to make the Loan to the Borrower, and to induce the Swap Banks to enter into Designated Transactions with the Borrower, each Guarantor irrevocably and unconditionally jointly and severally:
|
(a)
|
guarantees, as a primary obligor and not as merely as a surety, to each Creditor Party, the punctual payment and performance by the Borrower when due, whether at stated maturity, by acceleration or otherwise, of all Secured Liabilities of the Borrower, whether for principal, interest, fees, expenses or otherwise (collectively, the "
Guaranteed Obligations
");
|
(b)
|
undertakes with each Creditor Party that whenever the Borrower does not pay any amount when due under or in connection with any of the Borrower's Secured Liabilities, such Guarantor shall immediately on demand pay that amount as if it were the primary obligor; and
|
(c)
|
indemnifies each Creditor Party immediately on demand against any cost, loss or liability suffered or incurred by that Creditor Party (i) if any Guaranteed Obligation is or becomes unenforceable, invalid or illegal or (ii) by operation of law as a consequence of the transactions contemplated by the Finance Documents and the Master Agreements. The amount of the cost, loss or liability shall be equal to the amount which that Creditor Party would otherwise have been entitled to recover.
|
16.2
|
Continuing guarantee.
This guarantee:
|
(a)
|
is a continuing guarantee;
|
(b)
|
is joint and several with any other guarantee given in respect of the Guaranteed Obligations and shall not in any way be prejudiced by any other guarantee or security now or subsequently held by any Creditor Party in respect of the Guaranteed Obligations;
|
(c)
|
shall remain in full force and effect until the later of the termination of the Total Commitments and the payment and performance in full of the Guaranteed Obligations and all other amounts payable hereunder regardless of any intermediate payment or discharge in whole or in part; and
|
(d)
|
shall be binding upon each Guarantor, its successors and permitted assigns.
|
16.3
|
Performance of Guaranteed Obligations; obligations
pari passu
.
|
(a)
|
Each Guarantor agrees that the Guaranteed Obligations will be performed and paid strictly in accordance with the terms of the relevant Finance Document or Master Agreement regardless of any law or regulation or order of any court:
|
|
(i)
|
affecting (A) any term of such Finance Document or Master Agreement or the rights of any of the Creditor Parties with respect thereto or (B) the Borrower's ability or obligation to make or render, or right of any Creditor Party to receive, any payments or performance due thereunder; or
|
|
(ii)
|
which might otherwise constitute a defense to, or a legal or equitable discharge of, the Borrower.
|
(b)
|
The obligations of each Guarantor under this guarantee shall rank
pari passu
with all other unsecured obligations of such Guarantor.
|
16.4
|
Reinstatement.
If any payment of any of the Guaranteed Obligations is rescinded, discharged, avoided or reduced or must otherwise be returned by a Creditor Party or any other person upon the insolvency, bankruptcy or reorganization of the Borrower or any other Security Party or otherwise:
|
(a)
|
this Guarantee shall continue to be effective or be reinstated, and the liability of each Guarantor hereunder shall continue or be reinstated, as the case may be, as if the payment, discharge, avoidance or reduction had not occurred; and
|
(b)
|
each Creditor Party shall be entitled to recover the value or amount of that payment from each Guarantor, as if the payment, discharge, avoidance or reduction had not occurred.
|
16.5
|
Liability absolute and unconditional.
The obligations of each Guarantor under this Clause 16 shall be irrevocable, absolute and unconditional and shall not be affected by an act, omission, matter or thing which, but for this Clause, would reduce, release or prejudice any of its obligations under this Clause 16, and each Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to, any or all of the following:
|
(a)
|
any time, waiver or consent granted to, or composition with, any Security Party or other person;
|
(b)
|
the release of any other Security Party or any other person under the terms of any composition or arrangement with any creditor of any Security Party;
|
(c)
|
the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Security Party or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realize the full value of any security;
|
(d)
|
any incapacity or lack of power, authority or legal personality of or dissolution or change in the corporate or company structure or status of a Security Party or any other person (including without limitation any change in the holding of such Security Party's or other person's Equity Interests);
|
(e)
|
any amendment to or replacement of a Finance Document, a Master Agreement or any other document or security;
|
(f)
|
any unenforceability, illegality or invalidity of any obligation of any Security Party or any other person under any Finance Document, any Master Agreement or any other document or security;
|
(g)
|
any bankruptcy, insolvency or similar proceedings; or
|
(h)
|
any other circumstance whatsoever that might otherwise constitute a defense available to, or a legal or equitable discharge of, any Security Party.
|
16.6
|
Waiver of promptness, etc.
Each of the Guarantors hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of non-performance, default, acceleration, protest or dishonor and any other notice with respect to any of the Guaranteed Obligations and this guarantee and any requirement that a Creditor Party protect, secure, perfect or insure any Security Interest or any property subject thereto or exhaust any right or take any action against any Security Party or any other person or entity or any Collateral.
|
16.7
|
Waiver of revocation, etc.
Each Guarantor hereby unconditionally and irrevocably waives any right to revoke this guarantee.
|
16.8
|
Waiver of certain defenses.
Each Guarantor hereby unconditionally and irrevocably waives:
|
(a)
|
any defense arising by reason of any claim or defense based upon an election of remedies by a Creditor Party that in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of such Guarantor or other rights of such Guarantor to proceed against the Borrower, any of the other Security Parties, any other guarantor or any other person or entity or any Collateral; and
|
(b)
|
any defense based on any right of set-off or counterclaim against or in respect of the obligations of such Guarantor hereunder.
|
16.9
|
Waiver of disclosure, etc.
Each Guarantor hereby unconditionally and irrevocably waives any duty on the part of any Creditor Party to disclose to the Guarantors any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower, any other Security Party or any of their respective subsidiaries now or hereafter known by any Creditor Party.
|
16.10
|
Immediate recourse.
Each Guarantor waives any right it may have of first requiring any Creditor Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this Clause 16. This waiver applies irrespective of any law or any provision of a Finance Document or Master Agreement to the contrary.
|
16.11
|
Acknowledgment of benefits.
Each Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Finance Documents and that the waivers set forth in this Clause 16 are knowingly made in contemplation of such benefits.
|
16.12
|
Independent obligations.
The obligations of each Guarantor under or in respect of this Guarantee are independent of the Guaranteed Obligations or any other obligations of the Borrower or any other Security Party under or in respect of the Finance Documents, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce this Guarantee irrespective of whether any action is brought against the Borrower or any other Security Party or whether the Borrower or any other Security Party is joined in any such action or actions.
|
16.13
|
Deferral of Guarantors' rights.
Until the Guaranteed Obligations have been irrevocably paid and performed in full and unless the Agent otherwise directs, no Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:
|
(a)
|
to be indemnified by another Security Party;
|
(b)
|
to claim any contribution from any other guarantor of any Security Party's obligations under the Finance Documents; and/or
|
(c)
|
to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents, the Master Agreements or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents or the Master Agreements by any Creditor Party.
|
16.14
|
Limitation of liability.
Each of the Guarantors and the Creditor Parties hereby confirms that it is its intention that the Guaranteed Obligations not constitute a fraudulent transfer or conveyance for purposes of the United States Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar law. To effectuate the foregoing intention, each of the Guarantors and the Creditor Parties hereby irrevocably agrees that the Guaranteed Obligations guaranteed by each Guarantor shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws and after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among such Guarantor and the other Guarantors, result in the Guaranteed Obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance.
|
16.15
|
Reliance of Creditor Parties.
Each of the Creditor Parties has entered into this Agreement in reliance upon, among other things, this guarantee.
|
17
|
PAYMENTS AND CALCULATIONS
|
17.1
|
Currency and method of payments.
All payments to be made by the Lenders or by the Security Parties under a Finance Document shall be made to the Agent or to the Security Trustee, in the case of an amount payable to it:
|
(a)
|
by not later than 11:00 a.m. (New York City time) on the due date;
|
(b)
|
in same day Dollar funds settled through the New York Clearing House Interbank Payments System (or in such other Dollar funds and/or settled in such other manner as the Agent shall specify as being customary at the time for the settlement of international transactions of the type contemplated by this Agreement);
|
(c)
|
in the case of an amount payable by a Lender to the Agent or by a Security Party to the Agent or any Lender, to Account No. 300030007278532 maintained at Nordea Bank Finland PLC, New York Branch, located at 437 Madison Avenue, New York, New York 10022, USA, ABA Number: 026010786, SWIFT: NDEAUS3NXXX, Attention: Credit Administration, re: Scorpio Tankers, or to such other account with such other bank as the Agent may from time to time notify to the Borrower and the other Creditor Parties; and
|
(d)
|
in the case of an amount payable to the Security Trustee, to such account as it may from time to time notify to the Borrower and the other Creditor Parties.
|
17.2
|
Payment on non-Business Day.
If any payment by a Security Party under a Finance Document would otherwise fall due on a day which is not a Business Day:
|
(a)
|
the due date shall be extended to the next succeeding Business Day; or
|
(b)
|
if the next succeeding Business Day falls in the next calendar month, the due date shall be brought forward to the immediately preceding Business Day;
|
and interest shall be payable during any extension under paragraph (a) at the rate payable on the original due date.
17.3
|
Basis for calculation of periodic payments.
All interest, commitment fees and any other payments under any Finance Document which are of an annual or periodic nature shall accrue from day to day and shall be calculated on the basis of the actual number of days elapsed and a 360 day year.
|
17.4
|
Distribution of payments to Creditor Parties.
Subject to Clauses 17.5, 17.6 and 17.7:
|
(a)
|
any amount received by the Agent under a Finance Document for distribution or remittance to a Lender, a Swap Counterparty or the Security Trustee shall be made available by the Agent to that Lender, that Swap Counterparty or, as the case may be, the Security Trustee by payment, with funds having the same value as the funds received, to such account as the Lender and the Swap Counterparty or the Security Trustee may have notified to the Agent not less than five (5) Business Days previously; and
|
(b)
|
amounts to be applied in satisfying amounts of a particular category which are due to the Lenders and/or the Swap Counterparties generally shall be distributed by the Agent to each Lender and each Swap Counterparty pro rata to the amount in that category which is due to it.
|
17.5
|
Permitted deductions by Agent.
Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent may, before making an amount available to a Lender or a Swap Counterparty, deduct and withhold from that amount any sum which is then due and payable to the Agent from that Lender or that Swap Counterparty under any Finance Document or any sum which the Agent is then entitled under any Finance Document to require that Lender or that Swap Counterparty to pay on demand.
|
17.6
|
Agent only obliged to pay when monies received.
Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent shall not be obliged to make available to the Borrower or any Lender or any Swap Counterparty any sum which the Agent is expecting to receive for remittance or distribution to the Borrower or that Lender or that Swap Counterparty until the Agent has satisfied itself that it has received that sum.
|
17.7
|
Refund to Agent of monies not received.
If and to the extent that the Agent makes available a sum to the Borrower or a Lender or a Swap Counterparty, without first having received that sum, the Borrower or (as the case may be) the Lender or the Swap Counterparty concerned shall, on demand:
|
(a)
|
refund the sum in full to the Agent; and
|
(b)
|
pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding or other loss, liability or expense incurred by the Agent as a result of making the sum available before receiving it.
|
17.8
|
Agent may assume receipt.
Clause 17.7 shall not affect any claim which the Agent has under the law of restitution, and applies irrespective of whether the Agent had any form of notice that it had not received the sum which it made available.
|
17.9
|
Creditor Party accounts.
Each Creditor Party shall maintain accounts showing the amounts owing to it by the Borrower and each other Security Party under the Finance Documents and all payments in respect of those amounts made by the Borrower and any other Security Party.
|
17.10
|
Agent's memorandum account.
The Agent shall maintain a memorandum account showing the amounts advanced by the Lenders and all other sums owing to the Agent, the Security Trustee and each Lender from the Borrower and each other Security Party under the Finance Documents and all payments in respect of those amounts made by the Borrower and any other Security Party.
|
17.11
|
Accounts prima facie evidence.
If any accounts maintained under Clauses 17.9 and 17.10 show an amount to be owing by the Borrower or any other Security Party to a Creditor Party, those accounts shall be prima facie evidence that that amount is owing to that Creditor Party.
|
18
|
APPLICATION OF RECEIPTS
|
18.1
|
Normal order of application.
Except as any Finance Document may otherwise provide, any sums which are received or recovered by any Creditor Party under or by virtue of any Finance Document shall be applied:
|
(a)
|
FIRST: in or towards satisfaction of any amounts then due and payable under the Finance Documents and the Master Agreements in the following order and proportions:
|
|
(i)
|
first
, in or towards satisfaction pro rata of all amounts then due and payable to the Creditor Parties under the Finance Documents other than those amounts referred to at paragraphs (ii), (iii), (iv) and (v) (including, but without limitation, all amounts payable by the Borrower under Clauses 21, 22 and 23 of this Agreement or by the Borrower or any other Security Party under any corresponding or similar provision in any other Finance Document);
|
|
(ii)
|
second
, in or towards satisfaction pro rata of any and all amounts of interest or default interest payable to the Creditor Parties under the Finance Documents;
|
|
(iii)
|
third
, in or towards satisfaction pro rata of any and all amounts of principal payable to the Lenders under this Agreement;
|
|
(iv)
|
fourth,
in or towards satisfaction pro rata of any and all amounts of interest or default interest payable to each Swap Counterparty (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 any Master Agreement but shall have failed to pay or deliver to the relevant Swap Counterparty at the time of application or distribution under this Clause 18); and
|
|
(v)
|
fifth,
in or towards satisfaction of the Swap Exposure of each Swap Counterparty (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);
|
(b)
|
SECOND: in retention of an amount equal to any amount not then due and payable under any Finance Document or any Master Agreement but which the Agent, by notice to the Borrower, the other Security Parties and the other Creditor Parties, states in its 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 provisions of Clause 18.1(a); and
|
(c)
|
THIRD: any surplus shall be paid to the Borrower or to any other person appearing to be entitled to it.
|
18.2
|
Variation of order of application.
The Agent may, with the authorization of the Majority Lenders and the Swap Counterparties, by notice to the Borrower, the other Security Parties and the other Creditor Parties provide for a different manner of application from that set out in Clause 18.1 either as regards a specified sum or sums or as regards sums in a specified category or categories.
|
18.3
|
Notice of variation of order of application.
The Agent may give notices under Clause 18.2 from time to time; and such a notice may be stated to apply not only to sums which may be received or recovered in the future, but also to any sum which has been received or recovered on or after the third Business Day before the date on which the notice is served.
|
18.4
|
Appropriation rights overridden.
This Clause 18 and any notice which the Agent gives under Clause 18.2 shall override any right of appropriation possessed, and any appropriation made, by the Borrower or any other Security Party.
|
18.5
|
Payments in excess of Contribution.
|
(a)
|
If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, counterclaim or otherwise) in excess of its Contribution, such Lender shall forthwith purchase from the other Lenders such participation in their respective Contributions as shall be necessary to share the excess payment ratably with each of them,
provided that
if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (a) the amount of such Lender's required repayment to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.
|
(b)
|
The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Clause 18.5 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.
|
(c)
|
Notwithstanding paragraphs (a) and (b) of this Clause 18.5, any Lender which shall have commenced or joined (as a plaintiff) in an action or proceeding in any court to recover sums due to it under any Finance Document and pursuant to a judgment obtained therein or a settlement or compromise of that action or proceeding shall have received any amount, such Lender shall not be required to share any proportion of that amount with a Lender which has the legal right to, but does not, join such action or proceeding or commence and diligently prosecute a separate action or proceeding to enforce its rights in the same or another court.
|
(d)
|
Each Lender exercising or contemplating exercising any rights giving rise to a receipt or receiving any payment of the type referred to in this Clause 18.5 or instituting legal proceedings to recover sums owing to it under this Agreement shall, as soon as reasonably practicable thereafter, give notice thereof to the Agent who shall give notice to the other Lenders.
|
19
|
APPLICATION OF EARNINGS, SALE PROCEEDS AND INSURANCE PROCEEDS
|
19.1
|
General.
From the first Drawdown Date until the Total Commitments have terminated and all amounts payable hereunder have been paid in full, the Borrower and each of the Guarantors, as the case may be, undertakes with each Creditor Party to comply or cause compliance with the following provisions of this Clause 19 except as the Agent, with the consent of the Majority Lenders, may approve from time to time in writing.
|
19.2
|
Payment of Earnings, sale proceeds and insurance proceeds.
The Borrower and each of the Guarantors, as the case may be, undertakes with each Creditor Party to ensure that:
|
(a)
|
subject only to the provisions of any Charter Assignment or Earnings Assignment, all of the Earnings of each Ship are paid to the Earnings Account for such Ship; and
|
(b)
|
if following the sale or Total Loss of a Ship the Borrower elects to proceed under Clause 8.8(b), all sale proceeds and insurance proceeds are paid to the Retention Account.
|
19.3
|
Intentionally omitted.
|
19.4
|
Intentionally omitted.
|
19.5
|
Application of funds in Retention Account.
Until an Event of Default or a Potential Event of Default occurs, the Agent shall apply any funds in the Retention Account as required by:
|
(a)
|
Clause 8.8(c) in the event a Replacement Ship is purchased within the time period permitted by such clause; or
|
(b)
|
Clause 8.8(d) in the event a Replacement Ship is not purchased pursuant to Clause 8.8(c).
|
19.6
|
Interest accrued on Retention Account.
Any credit balance on the Retention Account shall bear interest at the rate from time to time offered by the Agent to its customers for Dollar deposits of similar amounts and for periods similar to those for which such balances appear to the Agent likely to remain on the Retention Account.
|
19.7
|
No release of accrued interest.
Interest accruing under Clause 19.6 shall be credited to the Retention Account but shall not be released to the Borrower until the end of the Security Period.
|
19.8
|
Location of accounts.
The Borrower and each of the Guarantors, as the case may be, shall promptly:
|
(a)
|
comply with any requirement of the Agent as to the location or re-location of any Earnings Account and the Retention Account (or any of them); and
|
(b)
|
execute an Earnings Account Pledge, a Retention Account Pledge and/or any other documents which the Agent specifies to create or maintain in favor of the Security Trustee a Security Interest over (and/or rights of set-off, consolidation or other rights in relation to) any Earnings Account and the Retention Account (or any of them).
|
19.9
|
Debits for expenses etc.
The Agent shall be entitled (but not obliged) from time to time to debit the Retention Account with prior notice in order to discharge any amount due and payable under Clause 21 or 22 to a Creditor Party or payment of which any Creditor Party has become entitled to demand under Clause 21 or 22.
|
19.10
|
Borrower's obligations unaffected.
The provisions of this Clause 19 (as distinct from a distribution effected under Clause 19.5) do not affect:
|
(a)
|
the liability of the Borrower to make payments of principal and interest on the due dates; or
|
(b)
|
any other liability or obligation of the Borrower or any other Security Party under any Finance Document.
|
20.1
|
Events of Default.
An Event of Default occurs if:
|
(a)
|
the Borrower or any other Security Party fails to pay when due any principal payable under a Finance Document or under any document relating to a Finance Document or, in the case of interest and other sums payable on demand, within five (5) Business Days after the date when first demanded; or
|
(b)
|
any breach occurs of Clause 9.2(a), 11.2(b), 11.2(e) or 11.2(o); or
|
(c)
|
any breach by the Borrower or any other Security Party occurs of any provision of a Finance Document (other than a breach covered by paragraphs (a) or (b)) which, in the opinion of the Majority Lenders, is capable of remedy, and such default continues unremedied [10] days after written notice from the Agent requesting action to remedy the same; or
|
(d)
|
subject to any applicable grace period specified in the Finance Document, any breach by the Borrower or any other Security Party occurs of any provision of a Finance Document (other than a breach falling within paragraphs (a), (b) or (c)); or
|
(e)
|
any representation, warranty or statement made or repeated by, or by an officer or director of, the Borrower or another Security Party in a Finance Document or in a Drawdown Notice or any other notice or document relating to a Finance Document is untrue or misleading when it is made or repeated; or
|
(f)
|
an event of default, or an event or circumstance which, with the giving of any notice, the lapse of time or both would constitute an event of default, has occurred on the part of a Security Party under any contract or agreement in excess of $5,000,000 (other than the Finance Documents) to which such Security Party is a party, and such event of default has not been cured within any applicable grace period;
|
(g)
|
any Financial Indebtedness of a Security Party in excess of $5,000,000 is not paid when due or within any applicable grace period or, only in the case of sums payable on demand, when first demanded, except for any such Financial Indebtedness which is being contested by such Security Party in good faith and through appropriate proceedings and in a manner that does not involve any risk of sale, forfeiture, loss, confiscation or seizure of the Ship; or
|
(h)
|
any Security Party shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or
|
(i)
|
any proceeding shall be instituted by or against any Security Party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or
|
(j)
|
all or a material part of the undertakings, assets, rights or revenues of, or shares or other ownership interest in, any Security Party are seized, nationalized, expropriated or compulsorily acquired by or under authority of any government; or
|
(k)
|
a creditor attaches or takes possession of, or a distress, execution, sequestration or process (each an
"action"
) is levied or enforced upon or sued out against, a material part of the undertakings, assets, rights or revenues (the
"assets"
) of any Security Party in relation to a claim by such creditor which, in the reasonable opinion of the Majority Lenders, is likely to materially and adversely affect the ability of such Security Party to perform all or any of its obligations under or otherwise to comply with the terms of any Finance Document to which it is a party and such Security Party does not procure that such action is lifted, released or expunged within 20 Business Days of such action being (i) instituted and (ii) notified to such Security Party; or
|
(l)
|
any Security Party ceases or suspends or threatens to cease or suspend the carrying on of its business, or a part of its business which, in the opinion of the Majority Lenders, is material in the context of this Agreement, except in the case of a sale or a proposed sale of a Ship by the Borrower that owns such Ship; or
|
(m)
|
a Ship becomes a Total Loss and insurance proceeds are not collected or received by the Security Trustee from the underwriters within 120 days of the Total Loss Date; or
|
(n)
|
an ERISA Funding Event or an ERISA Termination Event has occurred and is continuing; or
|
(o)
|
it becomes unlawful or impossible:
|
|
(i)
|
for the Borrower or any other Security Party to discharge any liability under a Finance Document or to comply with any other obligation which the Majority Lenders consider material under a Finance Document;
|
|
(ii)
|
for the Agent, the Security Trustee, the Lenders or the Swap Banks to exercise or enforce any right under, or to enforce any Security Interest created by, a Finance Document; or
|
(p)
|
any consent necessary to enable a Guarantor to own, operate or charter the Ship owned by it or to enable any Security Party to comply with any provision which the Majority Lenders consider material of a Finance Document is not granted, expires without being renewed, is revoked or becomes liable to revocation or any condition of such a consent is not fulfilled; or
|
(q)
|
any material provision of a Finance Document proves to have been or becomes invalid or unenforceable, or a Security Interest created by a Finance Document proves to have been or becomes invalid or unenforceable or such a Security Interest proves to have ranked after, or loses its priority to, another Security Interest or any other third party claim or interest; or
|
(r)
|
an Event of Default as defined in section 14 of a Master Agreement occurs; or
|
(s)
|
any event occurs or any circumstances arises or develops including, without limitation:
|
|
(i)
|
a change in the financial position, of any Security Party; or
|
|
(ii)
|
any accident or other event involving a Ship; and it becomes evident that the Security Parties are, or will later become, unable to discharge their liabilities under the Finance Documents as they fall due; or
|
(t)
|
there occurs or develops a change in the financial position, state of affairs or prospects of a Security Party which, in the reasonable opinion of the Majority Lenders, has a material adverse effect on such Security Party's ability to discharge its liabilities under the Finance Documents as they fall due.
|
20.2
|
Actions following an Event of Default.
On, or at any time after, the occurrence of an Event of Default:
|
(a)
|
the Agent may, and if so instructed by the Majority Lenders, the Agent shall:
|
|
(i)
|
serve on the Borrower a notice stating that the Commitments and all other obligations of each Lender to the Borrower under this Agreement are cancelled; and/or
|
|
(ii)
|
serve on the Borrower a notice stating that the Loan, all accrued interest and all other amounts accrued or owing under this Agreement are immediately due and payable or are due and payable on demand,
provided that
in the case of an Event of Default under either of Clauses 20.1(h) or (i), the Loan and all accrued interest and other amounts accrued or owing hereunder shall be deemed immediately due and payable without notice or demand therefor; and/or
|
|
(iii)
|
take any other action which, as a result of the Event of Default or any notice served under paragraph (i) or (ii), the Agent and/or the Lenders are entitled to take under any Finance Document or any applicable law; and/or
|
(b)
|
the Security Trustee may, and if so instructed by the Agent, acting with the authorization of the Majority Lenders, the Security Trustee shall, take any action which, as a result of the Event of Default or any notice served under paragraph (a) (i) or (ii), the Security Trustee, the Agent and/or the Lenders and/or the Swap Counterparties are entitled to take under any Finance Document or any applicable law.
|
20.3
|
Termination of Commitments.
On the service of a notice under Clause 20.2(a)(i), the Commitments and all other obligations of each Lender to the Borrower under this Agreement shall be cancelled.
|
20.4
|
Acceleration of Loan.
On the service of a notice under Clause 20.2(a)(ii), the Loan, all accrued interest and all other amounts accrued or owing from the Borrower or any other Security Party under this Agreement and every other Finance Document shall become immediately due and payable or, as the case may be, payable on demand, and the Security Trustee shall forthwith be entitled to enforce the Security Interests created by this Agreement and any other Finance Document in any manner available to it and in such sequence as the Security Trustee may, in its absolute discretion, determine.
|
20.5
|
Multiple notices; action without notice.
The Agent may serve notices under Clauses 20.2(a)(i) and (ii) simultaneously or on different dates and it and/or the Security Trustee may take any action referred to in Clause 20.2 if no such notice is served or simultaneously with or at any time after the service of both or either of such notices.
|
20.6
|
Notification of Creditor Parties and Security Parties.
The Agent shall send to each Lender, each Swap Counterparty, the Security Trustee and each Security Party a copy of the text of any notice which the Agent serves on the Borrower under Clause 20.2. Such notice shall become effective when it is served on the Borrower, and no failure or delay by the Agent to send a copy or the text of the notice to any other person shall invalidate the notice or provide the Borrower or any other Security Party with any form of claim or defense.
|
20.7
|
Creditor Party rights unimpaired.
Nothing in this Clause shall be taken to impair or restrict the exercise of any right given to individual Lenders or Swap Counterparties under a Finance Document, a Master Agreement or the general law; and, in particular, this Clause is without prejudice to Clause 3.1.
|
20.8
|
Exclusion of Creditor Party liability.
No Creditor Party, and no receiver or manager appointed by the Security Trustee, shall have any liability to any Security Party:
|
(a)
|
for any loss caused by an exercise of rights under, or enforcement of a Security Interest created by, a Finance Document or by any failure or delay to exercise such a right or to enforce such a Security Interest; or
|
(b)
|
as mortgagee in possession or otherwise, for any income or principal amount which might have been produced by or realized from any asset comprised in such a Security Interest or for any reduction (however caused) in the value of such an asset,
|
provided that
nothing in this Clause 20.8 shall exempt a Creditor Party or a receiver or manager from liability for losses shown to have been caused by the dishonesty or the willful misconduct of such Creditor Party's own officers and employees or (as the case may be) such receiver's or manager's own partners or employees.
20.9
|
Position of Swap Counterparties.
Neither the Agent nor the Security Trustee shall be obliged, in connection with any action taken or proposed to be taken under or pursuant to the foregoing provisions of this Clause 20, to have any regard to the requirements of a Swap Counterparty except to the extent that such Swap Counterparty is also a Lender.
|
21.1
|
Arrangement, commitment, agency fees.
The Borrower shall pay to the Agent:
|
(a)
|
an arrangement fee as required by the Fee Letter for distribution among the Lenders in the proportions agreed by the Agent and the Lead Arrangers;
|
(b)
|
a commitment fee as required by the Fee Letter for distribution among the Lenders pro rata to their Commitments; and
|
(c)
|
an annual agency fee as required by the Fee Letter.
|
21.2
|
Costs of negotiation, preparation etc.
The Borrower shall pay to the Agent on its demand the amount of all expenses incurred by the Agent or the Security Trustee in connection with the negotiation, preparation, execution or registration of any Finance Document or any related document or with any transaction contemplated by a Finance Document or a related document, including, without limitation, the reasonable fees and disbursements of a Creditor Party's legal counsel and any local counsel retained by them.
|
21.3
|
Costs of variations, amendments, enforcement etc.
The Borrower shall pay to the Agent, on the Agent's demand, for the account of the Creditor Party concerned, the amount of all expenses incurred by a Creditor Party in connection with:
|
(a)
|
any amendment or supplement to a Finance Document, or any proposal for such an amendment to be made;
|
(b)
|
any consent or waiver by the Lenders, the Swap Banks, the Majority Lenders or the Creditor Party concerned under or in connection with a Finance Document, or any request for such a consent or waiver;
|
(c)
|
the valuation of any Collateral provided or offered under Clause 15 or any other matter relating to such Collateral; or
|
(d)
|
any step taken by a Lender or a Swap Bank concerned with a view to the protection, exercise or enforcement of any right or Security Interest created by a Finance Document or for any similar purpose.
|
There shall be recoverable under paragraph (d) the full amount of all reasonable legal expenses, whether or not such as would be allowed under rules of court or any taxation or other procedure carried out under such rules.
21.4
|
Intentionally omitted.
|
21.5
|
Documentary taxes.
The Borrower shall promptly pay any tax payable on or by reference to any Finance Document, and shall, on the Agent's demand, fully indemnify each Creditor Party against any claims, expenses, liabilities and losses resulting from any failure or delay by the Borrower to pay such a tax.
|
21.6
|
Certification of amounts.
A notice which is signed by an officer of a Creditor Party, which states that a specified amount, or aggregate amount, is due to that Creditor Party under this Clause 21 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due.
|
22.1
|
Indemnities regarding borrowing and repayment of Loan.
The Borrower shall fully indemnify the Agent and each Lender on the Agent's demand and the Security Trustee on its demand in respect of all claims, expenses, liabilities and losses which are made or brought against or incurred by that Creditor Party, or which that Creditor Party reasonably and with due diligence estimates that it will incur, as a result of or in connection with:
|
(a)
|
an Advance not being borrowed on the date specified in the Drawdown Notice for any reason other than a default by the Lender claiming the indemnity;
|
(b)
|
the receipt or recovery of all or any part of the Loan or an overdue sum otherwise than on the last day of an Interest Period or other relevant period;
|
(c)
|
any failure (for whatever reason) by a Security Party to make payment of any amount due under a Finance Document on the due date or, if so payable, on demand (after giving credit for any default interest paid on the amount concerned under Clause 7);
|
(d)
|
the occurrence of an Event of Default or a Potential Event of Default and/or the acceleration of repayment of the Loan under Clause 20; or
|
(e)
|
any tax (other than tax on its overall net income) for which a Creditor Party is liable in connection with any amount paid or payable to that Creditor Party (whether for its own account or otherwise) under any Finance Document.
|
22.2
|
Breakage costs.
Without limiting its generality, Clause 22.1 covers any claim, expense, liability or loss, including a loss of a prospective profit, incurred by a Lender:
|
(a)
|
in liquidating or employing deposits from third parties acquired or arranged to fund or maintain all or any part of its Contribution and/or any overdue amount (or an aggregate amount which includes its Contribution or any overdue amount); and
|
(b)
|
in terminating, or otherwise in connection with, any interest and/or currency swap or any other transaction entered into (whether with another legal entity or with another office or department of the Lender concerned) to hedge any exposure arising under this Agreement or that part which the Lender concerned determines is fairly attributable to this Agreement of the amount of the liabilities, expenses or losses (including losses of prospective profits) incurred by it in terminating, or otherwise in connection with, a number of transactions of which this Agreement is one.
|
22.3
|
Miscellaneous indemnities.
The Borrower shall fully indemnify each Creditor Party severally on their respective demands in respect of all claims, expenses, liabilities and losses which may be made or brought against or incurred by a Creditor Party, in any country, as a result of or in connection with:
|
(a)
|
any action taken, or omitted or neglected to be taken, under or in connection with any Finance Document by the Agent, the Security Trustee or any other Creditor Party or by any receiver appointed under a Finance Document; or
|
(b)
|
any other Pertinent Matter, other than claims, expenses, liabilities and losses which are shown to have been caused by the dishonesty or willful misconduct of the officers or employees of the Creditor Party concerned.
|
Without prejudice to its generality, this Clause 22.3 covers any claims, expenses, liabilities and losses which arise, or are asserted, under or in connection with any law relating to safety at sea, the ISM Code, the ISPS Code or any Environmental Law.
22.4
|
Currency indemnity.
If any sum due from the Borrower or any other Security Party to a Creditor Party under a Finance Document or under any order or judgment relating to a Finance Document has to be converted from the currency in which the Finance Document provided for the sum to be paid (the "
Contractual Currency
") into another currency (the "
Payment Currency
") for the purpose of:
|
(a)
|
making or lodging any claim or proof against the Borrower or any other Security Party, whether in its liquidation, any arrangement involving it or otherwise; or
|
(b)
|
obtaining an order or judgment from any court or other tribunal; or
|
(c)
|
enforcing any such order or judgment, the Borrower shall indemnify the Creditor Party concerned against the loss arising when the amount of the payment actually received by that Creditor Party is converted at the available rate of exchange into the Contractual Currency.
|
In this Clause 22.4, the "
available rate of exchange
" means the rate at which the Creditor Party concerned is able at the opening of business (London time) on the Business Day after it receives the sum concerned to purchase the Contractual Currency with the Payment Currency.
This Clause 22.4 creates a separate liability of the Borrower which is distinct from its other liabilities under the Finance Documents and which shall not be merged in any judgment or order relating to those other liabilities.
22.5
|
Application to Master Agreements.
For the avoidance of doubt, Clause 22.4 does not apply in respect of sums due from the Borrower to a Swap Counterparty under or in connection with a Master Agreement as to which sums the provisions of section 8 (Contractual Currency) of that Master Agreement shall apply.
|
22.6
|
Certification of amounts.
A notice which is signed by an officer of a Creditor Party, which states that a specified amount, or aggregate amount, is due to that Creditor Party under this Clause 22 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due.
|
22.7
|
Sums deemed due to a Lender.
For the purposes of this Clause 22, a sum payable by the Borrower to the Agent or the Security Trustee for distribution to a Lender shall be treated as a sum due to that Lender.
|
23
|
NO SET-OFF OR TAX DEDUCTION
|
23.1
|
No deductions.
All amounts due from a Security Party under a Finance Document shall be paid:
|
(a)
|
without any form of set-off, cross-claim or condition; and
|
(b)
|
free and clear of any tax deduction except a tax deduction which such Security Party is required by law to make.
|
23.2
|
Grossing-up for taxes.
If a Security Party is required by law to make a tax deduction from any payment:
|
(a)
|
such Security Party shall notify the Agent as soon as it becomes aware of the requirement;
|
(b)
|
such Security Party shall pay the tax deducted to the appropriate taxation authority promptly, and in any event before any fine or penalty arises; and
|
(c)
|
the amount due in respect of the payment shall be increased by the amount necessary to ensure that each Creditor Party receives and retains (free from any liability relating to the tax deduction) a net amount which, after the tax deduction, is equal to the full amount which it would otherwise have received.
|
23.3
|
Evidence of payment of taxes.
Within one (1) month after making any tax deduction, the relevant Security Party shall deliver to the Agent documentary evidence satisfactory to the Agent that the tax had been paid to the appropriate taxation authority.
|
23.4
|
Exclusion of tax on overall net income.
In this Clause 23 "
tax deduction
" means any deduction or withholding for or on account of any present or future tax except tax on a Creditor Party's overall net income.
|
23.5
|
Indemnity for taxes.
The Borrower hereby indemnifies and agrees to hold each Creditor Party harmless from and against all taxes and other taxes (including, without limitation, taxes and other taxes imposed on any amounts payable under this Clause 23.5) paid or payable by such person, whether or not such taxes or other taxes were correctly or legally asserted. Such indemnification shall be paid within 10 days from the date on which such Creditor Party makes written demand therefore specifying in reasonable detail the nature and amount of such taxes or other taxes.
|
23.6
|
Exclusion from indemnity and gross-up for taxes.
The Borrower shall not be required to indemnify any Creditor Party pursuant to Clause 23.5, or pay any additional amounts to any Creditor Party pursuant to Clause 23.2, to the extent that:
|
(a)
|
the obligation to withhold amounts for taxes existed on the date such Lender (other than an original Lender) became a party to this Agreement or, with respect to payments to a New Lending Office, the date such Lender designated such New Lending Office with respect to a Loan;
provided that
this clause (a) shall not apply to the extent the indemnity payment or additional amounts any transferee, or Lender (or transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (a)) do not exceed the indemnity payment or additional amounts that the person making the transfer, or Lender (or transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such transfer or designation; or
|
(b)
|
the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with Clause 23.7 below.
|
23.7
|
Delivery of tax forms.
|
(a)
|
Each Lender or transferee that is organized under the laws of a jurisdiction outside the United States (a "
Non-U.S. Lender
") shall deliver to the Agent and the Borrower two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN, W-8ECI or W-8IMY or, upon request of the Borrower or the Agent, any subsequent versions thereof or successors thereto, in each case claiming complete exemption from, or a reduced rate of, U.S. Federal withholding tax with respect to payments of interest hereunder.
|
(b)
|
In addition, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code, such Non-U.S. Lender shall provide to the Agent and the Borrower a properly completed form W-8BEN and certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code), and such Non-U.S. Lender agrees that it shall promptly notify the Agent in the event any representation in such certificate is no longer accurate.
|
(c)
|
Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "
New Lending Office
"). In addition, each Non-U.S. Lender shall deliver such forms within 20 days after receipt of a written request therefor from the Agent or Borrower.
|
(d)
|
Notwithstanding any other provision of this Clause 23.7, a Non-U.S. Lender shall not be required to deliver any form pursuant to this Clause 23.7 that such Non-U.S. Lender is not legally able to deliver.
|
23.8
|
Application to Master Agreements.
For the avoidance of doubt, Clause 23 does not apply in respect of sums due from the Borrower to a Swap Counterparty under or in connection with a Master Agreement as to which sums the provisions of section 2(d) (Deduction or Withholding for Tax) of that Master Agreement shall apply.
|
24.1
|
Illegality.
This Clause 24 applies if a Lender (the "
Notifying Lender
") notifies the Agent that it has become, or will with effect from a specified date, become:
|
(a)
|
unlawful or prohibited as a result of the introduction of a new law, an amendment to an existing law or a change in the manner in which an existing law is or will be interpreted or applied; or
|
(b)
|
contrary to, or inconsistent with, any regulation,
|
for the Notifying Lender to maintain or give effect to any of its obligations under this Agreement in the manner contemplated by this Agreement.
24.2
|
Notification of illegality.
The Agent shall promptly notify the Borrower, the other Security Parties, the Security Trustee and the other Lenders of the notice under Clause 24.1 which the Agent receives from the Notifying Lender.
|
24.3
|
Prepayment; termination of Commitment.
On the Agent notifying the Borrower under Clause 24.2, the Notifying Lender's Commitment shall terminate; and thereupon or, if later, on the date specified in the Notifying Lender's notice under Clause 24.1 as the date on which the notified event would become effective the Borrower shall prepay the Notifying Lender's Contribution in accordance with Clause 8, without penalty, premium or breakage costs.
|
24.4
|
Mitigation
. If circumstances arise which would result in a notification under Clause 24.1 then, without in any way limiting the rights of the Notifying Lender under Clause 24.3, the Notifying Lender shall use reasonable endeavors to transfer its obligations, liabilities and rights under this Agreement and the Finance Documents to another office or financial institution not affected by the circumstances but the Notifying Lender shall not be under any obligation to take any such action if, in its opinion, to do would or might:
|
(a)
|
have an adverse effect on its business, operations or financial condition; or
|
(b)
|
involve it in any activity which is unlawful or prohibited or any activity that is contrary to, or inconsistent with, any regulation; or
|
(c)
|
involve it in any expense (unless indemnified to its satisfaction) or tax disadvantage.
|
25.1
|
Increased costs.
This Clause 25 applies if a Lender (the "
Notifying Lender
") notifies the Agent that the Notifying Lender considers that as a result of:
|
(a)
|
the introduction or alteration after the date of this Agreement of a law or an alteration after the date of this Agreement in the manner in which a law is interpreted or applied (disregarding any effect which relates to the application to payments under this Agreement of a tax on the Lender's overall net income); or
|
(b)
|
complying with any regulation (including any which relates to capital adequacy or liquidity controls or which affects the manner in which the Notifying Lender allocates capital resources to its obligations under this Agreement) which is introduced, or altered, or the interpretation or application of which is altered, after the date of this Agreement,
|
the Notifying Lender (or a parent company of it) has incurred or will incur an "
increased cost
".
25.2
|
Meaning of "increased costs".
In this Clause 25, "
increased costs
" means, in relation to a Notifying Lender:
|
(a)
|
an additional or increased cost incurred as a result of, or in connection with, the Notifying Lender having entered into, or being a party to, this Agreement or having taken an assignment of rights under this Agreement, of funding or maintaining its Commitment or Contribution or performing its obligations under this Agreement, or of having outstanding all or any part of its Contribution or other unpaid sums;
|
(b)
|
a reduction in the amount of any payment to the Notifying Lender under this Agreement or in the effective return which such a payment represents to the Notifying Lender or on its capital;
|
(c)
|
an additional or increased cost of funding all or maintaining all or any of the advances comprised in a class of advances formed by or including the Notifying Lender's Contribution or (as the case may require) the proportion of that cost attributable to the Contribution; or
|
(d)
|
a liability to make a payment, or a return foregone, which is calculated by reference to any amounts received or receivable by the Notifying Lender under this Agreement;
|
(e)
|
but not an item attributable to a change in the rate of tax on the overall net income of the Notifying Lender (or a parent company of it) or an item covered by the indemnity for tax in Clause 22.1 or by Clause 23 or an item arising directly out of the implementation or application of or compliance with the "International Convergence of Capital Measurement and Capital Standards, a Revised Framework" published by the Basel Committee on Banking Supervision in June 2004, in the form existing on the date of this Agreement ("
Basel II
") or any other law or regulation which implements Basel II (whether such implementation, application or compliance is by a government, regulator, Creditor Party or any of its affiliates).
|
For the purposes of this Clause 25.2 the Notifying Lender may in good faith allocate or spread costs and/or losses among its assets and liabilities (or any class of its assets and liabilities) on such basis as it considers appropriate.
25.3
|
Notification to Borrower of claim for increased costs.
The Agent shall promptly notify the Borrower and the other Security Parties of the notice which the Agent received from the Notifying Lender under Clause 25.1.
|
25.4
|
Payment of increased costs.
The Borrower shall pay to the Agent, on the Agent's demand, for the account of the Notifying Lender the amounts which the Agent from time to time notifies the Borrower that the Notifying Lender has specified to be necessary to compensate the Notifying Lender for the increased cost.
|
25.5
|
Notice of prepayment.
If the Borrower is not willing to continue to compensate the Notifying Lender for the increased cost under Clause 25.4, the Borrower may give the Agent not less than 14 days' notice of its intention to prepay the Notifying Lender's Contribution at the end of an Interest Period.
|
25.6
|
Prepayment; termination of Commitment.
A notice under Clause 25.5 shall be irrevocable; the Agent shall promptly notify the Notifying Lender of the Borrower's notice of intended prepayment; and:
|
(a)
|
on the date on which the Agent serves that notice, the Commitment of the Notifying Lender shall be cancelled; and
|
(b)
|
on the date specified in its notice of intended prepayment, the Borrower shall prepay (without premium or penalty) the Notifying Lender's Contribution, together with accrued interest thereon at the applicable rate plus the Margin.
|
25.7
|
Application of prepayment.
Clause 8 shall apply in relation to the prepayment.
|
26.1
|
Application of credit balances.
Each Creditor Party may, upon the occurrence and during the continuance of an Event of Default, without prior notice:
|
(a)
|
apply any balance (whether or not then due) which at any time stands to the credit of any account in the name of the Borrower at any office in any country of that Creditor Party in or towards satisfaction of any sum then due from the Borrower to that Creditor Party under any of the Finance Documents; and
|
|
(i)
|
break, or alter the maturity of, all or any part of a deposit of the Borrower;
|
|
(ii)
|
convert or translate all or any part of a deposit or other credit balance into Dollars; and
|
|
(iii)
|
enter into any other transaction or make any entry with regard to the credit balance which the Creditor Party concerned considers appropriate.
|
26.2
|
Existing rights unaffected.
No Creditor Party shall be obliged to exercise any of its rights under Clause 26.1; and those rights shall be without prejudice and in addition to any right of set-off, combination of accounts, charge, lien or other right or remedy to which a Creditor Party is entitled (whether under the general law or any document).
|
26.3
|
Sums deemed due to a Lender.
For the purposes of this Clause 26, a sum payable by the Borrower to the Agent or the Security Trustee for distribution to, or for the account of, a Lender shall be treated as a sum due to that Lender; and each Lender's proportion of a sum so payable for distribution to, or for the account of, the Lenders shall be treated as a sum due to such Lender.
|
26.4
|
No Security Interest.
This Clause 26 gives the Creditor Parties a contractual right of set-off only, and does not create any Security Interest over any credit balance of the Borrower.
|
27
|
TRANSFERS AND CHANGES IN LENDING OFFICES
|
27.1
|
Transfer by Borrower.
The Borrower may not, without the consent of the Agent, given on the instructions of the Majority Lenders, transfer any of its rights, liabilities or obligations under any Finance Document.
|
27.2
|
Transfer by a Lender.
Subject to Clause 27.4, a Lender (the "
Transferor Lender
") may at any time, without needing the consent of the Borrower or any other Security Party, cause:
|
(a)
|
its rights in respect of all or part of its Contribution; or
|
(b)
|
its obligations in respect of all or part of its Commitment; or
|
(c)
|
a combination of (a) and (b),
|
to be (in the case of its rights) transferred to, or (in the case of its obligations) assumed by, another bank or financial institution reasonably acceptable to the Borrower (a "
Transferee Lender
") which is regularly engaged in or established for the purpose of making, purchasing or investing in Loans, securities or other financial assets in the shipping industry and is not an Affiliate of the Borrower by delivering to the Agent a completed certificate in the form set out in Schedule 5 with any modifications approved or required by the Agent (a "
Transfer Certificate
") executed by the Transferor Lender and the Transferee Lender.
Notwithstanding the foregoing, any rights and obligations of the Transferor Lender in its capacity as Agent or Security Trustee shall be determined in accordance with Clause 31.
27.3
|
Transfer Certificate, delivery and notification.
As soon as reasonably practicable after a Transfer Certificate is delivered to the Agent, it shall (unless it has reason to believe that the Transfer Certificate may be defective):
|
(a)
|
sign the Transfer Certificate on behalf of itself, the Borrower, the other Security Parties, the Security Trustee, each of the other Lenders and each of the Swap Banks;
|
(b)
|
on behalf of the Transferee Lender, send to the Borrower and each other Security Party letters or faxes notifying them of the Transfer Certificate and attaching a copy of it;
|
(c)
|
send to the Transferee Lender copies of the letters or faxes sent under paragraph (b),
|
but the Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Transferor Lender and the Transferee Lender once it is satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations to the transfer to that Transferee Lender.
27.4
|
Effective Date of Transfer Certificate.
A Transfer Certificate becomes effective on the date, if any, specified in the Transfer Certificate as its effective date,
provided that
it is signed by the Agent under Clause 27.3 on or before that date.
|
27.5
|
No transfer without Transfer Certificate.
Except as provided in Clause 27.17, no assignment or transfer of any right or obligation of a Lender under any Finance Document is binding on, or effective in relation to, the Borrower, any other Security Party, the Agent or the Security Trustee unless it is effected, evidenced or perfected by a Transfer Certificate.
|
27.6
|
Lender re-organization; waiver of Transfer Certificate.
If a Lender enters into any merger, de-merger or other reorganization as a result of which all its rights or obligations vest in a successor, the Agent may, if it sees fit, by notice to the successor and the Borrower and the Security Trustee waive the need for the execution and delivery of a Transfer Certificate and, upon service of the Agent's notice, the successor shall become a Lender with the same Commitment and Contribution as were held by the predecessor Lender.
|
27.7
|
Effect of Transfer Certificate.
The effect of a Transfer Certificate is as follows:
|
(a)
|
to the extent specified in the Transfer Certificate, all rights and interests (present, future or contingent) which the Transferor Lender has under or by virtue of the Finance Documents are assigned to the Transferee Lender absolutely, free of any defects in the Transferor Lender's title and of any rights or equities which the Borrower or any other Security Party had against the Transferor Lender;
|
(b)
|
the Transferor Lender's Commitment is discharged to the extent specified in the Transfer Certificate;
|
(c)
|
the Transferee Lender becomes a Lender with the Contribution previously held by the Transferor Lender and a Commitment of an amount specified in the Transfer Certificate;
|
(d)
|
the Transferee Lender becomes bound by all the provisions of the Finance Documents which are applicable to the Lenders generally, including those about pro-rata sharing and the exclusion of liability on the part of, and the indemnification of, the Agent and the Security Trustee and, to the extent that the Transferee Lender becomes bound by those provisions (other than those relating to exclusion of liability), the Transferor Lender ceases to be bound by them;
|
(e)
|
any part of the Loan which the Transferee Lender advances after the Transfer Certificate's effective date ranks in point of priority and security in the same way as it would have ranked had it been advanced by the transferor, assuming that any defects in the transferor's title and any rights or equities of the Borrower or any other Security Party against the Transferor Lender had not existed;
|
(f)
|
the Transferee Lender becomes entitled to all the rights under the Finance Documents which are applicable to the Lenders generally, including but not limited to those relating to the Majority Lenders and those under Clause 5.7 and Clause 21, and to the extent that the Transferee Lender becomes entitled to such rights, the Transferor Lender ceases to be entitled to them; and
|
(g)
|
in respect of any breach of a warranty, undertaking, condition or other provision of a Finance Document or any misrepresentation made in or in connection with a Finance Document, the Transferee Lender shall be entitled to recover damages by reference to the loss incurred by it as a result of the breach or misrepresentation, irrespective of whether the original Lender would have incurred a loss of that kind or amount.
|
The rights and equities of the Borrower or any other Security Party referred to above include, but are not limited to, any right of set off and any other kind of cross-claim.
27.8
|
Maintenance of register of Lenders.
During the Security Period the Agent shall maintain a register in which it shall record the name, Commitment, Contribution and administrative details (including the lending office) from time to time of each Lender holding a Transfer Certificate and the effective date (in accordance with Clause 27.4) of the Transfer Certificate; and the Agent shall make the register available for inspection by any Lender, the Security Trustee and the Borrower during normal banking hours, subject to receiving at least three (3) Business Days' prior notice.
|
27.9
|
Reliance on register of Lenders.
The entries on that register shall, in the absence of manifest error, be conclusive in determining the identities of the Lenders and the amounts of their Commitments and Contributions and the effective dates of Transfer Certificates and may be relied upon by the Agent and the other parties to the Finance Documents for all purposes relating to the Finance Documents.
|
27.10
|
Authorization of Agent to sign Transfer Certificates.
The Borrower, the Security Trustee, each Lender and each Swap Bank irrevocably authorizes the Agent to sign Transfer Certificates on its behalf.
|
27.11
|
Registration fee.
In respect of any Transfer Certificate, the Agent shall be entitled to recover a registration fee of $5,000 from the Transferor Lender or (at the Agent's option) the Transferee Lender.
|
27.12
|
Sub-participation; subrogation assignment.
A Lender may sub-participate all or any part of its rights and/or obligations under or in connection with the Finance Documents without the consent of, or any notice to, the Borrower, any other Security Party, the Agent or the Security Trustee; and the Lenders may assign, in any manner and terms agreed by the Majority Lenders, the Agent and the Security Trustee, all or any part of those rights to an insurer or surety who has become subrogated to them.
|
27.13
|
Disclosure of information.
A Lender may disclose to a potential Transferee Lender or sub-participant any information which the Lender has received in relation to the Borrower, any other Security Party or their affairs under or in connection with any Finance Document, unless the information is clearly of a confidential nature.
|
27.14
|
Change of lending office.
A Lender may change its lending office by giving notice to the Agent and the change shall become effective on the later of:
|
(a)
|
the date on which the Agent receives the notice; and
|
(b)
|
the date, if any, specified in the notice as the date on which the change will come into effect.
|
27.15
|
Notification.
On receiving such a notice, the Agent shall notify the Borrower and the Security Trustee; and, until the Agent receives such a notice, it shall be entitled to assume that a Lender is acting through the lending office of which the Agent last had notice.
|
27.16
|
Intentionally omitted.
|
27.17
|
Security over Lenders' rights.
In addition to the other rights provided to Lenders under this Clause 27, each Lender may without consulting with or obtaining consent from the Borrower or any other Security Party, at any time charge, assign or otherwise create a Security Interest in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender including, without limitation:
|
(a)
|
any charge, assignment or other Security Interest to secure obligations to a federal reserve or central bank; and
|
(b)
|
in the case of any Lender which is a fund, any charge, assignment or other Security Interest granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities;
|
except that no such charge, assignment or Security Interest shall:
|
(i)
|
release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or Security Interest for the Lender as a party to any of the Finance Documents; or
|
|
(ii)
|
require any payments to be made by the Borrower or any other Security Party or grant to any person any more extensive rights than those required to be made or granted to the relevant Lender under the Finance Documents.
|
28
|
VARIATIONS AND WAIVERS
|
28.1
|
Variations, waivers etc. by Majority Lenders.
Subject to Clause 28.2, a document shall be effective to vary, waive, suspend or limit any provision of a Finance Document, or any Creditor Party's rights or remedies under such a provision or the general law, only if the document is signed, or specifically agreed to by fax, by the Borrower, by the Agent on behalf of the Majority Lenders, by the Agent and the Security Trustee in their own rights, and, if the document relates to a Finance Document to which a Security Party is party, by that Security Party.
|
28.2
|
Variations, waivers etc. requiring agreement of all Lenders.
As regards the following, Clause 28.1 applies as if the words "by the Agent on behalf of the Majority Lenders" were replaced by the words "by or on behalf of every Lender":
|
(a)
|
a reduction in the Margin;
|
(b)
|
a postponement to the date for, or a reduction in the amount of, any payment of principal, interest, fees or other sum payable under this Agreement;
|
(c)
|
a change to the definition of "
Majority Lenders
";
|
(d)
|
a change to Clause 3 or this Clause 28;
|
(e)
|
any release of, or material variation to, a Security Interest, guarantee, indemnity or subordination arrangement set out in a Finance Document; and
|
(f)
|
any other change or matter as regards which this Agreement or another Finance Document expressly provides that each Lender's consent is required.
|
28.3
|
Increase in Commitments
. A document shall be effective to increase a Lender's Commitment only if such document is executed and delivered by the Borrower and such Lender.
|
28.4
|
Variations, waivers etc. relating to the Servicing Banks.
An amendment or waiver that relates to the rights or obligations of the Agent or the Security Trustee under Clause 31 may not be effected without the consent of the Agent or the Security Trustee.
|
28.5
|
Exclusion of other or implied variations.
Except for a document which satisfies the requirements of Clauses 28.1, 28.2, 28.3 or 28.4, no document, and no act, course of conduct, failure or neglect to act, delay or acquiescence on the part of the Creditor Parties or any of them (or any person acting on behalf of any of them) shall result in the Creditor Parties or any of them (or any person acting on behalf of any of them) being taken to have varied, waived, suspended or limited, or being precluded (permanently or temporarily) from enforcing, relying on or exercising:
|
(a)
|
a provision of this Agreement or another Finance Document; or
|
(b)
|
an Event of Default; or
|
(c)
|
a breach by the Borrower or another Security Party of an obligation under a Finance Document or the general law; or
|
(d)
|
any right or remedy conferred by any Finance Document or by the general law, and there shall not be implied into any Finance Document any term or condition requiring any such provision to be enforced, or such right or remedy to be exercised, within a certain or reasonable time.
|
29.1
|
General.
Unless otherwise specifically provided, any notice under or in connection with any Finance Document shall be given by letter or fax and references in the Finance Documents to written notices, notices in writing and notices signed by particular persons shall be construed accordingly.
|
29.2
|
Addresses for communications.
A notice by letter or fax shall be sent:
|
(a)
|
to the Borrower
|
Scorpio Tankers Inc.
|
|
or any Guarantor:
|
9, Boulevard Charles III
|
|
|
Monaco 98000
|
|
|
|
|
|
Attention: Luca Forgione
|
|
|
|
|
with a copy to:
|
150 E. 58
th
Street
|
|
|
New York, New York 10155
|
|
|
|
|
|
Attention: Chief Financial Officer
|
|
|
|
|
|
Fax No: +212-542-1618
|
|
|
|
(b)
|
to a Lender:
|
At the address below its name in Schedule 1 or in the relevant Transfer Certificate or Lender Accession Agreement.
|
|
|
|
(c)
|
to a Swap Bank
|
At the address below its name in Schedule 2 or in the relevant Swap Bank Accession Agreement.
|
|
|
|
(d)
|
to the Agent:
|
Nordea Bank Finland PLC, New York Branch
|
|
|
437 Madison Avenue
|
|
|
New York, New York 10022
|
|
|
|
|
|
Attention: Loan Administration
|
|
|
|
|
|
Fax No: +212-750-9188
|
|
|
|
(e)
|
to the Security Trustee:
|
Nordea Bank Finland PLC, New York Branch
|
|
|
437 Madison Avenue
|
|
|
New York, New York 10022
|
|
|
|
|
|
Attention: Loan Administration
|
|
|
|
|
|
Fax No: +212-750-9188
|
|
|
|
or to such other address as the relevant party may notify the Agent or, if the relevant party is the Agent or the Security Trustee, the Lenders, the Swap Banks and the Security Parties.
29.3
|
Effective date of notices.
Subject to Clauses 29.4 and 29.5:
|
(a)
|
a notice which is delivered personally or posted shall be deemed to be served, and shall take effect, at the time when it is delivered; and
|
(b)
|
a notice which is sent by fax shall be deemed to be served, and shall take effect, two (2) hours after its transmission is completed.
|
29.4
|
Service outside business hours.
However, if under Clause 29.3 a notice would be deemed to be served:
|
(a)
|
on a day which is not a business day in the place of receipt; or
|
(b)
|
on such a business day, but after 5:00 p.m. local time,
|
the notice shall (subject to Clause 29.5) be deemed to be served, and shall take effect, at 9:00 a.m. on the next day which is such a business day.
29.5
|
Illegible notices.
Clauses 29.3 and 29.4 do not apply if the recipient of a notice notifies the sender within 1 hour after the time at which the notice would otherwise be deemed to be served that the notice has been received in a form which is illegible in a material respect.
|
29.6
|
Valid notices.
A notice under or in connection with a Finance Document shall not be invalid by reason that its contents or the manner of serving it do not comply with the requirements of this Agreement or, where appropriate, any other Finance Document under which it is served if:
|
(a)
|
the failure to serve it in accordance with the requirements of this Agreement or other Finance Document, as the case may be, has not caused any party to suffer any significant loss or prejudice; or
|
(b)
|
in the case of incorrect and/or incomplete contents, it should have been reasonably clear to the party on which the notice was served what the correct or missing particulars should have been.
|
29.7
|
Electronic communication.
Any communication to be made between the Agent and a Lender under or in connection with the Finance Documents may be made by electronic mail or other electronic means, if the Agent and the relevant Lender:
|
(a)
|
agree that, unless and until notified to the contrary, this is to be an accepted form of communication;
|
(b)
|
notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and
|
(c)
|
notify each other of any change to their respective addresses or any other such information supplied to them.
|
Any electronic communication made between the Agent and a Lender will be effective only when actually received in readable form and, in the case of any electronic communication made by a Lender to the Agent, only if it is addressed in such a manner as the Agent shall specify for this purpose.
29.8
|
English language.
Any notice under or in connection with a Finance Document shall be in English.
|
29.9
|
Meaning of "notice".
In this Clause 29, "
notice
" includes any demand, consent, authorization, approval, instruction, waiver or other communication.
|
30.1
|
Rights cumulative, non-exclusive.
The rights and remedies which the Finance Documents give to each Creditor Party are:
|
(b)
|
may be exercised as often as appears expedient; and
|
(c)
|
shall not, unless a Finance Document explicitly and specifically states so, be taken to exclude or limit any right or remedy conferred by any law.
|
30.2
|
Severability of provisions.
If any provision of a Finance Document is or subsequently becomes void, unenforceable or illegal, that shall not affect the validity, enforceability or legality of the other provisions of that Finance Document or of the provisions of any other Finance Document.
|
30.3
|
Counterparts.
A Finance Document may be executed in any number of counterparts.
|
30.4
|
Binding Effect.
This Agreement shall become effective on the Effective Date and thereafter shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.
|
31.1
|
Appointment and Granting.
|
(a)
|
The Agent
. Each of the Lenders and the Swap Banks irrevocably appoints and authorizes the Agent to act as its agent hereunder and under any of the other Finance Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of any of the other Finance Documents, together with such other powers as are reasonably incidental thereto.
|
(b)
|
The Security Trustee.
|
|
(i)
|
Authorization of Security Trustee
. Each of the Lenders, the Swap Banks and the Agent irrevocably appoints and authorizes the Security Trustee to act as security trustee hereunder and under the other Finance Documents (other than the Notes) with such powers as are specifically delegated to the Security Trustee by the terms of this Agreement and such other Finance Documents, together with such other powers as are reasonably incidental thereto.
|
|
(ii)
|
Granting Clause
. To secure the payment of all sums of money from time to time owing (i) to the Lenders under the Finance Documents in the maximum principal amount of the Total Commitments plus accrued interest thereon, and (ii) to the Swap Banks under the Master Agreements in the maximum principal amount of 25% of the Total Commitments plus accrued interest thereon, and the performance of the covenants of the Borrower and any other Security Party herein and therein contained, and in consideration of the premises and of the covenants herein contained and of the extensions of credit by the Lenders, the Security Trustee does hereby declare that it will hold as such trustee in trust for the benefit of the Lenders, the Agent and the Swap Bank, from and after the execution and delivery thereof, all of its right, title and interest as mortgagee in, to and under the Mortgages and its right, title and interest as assignee and secured party under the other Finance Documents (the right, title and interest of the Security Trustee in and
|
|
to the property, rights and privileges described above, from and after the execution and delivery thereof, and all property hereafter specifically subjected to the Security Interest of the indenture created hereby and by the Finance Documents by any amendment hereto or thereto are herein collectively called the "
Estate
"); TO HAVE AND TO HOLD the Estate unto the Security Trustee and its successors and assigns forever, BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Lenders, the Agent and the Swap Banks and their respective successors and assigns without any priority of any one over any other, UPON THE CONDITION that, unless and until an Event of Default under this Agreement shall have occurred and be continuing, the Guarantors shall be permitted, to the exclusion of the Security Trustee, to possess and use the Ships. IT IS HEREBY COVENANTED, DECLARED AND AGREED that all property subject or to become subject hereto is to be held, subject to the further covenants, conditions, uses and trusts hereinafter set forth, and each Security Party, for itself and its respective successors and assigns, hereby covenants and agrees to and with the Security Trustee and its successors in said trust, for the equal and proportionate benefit and security of the Lenders, the Agent and the Swap Banks as hereinafter set forth.
|
|
(iii)
|
Acceptance of Trusts
. The Security Trustee hereby accepts the trusts imposed upon it as Security Trustee by this Agreement, and the Security Trustee covenants and agrees to perform the same as herein expressed and agrees to receive and disburse all monies constituting part of the Estate in accordance with the terms hereof.
|
31.2
|
Scope of Duties
. Neither the Agent nor the Security Trustee (which terms as used in this sentence and in Clause 31.5 hereof shall include reference to their respective affiliates and their own respective and their respective affiliates' officers, directors, employees, agents and attorneys-in-fact):
|
(a)
|
shall have any duties or responsibilities except those expressly set forth in this Agreement and in any of the Finance Documents, and shall not by reason of this Agreement or any of the Finance Documents be (except, with respect to the Security Trustee, as specifically stated to the contrary in this Agreement) a trustee for a Lender or a Swap Bank;
|
(b)
|
shall be responsible to the Lenders or the Swap Banks for any recitals, statements, representations or warranties contained in this Agreement or in any of the Finance Documents, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any of the Finance Documents, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the Finance Documents or any other document referred to or provided for herein or therein or for any failure by any of the Security Parties or any other person to perform any of its obligations hereunder or thereunder or for the location, condition or value of any property covered by any Security Interest under any of the Finance Documents or for the creation, perfection or priority of any such lien;
|
(c)
|
shall be required to initiate or conduct any litigation or collection proceedings hereunder or under any of the Finance Documents unless expressly instructed to do so in writing by the Majority Lenders; or
|
(d)
|
shall be responsible for any action taken or omitted to be taken by it hereunder or under any of the Finance Documents or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. Each of the Security Trustee and the Agent may employ agents and attorneys-in-fact and neither the Security Trustee nor the Agent shall be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. Each of the Security Trustee and the Agent may deem and treat the payee of a Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Agent, together with the written consent of the Borrower to such assignment or transfer.
|
31.3
|
Reliance
. Each of the Security Trustee and the Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telefacsimile, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper person or persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Security Trustee or the Agent, as the case may be. As to any matters not expressly provided for by this Agreement or any of the Finance Documents, each of the Security Trustee and the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions signed by the Majority Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders.
|
31.4
|
Knowledge.
Neither the Security Trustee nor the Agent shall be deemed to have knowledge or notice of the occurrence of a Potential Event of Default or Event of Default (other than, in the case of the Agent, the non-payment of principal of or interest on the Loan) unless each of the Security Trustee and the Agent has received notice from a Lender or the Borrower specifying such Potential Event of Default or Event of Default and stating that such notice is a "Notice of Default". If the Agent receives such a notice of the occurrence of such Potential Event of Default or Event of Default, the Agent shall give prompt notice thereof to the Security Trustee, the Swap Bank and the Lenders (and shall give each Lender prompt notice of each such non-payment). Subject to Clause 31.8 hereof, the Security Trustee and the Agent shall take such action with respect to such Potential Event of Default or Event of Default or other event as shall be directed by the Majority Lenders, except that, unless and until the Security Trustee and the Agent shall have received such directions, each of the Security Trustee and the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Potential Event of Default or Event of Default or other event as it shall deem advisable in the best interest of the Lenders and the Swap Banks.
|
31.5
|
Security Trustee and Agent as Lenders
. Each of the Security Trustee and the Agent (and any successor acting as Security Trustee or Agent, as the case may be) in its individual capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Security Trustee or the Agent, as the case may be, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include each of the Security Trustee and the Agent in their respective individual capacities. Each of the Security Trustee and the Agent (and any successor acting as Security Trustee and Agent, as the case may be) and their respective affiliates may (without having to account therefor to a Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower and any of its subsidiaries or Affiliates as if it were not acting as the Security Trustee or the Agent, as the case may be, and each of the Security Trustee and the Agent and their respective affiliates may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders.
|
31.6
|
Indemnification of Security Trustee and Agent.
The Lenders agree to indemnify each of the Agent and the Security Trustee (to the extent not reimbursed under other provisions of this Agreement, but without limiting the obligations of the Borrower under said other provisions, ratably in accordance with the aggregate principal amount of each Lenders' participation in the Loan), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Security Trustee or the Agent in any way relating to or arising out of this Agreement or any of the Finance Documents or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby (including, without limitation, the costs and expenses which the Borrower is to pay hereunder, but excluding, unless an Event of Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of their respective agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, except that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified.
|
31.7
|
Reliance on Security Trustee or Agent.
Each Lender and each Swap Bank agrees that it has, independently and without reliance on the Security Trustee, the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Security Trustee, the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the Finance Documents. None of the Security Trustee or the Agent shall be required to keep itself informed as to the performance or observance by the Borrower of this Agreement or any of the Finance Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders and/or the Swap Banks by the Security Trustee or the Agent hereunder, neither the Security Trustee nor the Agent shall have any duty or responsibility to provide a Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any of its respective parents, subsidiaries or Affiliates which may come into the possession of the Security Trustee, the Agent or any of their respective affiliates.
|
31.8
|
Actions by Security Trustee and Agent.
Except for action expressly required of the Security Trustee or the Agent hereunder and under the other Finance Documents, each of the Security Trustee and the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Clause 31.5 against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.
|
31.9
|
Resignation and Removal.
Subject to the appointment and acceptance of a successor Security Trustee or Agent (as the case may be) as provided below, each of the Security Trustee and the Agent may resign at any time by giving notice thereof to the Lenders, the Swap Banks and the Borrower, and the Security Trustee or the Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Security Trustee or Agent, as the case may be. If no successor Security Trustee or Agent, as the case may be, shall have been so appointed by the Lenders or, if appointed, shall not have accepted such appointment within 30 days after the retiring Security Trustee's or Agent's, as the case may be, giving of notice of resignation or the Majority Lenders' removal of the retiring Security Trustee or Agent, as the case may be, then the retiring Security Trustee or Agent, as the case may be, may, on behalf of the Lenders and the Swap Banks, appoint a successor Security Trustee or Agent. Upon the acceptance of any appointment as Security Trustee or Agent hereunder by a successor Security Trustee or Agent, such successor Security Trustee or Agent, as the case may be, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Security Trustee or Agent, as the case may be, and the retiring Security Trustee or Agent shall be discharged from its duties and obligations hereunder. After any retiring Security Trustee or Agent's resignation or removal hereunder as Security Trustee or Agent, as the case may be, the provisions of this Clause 31 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Security Trustee or the Agent, as the case may be.
|
31.10
|
Release of Collateral.
Without the prior written consent of the Lenders and the Swap Banks, and subject to the requirements of Clause 28, neither the Security Trustee nor the Agent will consent to any modification, supplement or waiver under any of the Finance Documents nor without the prior written consent of all of the Lenders and the Swap Bank release any Collateral or otherwise terminate any lien under the Finance Documents, except that no such consent is required, and each of the Security Trustee and the Agent is authorized, to release any lien covering property if the obligations have been paid and performed in full or which is the subject of a disposition of property permitted hereunder or to which the Lenders and the Swap Banks have consented.
|
32.1
|
Governing law.
THIS AGREEMENT AND THE OTHER FINANCE DOCUMENTS (EXCEPT AS OTHERWISE PROVIDED IN A FINANCE DOCUMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
|
(a)
|
Each of the Security Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York County, and any appellate court thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Finance Documents to which such Security Party is a party or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State Court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
|
(b)
|
Nothing in this Clause 32.2 shall affect the right of a Creditor Party to bring any action or proceeding against a Security Party or its property in the courts of any other jurisdictions where such action or proceeding may be heard.
|
(c)
|
Each of the Security Parties hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court and any immunity from jurisdiction of any court or from any legal process with respect to itself or its property.
|
(d)
|
Each of the Security Parties hereby agrees to appoint Seward & Kissel LLP, with offices currently located at One Battery Park Plaza, New York, New York 10004, Attention: Lawrence Rutkowski, as its designated agent for service of process for any action or proceeding arising out of or relating to this Agreement or any other Finance Document. Each of the Security Parties also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to its address specified in Clause 29.2. Each of the Security Parties also agrees that service of process may be made on it by any other method of service provided for under the applicable laws in effect in the State of New York.
|
32.2
|
Creditor Party rights unaffected.
Nothing in this Clause 32 shall exclude or limit any right which any Creditor Party may have (whether under the law of any country, an international convention or otherwise) with regard to the bringing of proceedings, the service of process, the recognition or enforcement of a judgment or any similar or related matter in any jurisdiction.
|
32.3
|
Meaning of "proceedings".
In this Clause 32, "
proceedings
" means proceedings of any kind, including an application for a provisional or protective measure
|
33.1
|
WAIVER.
EACH OF THE SECURITY PARTIES AND THE CREDITOR PARTIES MUTUALLY AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
|
34.1
|
PATRIOT Act Notice.
Each of the Agent and the Lenders hereby notifies the Security Parties that pursuant to the requirements of the PATRIOT Act and the Agent's, each Lender's policies and practices, the Agent, each of the Lenders is required to obtain, verify and record certain information and documentation that identifies each Security Party, which information includes the name and address of each Security Party and such other information that will allow the Agent and each of the Lenders to identify each Security Party in accordance with the PATRIOT Act.
|
|
[SIGNATURE PAGE FOLLOWS ON NEXT PAGE]
|
EXECUTION PAGE
WHEREFORE, the parties hereto have caused this Loan Agreement to be executed as of the date first above written.
SCORPIO TANKERS INC., as Borrower
By: /s/ Brian M. Lee
Name: Brian M. Lee
Title: Attorney-in-Fact
NOEMI SHIPPING COMPANY LIMITED, as Guarantor
By: /s/ Brian M. Lee
Name: Brian M. Lee
Title: Attorney-in-Fact
|
NORDEA BANK FINLAND PLC, NEW YORK BRANCH, as Lender, Agent, Security Trustee, Lead Arranger and Swap Bank
By: /s/ Martin Lunder
Name: Martin Lunder
Title: Senior Vice President
By: /s/ Martin Kahm
Name: Martin Kahm
Title: First Vice President
|
SENATORE SHIPPING COMPANY LIMITED, as Guarantor
By: /s/ Brian M. Lee
Name: Brian M. Lee
Title: Attorney-in-Fact
VENICE SHIPPING COMPANY LIMITED, as Guarantor
By: /s/ Brian M. Lee
Name: Brian M. Lee
Title: Attorney-in-Fact
|
DNB NOR BANK ASA, as Lender, Lead Arranger and Swap Bank
By: /s/ Nikolai A. Nachamkin
Name: Nikolai A. Nachamkin
Title: Senior Vice President
By: /s/ Cathleen Buckley
Name: Cathleen Buckley
Title: First Vice President
|
|
FORTIS BANK (NEDERLAND) N.V., as Lender, Lead Arranger and Swap Bank
By: /s/ K.H. Tieleman
Name: K.H. Tieleman
Title:
By: /s/ P.R. Vogelzang
Name: P.R. Vogelzang
Title:
|
SCHEDULE 1
LENDERS AND COMMITMENTS
Lender
|
Lending Office
|
Commitment
|
Nordea Bank Finland PLC, New York Branch
Address for Notices
:
437 Madison Avenue
New York, New York 10022
Attention: Martin Kahm
Fax No.: +212-421-4420
Email: martin.kahm@nordea.com
|
437 Madison Avenue
New York, New York 10022
|
$50,000,000
|
DNB NOR Bank ASA
Address for Notices
:
200 Park Avenue, 31st Floor
New York, NY 10166-0396
Attention: Nikolai Nachamkin
Fax: +212-681-3900
Email: nikolai.nachamkin@dnbnor.no
|
200 Park Avenue
New York, New York 10166
|
$50,000,000
|
Fortis Bank (Nederland) N.V.
Address for Notices
:
Coolsingel 93
3012 AE Rotterdam
The Netherlands
Attnetion: Philip van Aerssen
Fax: +31-(0)10-401-5323
Email: philip.van.aerssen@nl.fortis.com
|
Coolsingel 93
3012 AE Rotterdam
The Netherlands
|
$50,000,000
|
SCHEDULE 2
SWAP BANKS
Swap Bank
|
Booking Office
|
Nordea Bank Finland PLC, New York Branch
Address for Notices
:
437 Madison Avenue
New York, New York 10022
Attention: Martin Kahm
Fax No.: +212-421-4420
Email: martin.kahm@nordea.com
|
|
DNB NOR Bank ASA
Address for Notices
:
200 Park Avenue, 31st Floor
New York, NY 10166-0396
Attention: Nikolai Nachamkin
Fax: +212-681-3900
Email: nikolai.nachamkin@dnbnor.no
|
|
Fortis Bank (Nederland) N.V.
Address for Notices
:
Coolsingel 93
3012 AE Rotterdam
The Netherlands
Attention: Philip van Aerssen
Fax: +31-(0)10-401-5323
Email: philip.van.aerssen@nl.fortis.com
|
|
Exhibit 4.2
SCORPIO TANKERS INC.
2010 EQUITY INCENTIVE PLAN
ARTICLE I.
General
1.1. Purpose
The Scorpio Tankers Inc. 2010 Equity Incentive Plan (the "Plan") is designed to provide certain key Persons (as defined below), whose initiative and efforts are deemed to be important to the successful conduct of the business of Scorpio Tankers Inc. (the "Company"), with incentives to (a) enter into and remain in the service of the Company or its Affiliates (as defined below), (b) acquire a proprietary interest in the success of the Company, (c) maximize their performance and (d) enhance the long-term performance of the Company.
1.2. Administration
(a)
Administration
. The Plan shall be administered by the Compensation Committee (the "Compensation Committee") of the Company's Board of Directors (the "Board"), or such other committee of the Board as may be designated by the Board to administer the Plan (the "Administrator");
provided
that (i) in the event the Company is subject to Section 16 of the U.S. Securities Exchange Act of 1934, as amended (the "1934 Act"), the Administrator shall be composed of two or more directors, each of whom is a "Non-Employee Director" (a "Non-Employee Director") under Rule 16b-3 (as promulgated and interpreted by the Securities and Exchange Commission (the "SEC") under the 1934 Act, or any successor rule or regulation thereto as in effect from time to time), and (ii) the Administrator shall be composed solely of two or more directors who are "independent directors" under the rules of any stock exchange on which the Company's Common Stock (as defined below) is traded;
provided
further
, however, that, (A) the requirement in the preceding clause (i) shall apply only when required to exempt an Award intended to qualify for an exemption under the applicable provisions referenced therein, (B) the requirement in the preceding clause (ii) shall apply only when required pursuant to the applicable rules of the applicable stock exchange and (C) if at any time the Administrator is not so composed as required by the preceding provisions of this sentence, that fact will not invalidate any grant made, or action taken, by the Administrator hereunder that otherwise satisfies the terms of the Plan. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Administrator by the Plan, the Administrator shall have the full power and authority to: (1) designate the Persons to receive Awards (as defined below) under the Plan; (2) determine the types of Awards granted to a participant under the Plan; (3) determine the number of shares to be covered by, or with respect to which payments, rights or other matters are to be calculated with respect to, Awards; (4) determine the terms and conditions of any Awards; (5) determine whether, and to what extent, and under what circumstances, Awards may be settled or exercised in cash, shares, other securities, other Awards or other property, or cancelled, forfeited or suspended, and the methods by which Awards may be settled, exercised, cancelled, forfeited or suspended; (6) determine whether, to what extent, and under what circumstances cash, shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred, either automatically or at the election of the holder thereof or the Administrator; (7) construe, interpret and implement
the Plan and any Award Agreement (as defined below); (8) prescribe, amend, rescind or waive rules and regulations relating to the Plan, including rules governing its operation, and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (9) make all determinations necessary or advisable in administering the Plan; (10) correct any defect, supply any omission and reconcile any inconsistency in the Plan or any Award Agreement; and (11) make any other determination and take any other action that the Administrator deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Administrator, may be made at any time and shall be final, conclusive and binding upon all Persons.
(b)
General Right of Delegation
. Except to the extent prohibited by applicable law, the applicable rules of a stock exchange or any charter, by-laws or other agreement governing the Administrator, the Administrator may delegate all or any part of its responsibilities to any Person or Persons selected by it and may revoke any such allocation or delegation at any time.
(c)
Indemnification
. No member of the Board, the Administrator or any employee of the Company or any of its Affiliates (each such Person, a "Covered Person") shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award hereunder. Each Covered Person shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability or expense (including attorneys' fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and (ii) any and all amounts paid by such Covered Person, with the Company's approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person;
provided
that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and, once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company's choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case not subject to further appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person's bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company's amended and restated Articles of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which Covered Persons may be entitled under the Company's amended and restated Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such Persons or hold them harmless.
(d)
Delegation of Authority to Senior Officers
. The Administrator may, in accordance with the terms of Section 1.2(b), delegate, on such terms and conditions as it determines, to one or more senior officers of the Company the authority to make grants of Awards to employees (other than officers) of the Company and its Subsidiaries (as defined below)(including any such prospective employee) and consultants of the Company and its Subsidiaries;
provided
,
however
, that in no event shall any such officer be delegated the
authority to grant Awards to, or amend Awards held by, the following individuals: (i) individuals who are subject to Section 16 of the 1934 Act, or (ii) officers of the Company (or directors of the Company) to whom authority to grant or amend Awards has been delegated hereunder.
(e)
Awards to Non-Employee Directors
. Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards to Non-Employee Directors or administer the Plan with respect to such Awards. In any such case, the Board shall have all the authority and responsibility granted to the Administrator herein.
1.3. Persons Eligible for Awards
The Persons eligible to receive Awards under the Plan are those directors, officers and employees (including any prospective officer or employee) of the Company and its Subsidiaries and Affiliates and consultants and service providers (including individuals who are employed by or provide services to any entity that is itself such a consultant or service provider) to the Company and its Subsidiaries and Affiliates (collectively, "Key Persons") as the Administrator shall select.
1.4. Types of Awards
Awards may be made under the Plan in the form of (a) "incentive stock options" that are intended to qualify for special U.S. federal income tax treatment pursuant to Sections 421 and 422 of the Code (as defined below), as may be amended from time to time, or pursuant to a successor provision of the Code, and which is so designated in the applicable Award Agreement, (b) non-qualified stock options (i.e., any stock options granted under the Plan that are not "incentive stock options"), (c) stock appreciation rights, (d restricted stock, (e) restricted stock units and (f) unrestricted stock, all as more fully set forth in the Plan. The term "Award" means any of the foregoing that are granted under the Plan.
1.5. Shares Available for Awards; Adjustments for Changes in Capitalization
(a)
Maximum Number
. Subject to adjustment as provided in Section 1.5(c), the aggregate number of shares of common stock of the Company, par value $0.01 ("Common Stock"), with respect to which Awards may at any time be granted under the Plan shall be 1,148,916. The following shares of Common Stock shall again become available for Awards under the Plan: (i) any shares that are subject to an Award under the Plan and that remain unissued upon the cancellation or termination of such Award for any reason whatsoever; (ii) any shares of restricted stock forfeited pursuant to the Plan or the applicable Award Agreement;
provided
that any dividend equivalent rights with respect to such shares that have not theretofore been directly remitted to the grantee are also forfeited; and (iii) any shares in respect of which an Award is settled for cash without the delivery of shares to the grantee. Any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again become available to be delivered pursuant to Awards under the Plan.
(b)
Source of Shares
. Shares issued pursuant to the Plan may be authorized but unissued Common Stock or treasury shares. The Administrator may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares.
(c)
Adjustments
. (i) In the event that any dividend or other distribution (whether in the form of cash, Company shares, other securities or other property), stock split, reverse stock split, reorganization, merger, consolidation, split-up, combination, repurchase or exchange of Company shares or other securities of the Company, issuance of warrants or other rights to purchase Company shares or other securities of the Company, or other similar corporate transaction or event, other than an Equity Restructuring (as defined below), affects the Company shares such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of the number of shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted under the Plan, including the maximum number of shares issuable to an individual as set forth in Section 1.5(d).
(ii) In the event of any unusual or nonrecurring events (including a change in the capitalization of the Company or the events described in Section 1.5(c)(i) or the occurrence of a Change in Control (as defined below)) affecting the Company, any of its Affiliates, or the financial statements of the Company or any of its Affiliates, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law, other than any of the events described in Section 1.5(c)(iii), (iv), (v) or (vi), whenever the Administrator determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, including providing for (A) adjustment to (1) the number of shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards or to which outstanding Awards relate and (2) the Exercise Price (as defined below) with respect to any Award and (B) a substitution or assumption of Awards, accelerating the exercisability or vesting of, or lapse of restrictions on, Awards, or accelerating the termination of Awards by providing for a period of time for exercise prior to the occurrence of such event, or, if deemed appropriate or desirable, providing for a cash payment to the holder of an outstanding Award in consideration for the cancellation of such Award (it being understood that, in such event, any option or stock appreciation right having a per share Exercise Price equal to, or in excess of, the Fair Market Value (as defined below) of a share subject to such option or stock appreciation right may be cancelled and terminated without any payment or consideration therefor);
provided
,
however
, that with respect to options and stock appreciation rights, unless otherwise determined by the Administrator, such adjustment shall be made in accordance with the provisions of Section 424(h) of the Code.
(iii) In the event of (A) a dissolution or liquidation of the Company, (B) a sale of all or substantially all the Company's assets, (C) a merger, reorganization or consolidation involving the Company in which the Company is not the surviving corporation or (D) a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Common Stock receive securities of another corporation and/or other property, including cash, the Administrator shall have the power to:
(1) provide that outstanding options, stock appreciation rights and/or restricted stock units (including any related dividend equivalent right) shall either continue in effect, be assumed or an equivalent award shall be substituted therefor by the successor corporation or a parent corporation or subsidiary corporation, including providing for adjustment to (x) the number of shares or other securities of the Company (or number and kind of other securities or property) subject to such outstanding Awards or to which such outstanding Awards relate and (y) the Exercise Price (as defined below) with respect to any such Award;
provided
,
however
, that with respect to options and stock appreciation rights, unless otherwise determined by the Administrator, such adjustment shall be made in accordance with the provisions of Section 424(h) of the Code;
(2) cancel, effective immediately prior to the occurrence of such event, options, stock appreciation rights and/or restricted stock units (including each dividend equivalent right related thereto) outstanding immediately prior to such event (whether or not then exercisable) and, in full consideration of such cancellation, pay to the holder of such Award a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Administrator) of the shares subject to such Award over the aggregate Exercise Price of such Award (it being understood that, in such event, any option or stock appreciation right having a per share Exercise Price equal to, or in excess of, the Fair Market Value of a share subject to such option or stock appreciation right may be cancelled and terminated without any payment or consideration therefor); or
(3) notify the holder of an option or stock appreciation right in writing or electronically that each option and stock appreciation right shall be fully vested and exercisable for a period of 30 days from the date of such notice, or such shorter period as the Administrator may determine to be reasonable, and the option or stock appreciation right shall terminate upon the expiration of such period (which period shall expire no later than immediately prior to the consummation of the corporate transaction).
(iv) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in this Section 1.5(c):
(A) The number and type of securities or other property subject to each outstanding Award and the Exercise Price or grant price thereof, if applicable, shall be equitably adjusted; and
(B) The Administrator shall make such equitable adjustments, if any, as the Administrator may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations set forth in Sections 1.5(a)). The adjustments provided under this Section 1.5(c)(iv) shall be nondiscretionary and shall be final and binding on the affected participant and the Company.
(v) Subject to any required action by the stockholders of the Company, unless otherwise determined by the Administrator (in which case, notwithstanding anything to the contrary in this Section 1.5(c), the provisions of Section 1.5(c)(ii) shall then apply), in the event that the Company shall be the surviving corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of shares of Common Stock receive securities of another corporation), each option, stock appreciation right and restricted stock unit outstanding on the date of such merger or consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Common Stock subject to such option, stock appreciation right or restricted stock unit would have received in such merger or consolidation;
provided
,
however
, that with respect to options and stock appreciation rights, unless otherwise determined by the Administrator, such adjustment shall be made in accordance with the provisions of Section 424(h) of the Code.
(vi) The Administrator may adjust any grant of shares of restricted stock, the issue date with respect to which has not occurred as of the date of the occurrence of any of the following events, to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change as the Administrator may deem appropriate to prevent the enlargement or dilution of rights of grantees.
(d)
Individual Limit
. Except for the limits set forth in this Section 1.5, no provision of this Plan shall be deemed to limit the number or value of shares of Common Stock with respect to which the Administrator may make Awards to any Key Person. Subject to adjustment as provided in Section 1.5(c), the total aggregate number of shares of Common Stock with respect to which incentive stock options that are granted under the Plan to any one employee of the Company or a "parent corporation" or "subsidiary corporation" (as such terms are defined in Section 424 of the Code) of the Company during any calendar year shall not exceed 574,458. Incentive stock options granted and subsequently cancelled or deemed to be cancelled (
e.g.
, as a result of re-pricing) in a calendar year count against this limit even after their cancellation.
1.6. Definitions of Certain Terms
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Administrator.
(b) Unless otherwise set forth in an Award Agreement, in connection with a termination of employment or consultancy/service relationship or a dismissal from Board membership, for purposes of the Plan, the term "for Cause" shall be defined as follows:
(i) if there is an employment, severance, consulting, service, change in control or other agreement governing the relationship between the grantee, on the one hand, and the Company or any of its Affiliates, on the other hand, that contains a definition of "cause" (or similar phrase), for purposes of the Plan, the term "for Cause" shall mean those acts or omissions that would constitute "cause" under such agreement; or
(ii) if the preceding clause (i) is not applicable to the grantee, for purposes of the Plan, the term "for Cause" shall mean any of the following:
(A) any failure by the grantee substantially to perform the grantee's employment or consulting/service or Board membership duties;
(B) any excessive unauthorized absenteeism by the grantee;
(C) any refusal by the grantee to obey the lawful orders of the Board or any other Person to whom the grantee reports;
(D) any act or omission by the grantee that is or may be injurious to the Company or any of its Affiliates, whether monetarily, reputationally or otherwise;
(E) any act by the grantee that is inconsistent with the best interests of the Company or any of its Affiliates;
(F) the grantee's gross negligence that is injurious to the Company or any of its Affiliates, whether monetarily, reputationally or otherwise;
(G) the grantee's material violation of any of the policies of the Company or any of its Affiliates, as applicable, including, without limitation, those policies relating to discrimination or sexual harassment;
(H) the grantee's material breach of his or her employment or service contract with the Company or any of its Affiliates;
(I) the grantee's unauthorized (1) removal from the premises of the Company or any of its Affiliates of any document (in any medium or form) relating to the Company or any of its Affiliates or the customers or clients of the Company or any of its Affiliates or (2) disclosure to any Person or entity of any of the Company's, or any of its Affiliate's, confidential or proprietary information;
(J) the grantee's being convicted of, or entering a plea of guilty or nolo contendere to, any crime that constitutes a felony or involves moral turpitude; and
(K) the grantee's commission of any act involving dishonesty or fraud.
Any rights the Company or any of its Affiliates may have under the Plan in respect of the events giving rise to a termination or dismissal "for Cause" shall be in addition to any other rights the Company or any of its Affiliates may have under any other agreement with a grantee or at law or in equity. Any determination of whether a grantee's employment, consultancy/service relationship or Board membership is (or is deemed to have been) terminated "for Cause" shall be made by the Administrator. If, subsequent to a grantee's voluntary termination of employment or consultancy/service relationship or voluntarily resignation from the Board or involuntary termination of employment or consultancy/service relationship without Cause or removal from the Board other than "for Cause", it is discovered that the grantee's employment or consultancy/service relationship or Board membership could have been terminated "for Cause", the Administrator may deem such grantee's employment or consultancy/service relationship or Board membership to have been terminated "for Cause" upon such discovery and determination by the Administrator.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Exercise Price" shall mean (i) in the case of options, the price specified in the applicable Award Agreement as the price-per-share at which such share can be purchased pursuant to the option or (ii) in the case of stock appreciation rights, the price specified in the
applicable Award Agreement as the reference price-per-share used to calculate the amount payable to the grantee.
(e) "Equity Restructuring" shall mean a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the shares of Common Stock (or other securities of the Company) or the share price thereof and causes a change in the per share value of the shares underlying outstanding Awards.
(f) The "Fair Market Value" of a share of Common Stock on any day shall be the closing price on the stock exchange upon which such shares are listed, as reported for such day in The Wall Street Journal, or, if no such price is reported for such day, the average of the high bid and low asked price of Common Stock as reported for such day. If no quotation is made for the applicable day, the Fair Market Value of a share of Common Stock on such day shall be determined in the manner set forth in the preceding sentence for the next preceding trading day. Notwithstanding the foregoing, if there is no reported closing price or high bid/low asked price that satisfies the preceding sentences, or if otherwise deemed necessary or appropriate by the Administrator, the Fair Market Value of a share of Common Stock on any day shall be determined by such methods and procedures as shall be established from time to time by the Administrator. The "Fair Market Value" of any property other than Common Stock shall be the fair market value of such property determined by such methods and procedures as shall be established from time to time by the Administrator.
(g) "Person" shall mean any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental body or other entity of any kind.
(h) "Repricing" shall mean (i) lowering the Exercise Price of an option or a stock appreciation right after it has been granted, (ii) cancellation of an option or a stock appreciation right in exchange for cash or another Award when the Exercise Price exceeds the Fair Market Value of the underlying shares subject to the Award and (iii) any other action with respect to an option or a stock appreciation right that is treated as a repricing under (A) generally accepted accounting principles or (B) any applicable stock exchange rules.
(i) "Subsidiary" shall mean any entity in which the Company, directly or indirectly, has a 50% or more equity interest.
ARTICLE II.
Awards Under The Plan
2.1. Agreements Evidencing Awards
Each Award granted under the Plan shall be evidenced by a written certificate ("Award Agreement"), which shall contain such provisions as the Administrator may deem necessary or desirable and which may, but need not, require execution or acknowledgment by a grantee. The Award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement.
2.2. Grant of Stock Options and Stock Appreciation Rights
(a)
Stock Option Grants
. The Administrator may grant non-qualified stock options and/or incentive stock options (collectively, "options") to purchase shares of Common Stock from the Company to such Key Persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall determine, subject to the provisions of the Plan. Except to the extent otherwise specifically provided in the applicable Award Agreement, no option will be treated as an "incentive stock option" for purposes of the Code. Incentive stock options may be granted to employees of the Company and any "parent corporation" or "subsidiary corporation" (as such terms are defined in Section 424 of the Code) of the Company. In the case of incentive stock options, the terms and conditions of such Awards shall be subject to such applicable rules as may be prescribed by Sections 421, 422 and 424 of the Code and any regulations related thereto, as may be amended from time to time. If an option is intended to be an incentive stock option, and if for any reason such option (or any portion thereof) shall not qualify as an incentive stock option for purposes of Section 422 of the Code, then, to the extent of such non-qualification, such option (or portion thereof) shall be regarded as a non-qualified stock option appropriately granted under the Plan;
provided
that such option (or portion thereof) otherwise complies with the Plan's requirements relating to option Awards. It shall be the intent of the Administrator to not grant an Award in the form of stock options to an individual who is then subject to the requirements of Section 409A of the Code with respect to such Award if the Common Stock (as defined below) underlying such Award does not then qualify as "service recipient stock" for purposes of Section 409A. Furthermore, it shall be the intent of the Administrator, in granting options to individuals who are subject to Section 409A and/or 457 of the Code, to structure such options so as to comply with the requirements of Section 409A and/or 457 of the Code, as applicable.
(b)
Stock Appreciation Right Grants; Types of Stock Appreciation
Rights
. The Administrator may grant stock appreciation rights to such Key Persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall determine, subject to the provisions of the Plan. The terms of a stock appreciation right may provide that it shall be automatically exercised for a payment upon the happening of a specified event that is outside the control of the grantee and that it shall not be otherwise exercisable. Stock appreciation rights may be granted in connection with all or any part of, or independently of, any option granted under the Plan. It shall be the intent of the Administrator to not grant an Award in the form of stock appreciation rights to any Key Person (i) who is then subject to the requirements of Section 409A of the Code with respect to such Award if the Common Stock underlying such Award does not then qualify as "service recipient stock" for purposes of Section 409A or (ii) if such Award would create adverse tax consequences for such Key Person under Section 457A of the Code.
(c)
Nature of Stock Appreciation Rights
. The grantee of a stock appreciation right shall have the right, subject to the terms of the Plan and the applicable Award Agreement, to receive from the Company an amount equal to (i) the excess of the Fair Market Value of a share of Common Stock on the date of exercise of the stock appreciation right over the Exercise Price of the stock appreciation right, multiplied by (ii) the number of shares with respect to which the stock appreciation right is exercised. Each Award Agreement with respect to a stock appreciation right shall set forth the Exercise Price of such Award and, unless otherwise specifically provided in the Award Agreement, the Exercise Price of a stock appreciation right shall equal the Fair Market Value of a share of Common Stock on the date of grant;
provided
that
in no event may such Exercise Price be less than the greater of (A) the Fair Market Value of a share of Common Stock on the date of grant and (B) the par value of a share of Common Stock. Payment upon exercise of a stock appreciation right shall be in cash or in shares of Common Stock (valued at their Fair Market Value on the date of exercise of the stock appreciation right) or any combination of both, all as the Administrator shall determine. Repricing of stock appreciation rights granted under the Plan shall not be permitted (1) to the extent such action could cause adverse tax consequences to the grantee under Sections 409A or 457A of the Code or (2) without prior shareholder approval, to the extent such approval would be required to be obtained by the Company pursuant to the rules of any applicable stock exchange on which the Common Stock is then listed, and any action that would be deemed to result in a Repricing of a stock appreciation right shall be deemed null and void if it would cause such adverse tax consequences or if any requisite shareholder approval related thereto is not obtained prior to the effective time of such action. Upon the exercise of a stock appreciation right granted in connection with an option, the number of shares subject to the option shall be reduced by the number of shares with respect to which the stock appreciation right is exercised. Upon the exercise of an option in connection with which a stock appreciation right has been granted, the number of shares subject to the stock appreciation right shall be reduced by the number of shares with respect to which the option is exercised.
(d)
Option Exercise Price
. Each Award Agreement with respect to an option shall set forth the Exercise Price of such Award and, unless otherwise specifically provided in the Award Agreement, the Exercise Price of an option shall equal the Fair Market Value of a share of Common Stock on the date of grant;
provided
that in no event may such Exercise Price be less than the greater of (i) the Fair Market Value of a share of Common Stock on the date of grant and (ii) the par value of a share of Common Stock. Repricing of options granted under the Plan shall not be permitted (1) to the extent such action could cause adverse tax consequences to the grantee under Sections 409A or 457A of the Code or (2) without prior shareholder approval, to the extent such approval would be required to be obtained by the Company pursuant to the rules of any applicable stock exchange on which the Common Stock is then listed, and any action that would be deemed to result in a Repricing of an option shall be deemed null and void if it would cause such adverse tax consequences or if any requisite shareholder approval related thereto is not obtained prior to the effective time of such action.
2.3. Exercise of Options and Stock Appreciation Rights
Subject to the other provisions of this Article II and the Plan, each option and stock appreciation right granted under the Plan shall be exercisable as follows:
(a)
Timing and Extent of Exercise
. Options and stock appreciation rights shall be exercisable at such times and under such conditions as determined by the Administrator and set forth in the corresponding Award Agreement, but in no event shall any portion of such Award be exercisable subsequent to the tenth anniversary of the date on which such Award was granted. Unless the applicable Award Agreement otherwise provides, an option or stock appreciation right may be exercised from time to time as to all or part of the shares as to which such Award is then exercisable.
(b)
Notice of Exercise
. An option or stock appreciation right shall be exercised by the filing of a written notice with the Company or the Company's designated exchange agent (the "Exchange Agent"), on such form and in such manner as the Administrator shall prescribe.
(c)
Payment of Exercise Price
. Any written notice of exercise of an option shall be accompanied by payment for the shares being purchased. Such payment shall be made: (i) by certified or official bank check (or the equivalent thereof acceptable to the Company or its Exchange Agent) for the full option Exercise Price; (ii) with the consent of the Administrator, which consent shall be given or withheld in the sole discretion of the Administrator, by delivery of shares of Common Stock having a Fair Market Value (determined as of the exercise date) equal to all or part of the option Exercise Price and a certified or official bank check (or the equivalent thereof acceptable to the Company or its Exchange Agent) for any remaining portion of the full option Exercise Price; or (iii) at the sole discretion of the Administrator and to the extent permitted by law, by such other provision, consistent with the terms of the Plan, as the Administrator may from time to time prescribe (whether directly or indirectly through the Exchange Agent), or by any combination of the foregoing payment methods.
(d)
Delivery of Certificates Upon Exercise
. Subject to Sections 3.2, 3.4 and 3.13, promptly after receiving payment of the full option Exercise Price, or after receiving notice of the exercise of a stock appreciation right for which the Administrator determines payment will be made partly or entirely in shares, the Company or its Exchange Agent shall (i) deliver to the grantee, or to such other Person as may then have the right to exercise the Award, a certificate or certificates for the shares of Common Stock for which the Award has been exercised or, in the case of stock appreciation rights, for which the Administrator determines will be made in shares or (ii) establish an account evidencing ownership of the stock in uncertificated form.
If the method of payment employed upon an option exercise so requires, and if applicable law permits, an optionee may direct the Company or its Exchange Agent, as the case may be, to deliver the stock certificate(s) to the optionee's stockbroker.
(e)
No Stockholder Rights
. No grantee of an option or stock appreciation right (or other Person having the right to exercise such Award) shall have any of the rights of a stockholder of the Company with respect to shares subject to such Award until the issuance of a stock certificate to such Person for such shares. Except as otherwise provided in Section 1.5(c), no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such stock certificate is issued.
2.4. Termination of Employment; Death Subsequent to a Termination of Employment
(a)
General Rule
. Except to the extent otherwise provided in paragraphs (b), (c), (d), (e) or (f) of this Section 2.4 or Section 3.5(b)(iii), a grantee who incurs a termination of employment or consultancy/service relationship or dismissal from the Board may exercise any outstanding option or stock appreciation right on the following terms and conditions: (i) exercise may be made only to the extent that the grantee was entitled to exercise the Award on the date of termination of employment or consultancy/service relationship or dismissal from the Board, as applicable; and (ii) exercise must occur within three months after termination of employment or consultancy/service relationship or dismissal from the Board but in no event after the original expiration date of the Award.
(b)
Dismissal "for Cause"
. If a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board "for Cause", all options and stock appreciation rights not theretofore exercised shall immediately terminate upon the grantee's termination of employment or consultancy/service relationship or dismissal from the Board.
(c)
Retirement
. If a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board as the result of his or her retirement (as defined below), then any outstanding option or stock appreciation right shall, to the extent exercisable at the time of such retirement, remain exercisable for a period of three years after such retirement;
provided
that in no event may such option or stock appreciation right be exercised following the original expiration date of the Award. For this purpose, "retirement" shall mean a grantee's resignation of employment or consultancy/service relationship or dismissal from the Board, with the Company's or its applicable Affiliate's prior consent, on or after (i) his or her 65th birthday, (ii) the date on which he or she has attained age 60 and completed at least five years of service with the Company or one or more of its Affiliates (using any method of calculation the Administrator deems appropriate) or (iii) if approved by the Administrator, on or after his or her having completed at least 20 years of service with the Company or one or more of its Affiliates (using any method of calculation the Administrator deems appropriate).
(d)
Disability
. If a grantee incurs a termination of employment or consultancy/service relationship or a dismissal from the Board by reason of a disability (as defined below), then any outstanding option or stock appreciation right shall, to the extent exercisable at the time of such termination or dismissal, remain exercisable for a period of one year after such termination or dismissal;
provided
that in no event may such option or stock appreciation right be exercised following the original expiration date of the Award. For this purpose, "disability" shall mean any physical or mental condition that would qualify the grantee for a disability benefit under the long-term disability plan maintained by the Company or its Affiliate, as applicable, or, if there is no such plan, a physical or mental condition that prevents the grantee from performing the essential functions of the grantee's position (with or without reasonable accommodation) for a period of six consecutive months. The existence of a disability shall be determined by the Administrator.
(e)
Death
.
(i)
Termination of Employment as a Result of Grantee's Death
. If a grantee incurs a termination of employment or consultancy/service relationship or leaves the Board as the result of his or her death, then any outstanding option or stock appreciation right shall, to the extent exercisable at the time of such death, remain exercisable for a period of one year after such death;
provided
that in no event may such option or stock appreciation right be exercised following the original expiration date of the Award.
(ii)
Restrictions on Exercise Following Death
. Any such exercise of an Award following a grantee's death shall be made only by the grantee's executor or administrator or other duly appointed representative reasonably acceptable to the Administrator, unless the grantee's will specifically disposes of such Award, in which case such exercise shall be made only by the recipient of such specific disposition. If a grantee's personal representative or the recipient of a specific disposition under the grantee's will shall be entitled to exercise any Award pursuant to the preceding sentence, such representative or recipient shall be bound by all the terms and conditions of the Plan and the applicable Award Agreement which would have applied to the grantee.
(f)
Administrator Discretion
. The Administrator may, in writing, waive or modify the application of the foregoing provisions of this Section 2.4.
2.5. Transferability of Options and Stock Appreciation Rights
Except as otherwise provided in an applicable Award Agreement evidencing an option or stock appreciation right, during the lifetime of a grantee, each such Award granted to a grantee shall be exercisable only by the grantee, and no such Award shall be assignable or transferable other than by will or by the laws of descent and distribution. The Administrator may, in any applicable Award Agreement evidencing an option or stock appreciation right, permit a grantee to transfer all or some of the options or stock appreciation rights to (a) the grantee's spouse, children or grandchildren ("Immediate Family Members"), (b) a trust or trusts for the exclusive benefit of such Immediate Family Members or (c) other parties approved by the Administrator. Following any such transfer, any transferred options and stock appreciation rights shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.
2.6. Grant of Restricted Stock
(a)
Restricted Stock Grants
. The Administrator may grant restricted shares of Common Stock to such Key Persons, in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions as the Administrator shall determine, subject to the provisions of the Plan. A grantee of a restricted stock Award shall have no rights with respect to such Award unless such grantee accepts the Award within such period as the Administrator shall specify by accepting delivery of a restricted stock Award Agreement in such form as the Administrator shall determine and, in the event the restricted shares are newly issued by the Company, makes payment to the Company or its Exchange Agent by certified or official bank check (or the equivalent thereof acceptable to the Administrator) in an amount at least equal to the par value of the shares covered by the Award (which payment may be waived at the time of grant of the restricted stock Award to the extent the restricted shares granted hereunder are otherwise deemed to be fully paid and non-assessable).
(b)
Issuance of Stock Certificate
. Promptly after a grantee accepts a restricted stock Award in accordance with Section 2.6(a), subject to Sections 3.2, 3.4 and 3.13, the Company or its Exchange Agent shall issue to the grantee a stock certificate or stock certificates for the shares of Common Stock covered by the Award or shall establish an account evidencing ownership of the stock in uncertificated form. Upon the issuance of such stock certificates, or establishment of such account, the grantee shall have the rights of a stockholder with respect to the restricted stock, subject to: (i) the nontransferability restrictions and forfeiture provisions described in the Plan (including paragraphs (d) and (e) of this Section 2.6); (ii) in the Administrator's sole discretion, a requirement, as set forth in the Award Agreement, that any dividends paid on such shares shall be held in escrow and, unless otherwise determined by the Administrator, shall remain forfeitable until all restrictions on such shares have lapsed; and (iii) any other restrictions and conditions contained in the applicable Award Agreement.
(c)
Custody of Stock Certificate
. Unless the Administrator shall otherwise determine, any stock certificates issued evidencing shares of restricted stock shall remain in the possession of the Company until such shares are free of any restrictions specified in the applicable Award
Agreement. The Administrator may direct that such stock certificates bear a legend setting forth the applicable restrictions on transferability.
(d)
Nontransferability
. Shares of restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of prior to the lapsing of all restrictions thereon, except as otherwise specifically provided in this Plan or the applicable Award Agreement. The Administrator at the time of grant shall specify the date or dates (which may depend upon or be related to the attainment of performance goals and other conditions) on which the nontransferability of the restricted stock shall lapse.
(e)
Consequence of Termination of Employment
. Unless otherwise set forth in the applicable Award Agreement, (i) a grantee's termination of employment or consultancy/service relationship or dismissal from the Board for any reason other than death or disability (as defined in Section 2.4(d)) shall cause the immediate forfeiture of all shares of restricted stock that have not yet vested as of the date of such termination of employment or consultancy/service relationship or dismissal from the Board and (ii) if a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board as the result of his or her death or disability, all shares of restricted stock that have not yet vested as of the date of such termination or departure from the Board shall immediately vest as of such date. Unless otherwise determined by the Administrator, all dividends paid on shares forfeited under this Section 2.6(e) that have not theretofore been directly remitted to the grantee shall also be forfeited, whether by termination of any escrow arrangement under which such dividends are held or otherwise. The Administrator may, in writing, waive or modify the application of the foregoing provisions of this Section 2.6(e).
2.7. Grant of Restricted Stock Units
(a)
Restricted Stock Unit Grants
. The Administrator may grant restricted stock units to such Key Persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Administrator shall determine, subject to the provisions of the Plan. A restricted stock unit granted under the Plan shall confer upon the grantee a right to receive from the Company, conditioned upon the occurrence of such vesting event as shall be determined by the Administrator and specified in the Award Agreement, the number of such grantee's restricted stock units that vest upon the occurrence of such vesting event multiplied by the Fair Market Value of a share of Common Stock on the date of vesting. Payment upon vesting of a restricted stock unit shall be in cash or in shares of Common Stock (valued at their Fair Market Value on the date of vesting) or both, all as the Administrator shall determine, and such payments shall be made to the grantee at such time as provided in the Award Agreement, which the Administrator shall intend to be (i) if Section 409A of the Code is applicable to the grantee, within the period required by Section 409A such that it qualifies as a "short-term deferral" pursuant to Section 409A and the Treasury Regulations issued thereunder, unless the Administrator shall provide for deferral of the Award intended to comply with Section 409A, (ii) if Section 457A of the Code is applicable to the grantee, within the period required by Section 457A(d)(3)(B) such that it qualifies for the exemption thereunder, or (iii) if Sections 409A and 457A of the Code are not applicable to the grantee, at such time as determined by the Administrator.
(b)
Dividend Equivalents
. The Administrator may include in any Award Agreement with respect to a restricted stock unit a dividend equivalent right entitling the grantee to receive amounts equal to the ordinary dividends that would be paid, during the time such Award is outstanding and unvested, on the shares of Common Stock underlying such Award if such shares were then outstanding. In the event such a provision is included in a Award Agreement, the Administrator shall determine whether such payments shall be (i) paid to the holder of the Award, as specified in the Award Agreement, either (A) at the same time as the underlying dividends are paid, regardless of the fact that the restricted stock unit has not theretofore vested, or (B) at the time at which the Award's vesting event occurs, conditioned upon the occurrence of the vesting event, (ii) made in cash, shares of Common Stock or other property and (iii) subject to such other vesting and forfeiture provisions and other terms and conditions as the Administrator shall deem appropriate and as shall be set forth in the Award Agreement.
(c)
Consequence of Termination of Employment
. Unless otherwise set forth in the applicable Award Agreement, (i) a grantee's termination of employment or consultancy/service relationship or dismissal from the Board for any reason other than death or disability (as defined in Section 2.4(d)) shall cause the immediate forfeiture of all restricted stock units that have not yet vested as of the date of such termination of employment or consultancy/service relationship or dismissal from the Board and (ii) if a grantee incurs a termination of employment or consultancy/service relationship or dismissal from the Board as the result of his or her death or disability, all restricted stock units that have not yet vested as of the date of such termination or departure from the Board shall immediately vest as of such date. Unless otherwise determined by the Administrator, any dividend equivalent rights on any restricted stock units forfeited under this Section 2.7(c) that have not theretofore been directly remitted to the grantee shall also be forfeited, whether by termination of any escrow arrangement under which such dividends are held or otherwise. The Administrator may, in writing, waive or modify the application of the foregoing provisions of this Section 2.7(c).
(d)
No Stockholder Rights
. No grantee of a restricted stock unit shall have any of the rights of a stockholder of the Company with respect to such Award unless and until a stock certificate is issued with respect to such Award upon the vesting of such Award (it being understood that the Administrator shall determine whether to pay any vested restricted stock unit in the form of cash or Company shares or both), which issuance shall be subject to Sections 3.2, 3.4 and 3.13. Except as otherwise provided in Section 1.5(c), no adjustment to any restricted stock unit shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such stock certificate, if any, is issued.
(e)
Transferability of Restricted Stock Units
. Except as otherwise provided in an applicable Award Agreement evidencing a restricted stock unit, no restricted stock unit granted under the Plan shall be assignable or transferable. The Administrator may, in any applicable Award Agreement evidencing a restricted stock unit, permit a grantee to transfer all or some of the restricted stock units to (i) the grantee's Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members or (iii) other parties approved by the Administrator. Following any such transfer, any transferred restricted stock units shall continue to be subject to the same terms and conditions as were applicable immediately prior to the transfer.
2.8. Grant of Unrestricted Stock
The Administrator may grant (or sell at a purchase price at least equal to par value) shares of Common Stock free of restrictions under the Plan to such Key Persons and in such amounts and subject to such forfeiture provisions as the Administrator shall determine. Shares may be thus granted or sold in respect of past services or other valid consideration.
ARTICLE III.
Miscellaneous
3.1. Amendment of the Plan; Modification of Awards
(a)
Amendment of the Plan
. The Board may from time to time suspend, discontinue, revise or amend the Plan in any respect whatsoever, except that no such amendment shall materially impair any rights or materially increase any obligations under any Award theretofore made under the Plan without the consent of the grantee (or, upon the grantee's death, the Person having the right to exercise the Award). For purposes of this Section 3.1, any action of the Board or the Administrator that in any way alters or affects the tax treatment of any Award shall not be considered to materially impair any rights of any grantee.
(b)
Stockholder Approval
Requirement. If (1) required by applicable rules or regulations of a national securities exchange or the SEC, the Company shall obtain stockholder approval with respect to any amendment to the Plan that (i) expands the types of Awards available under the Plan, (ii) materially increases the number of shares which may be issued under the Plan (except as permitted pursuant to Section 1.5(c)), (iii) materially increases the benefits to participants under the Plan, including any material change to (A) permit, or that has the effect of, a "re-pricing" of any outstanding Award, (B) reduce the price at which shares of options to purchase shares may be offered or (C) extends the duration of the Plan or (iv) materially expands the class of Persons eligible to receive Awards under the Plan, or (2) the Administrator determines that it desires to retain the ability to grant incentive stock options under the Plan thereafter, the Company shall obtain stockholder approval with respect to any amendment to the Plan that (i) increases the number of shares that may be issued under the Plan or the individual limit set forth under Section 1.5(d) of the Plan (except, in each case, as permitted pursuant to Section 1.5(c)) or (ii) expands the class of Persons eligible to receive incentive stock options under the Plan.
(c)
Modification of Awards
. The Administrator may cancel any Award under the Plan. The Administrator also may amend any outstanding Award Agreement, including, without limitation, by amendment which would: (i) accelerate the time or times at which the Award becomes unrestricted, vested or may be exercised; (ii) waive or amend any goals, restrictions or conditions set forth in the Award Agreement; or (iii) waive or amend the operation of Sections 2.4, 2.6(e) or 2.7(c) with respect to the termination of the Award upon termination of employment or consultancy/service relationship or dismissal from the Board;
provided
,
however
, that no such amendment shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the Award. However, any such cancellation or amendment (other than an amendment pursuant to Section 1.5, 3.5 or 3.16) that materially impairs the rights or materially increases the obligations of a grantee under an outstanding Award shall be made only with the consent of the grantee (or, upon the grantee's death, the Person having the right to exercise the Award). In making any modification to an Award (
e.g.
, an amendment resulting in a direct or indirect reduction in the Exercise Price or a waiver or modification under Section 2.4(f), 2.6(e) or 2.7(c)), the Administrator may consider the implications, if any, of such modification under the Code with respect to incentive stock options granted under the Plan and/or Sections 409A and 457A of the Code with respect to Awards granted under the Plan to individuals subject to such provisions of the Code.
3.2. Consent Requirement
(a)
No Plan Action Without Required Consent
. If the Administrator shall at any time determine that any Consent (as defined below) is necessary or desirable as a condition of, or in connection with, the granting of any Award under the Plan, the issuance or purchase of shares or other rights thereunder, or the taking of any other action thereunder (each such action being hereinafter referred to as a "Plan Action"), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained to the full satisfaction of the Administrator.
(b)
Consent Defined
. The term "Consent" as used herein with respect to any Plan Action means (i) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, rule or regulation, (ii) any and all written agreements and representations by the grantee with respect to the disposition of shares, or with respect to any other matter, which the Administrator shall deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made and (iii) any and all consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory bodies.
3.3. Nonassignability
Except as provided in Sections 2.4(e), 2.5, 2.6(d) or 2.7(e),
(a) no Award or right granted to any Person under the Plan or under any Award Agreement shall be assignable or transferable other than by will or by the laws of descent and distribution and (b) all rights granted under the Plan or any Award Agreement shall be exercisable during the life of the grantee only by the grantee or the grantee's legal representative or the grantee's permissible successors or assigns (as authorized and determined by the Administrator). All terms and conditions of the Plan and the applicable Award Agreements will be binding upon any permitted successors or assigns.
3.4. Taxes
(a)
Withholding
. A grantee or other Award holder under the Plan shall be required to pay, in cash, to the Company, and the Company and Affiliates shall have the right and are hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to such grantee or other Award holder, the amount of any applicable withholding taxes in respect of an Award, its grant, its exercise, its vesting, or any payment or transfer under an Award or under the Plan, and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for payment of such taxes. Whenever shares of Common Stock are to be delivered pursuant to an Award under the Plan, with the approval of the Administrator, which the Administrator shall have sole discretion whether or not to give, the grantee may satisfy the foregoing condition by electing to have the Company withhold from delivery shares having a value equal to the amount of minimum tax required to be withheld. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to an Award as may be approved by the Administrator in its sole discretion.
(b)
Liability for Taxes
. Grantees and holders of Awards are solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with Awards (including, without limitation, any taxes arising under Sections 409A and 457A of the Code) and the Company shall not have any obligation to indemnify or otherwise hold any such Person harmless from any or all of such taxes. The Administrator shall have the discretion to organize any deferral program, to require deferral election forms, and to grant or, notwithstanding anything to the contrary in the Plan or any Award Agreement, to unilaterally modify any Award in a manner that (i) conforms with the requirements of Sections 409A and 457A of the Code (to the extent applicable), (ii) voids any participant election to the extent it would violate Sections 409A or 457A of the Code (to the extent applicable) and (iii) for any distribution event or election that could be expected to violate Section 409A or 457A of the Code, make the distribution only upon the earliest of the first to occur of a "permissible distribution event" within the meaning of Section 409A of the Code or a distribution event that the participant elects in accordance with Section 409A of the Code. The Administrator shall have the sole discretion to interpret the requirements of the Code, including, without limitation, Sections 409A and 457A, for purposes of the Plan and all Awards.
3.5. Change in Control
(a)
Change in Control Defined
. Unless otherwise set forth in the applicable Award Agreement, for purposes of the Plan, "Change in Control" shall mean the occurrence of any of the following:
(i) any "person" (as defined in Section 13(d)(3) of the 1934 Act), corporation or other entity (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (C) any company or other entity owned, directly or indirectly, by the holders of the voting stock of the Company in substantially the same proportions as their ownership of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company or (D) any entity which Simon Financial Limited or any of its subsidiaries directly or indirectly "controls" (as defined in Rule 12b-2 under the 1934 Act)) acquires "beneficial ownership" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 50% of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company;
(ii) the sale of all or substantially all the Company's assets in one or more related transactions to a person or group of persons, other than such a sale (A) to a Subsidiary which does not involve a material change in the equity holdings of the Company, (B) to an entity which has acquired all or substantially all the Company's assets or (C) to an entity which Simon Financial Limited or any of its subsidiaries directly or indirectly "controls" (as defined in Rule 12b-2 under the 1934 Act) (any such entity described in clause (A), (B) or (C), the "Acquiring Entity") if, immediately following such sale, 50% or more of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Acquiring Entity (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of more than 50% of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Acquiring Entity) is beneficially owned by the holders of the voting stock of the Company, and such voting power among the persons who were holders of the voting stock of the Company immediately prior to such sale is, immediately following such sale, held in substantially the same proportions as the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company immediately prior to such sale;
(iii) any merger, consolidation, reorganization or similar event of the Company or any Subsidiary as a result of which the holders of the voting stock of the Company immediately prior to such merger, consolidation, reorganization or similar event do not directly or indirectly hold 50% or more of the aggregate voting power of the capital stock of the surviving entity (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of more than 50% of the aggregate voting power of the capital stock ordinarily entitled to elect directors of the surviving entity) and such voting power among the persons who were holders of the voting stock of the Company immediately prior to such sale is, immediately following such sale, held in substantially the same proportions as the aggregate voting power of the capital stock ordinarily entitled to elect directors of the Company immediately prior to such sale;
(iv) the approval by the Company's stockholders of a plan of complete liquidation or dissolution of the Company; or
(v) during any period of 12 consecutive calendar months, individuals:
|
(A)
|
who were directors of the Company on the first day of such period, or
|
|
(B)
|
whose election or nomination for election to the Board was recommended or approved by at least a majority of the directors then still in office who were directors of the Company on the first day of such period, or whose election or nomination for election were so approved,
|
shall cease to constitute a majority of the Board.
Notwithstanding the foregoing, (1) in no event shall a Change in Control be deemed to have occurred in connection with an initial public offering of Common Stock, and (2) for each Award subject to Section 409A of the Code, a Change in Control shall be deemed to occur under this Plan with respect to such Award only if a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company shall also be deemed to have occurred under Section 409A of the Code,
provided
that such limitation shall apply to such Award only to the extent necessary to avoid adverse tax effects under Section 409A of the Code.
(b)
Effect of a Change in Control
. Unless the Administrator provides otherwise in an Award Agreement, upon the occurrence of a Change in Control:
(i) notwithstanding any other provision of this Plan, any Award then outstanding shall become fully vested and any restriction and forfeiture provisions thereon imposed pursuant to the Plan and the Award Agreement shall lapse and any Award in the form of an option or stock appreciation right shall be immediately exercisable;
(ii) to the extent permitted by law and not otherwise limited by the terms of the Plan, the Administrator may amend any Award Agreement in such manner as it deems appropriate;
(iii) a grantee who incurs a termination of employment or consultancy/service relationship or dismissal from the Board for any reason, other than a termination or dismissal "for Cause", concurrent with or within one year following the Change in Control may exercise any outstanding option or stock appreciation right, but only to the extent that the grantee was entitled to exercise the Award on the date of his or her termination of employment or consultancy/service relationship or dismissal from the Board, until the earlier of (A) the original expiration date of the Award and (B) the later of (x) the date provided for under the terms of Section 2.4 without reference to this Section 3.5(b)(iii) and (y) the first anniversary of the grantee's termination of employment or consultancy/service relationship or dismissal from the Board.
(c)
Miscellaneous
. Whenever deemed appropriate by the Administrator, any action referred to in paragraph (b)(ii) of this Section 3.5 may be made conditional upon the consummation of the applicable Change in Control transaction. For purposes of the Plan and any Award Agreement granted hereunder, the term "Company" shall include any successor to Scorpio Tankers Inc.
3.6. Operation and Conduct of Business
Nothing in the Plan or any Award Agreement shall be construed as limiting or preventing the Company or any of its Affiliates from taking any action with respect to the operation and conduct of their business that they deem appropriate or in their best interests, including any or all adjustments, recapitalizations, reorganizations, exchanges or other changes in the capital structure of the Company or any of its Affiliates, any merger or consolidation of the Company or any of its Affiliates, any issuance of Company shares or other securities or subscription rights, any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or other securities or rights thereof, any dissolution or liquidation of the Company or any of its Affiliates, any sale or transfer of all or any part of the assets or business of the Company or any of its Affiliates, or any other corporate act or proceeding, whether of a similar character or otherwise.
3.7. No Rights to Awards
No Key Person or other Person shall have any claim to be granted any Award under the Plan.
3.8. Right of Discharge Reserved
Nothing in the Plan or in any Award Agreement shall confer upon any grantee the right to continue his or her employment with the Company or any of its Affiliates, his or her consultancy/service relationship with the Company or any of its Affiliates, or his or her position as a director of the Company or any of its Affiliates, or affect any right that the Company or any of its Affiliates may have to terminate such employment or consultancy/service relationship or service as a director.
3.9. Non-Uniform Determinations
The Administrator's determinations and the treatment of Key Persons and grantees and their beneficiaries under the Plan need not be uniform and may be made and determined by the Administrator selectively among Persons who receive, or who are eligible to receive, Awards under the Plan (whether or not such Persons are similarly situated). Without limiting the generality of the foregoing, the Administrator shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Award Agreements, as to (a) the Persons to receive Awards under the Plan, (b) the types of Awards granted under the Plan, (c) the number of shares to be covered by, or with respect to which payments, rights or other matters are to be calculated with respect to, Awards and (d) the terms and conditions of Awards.
3.10. Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to limit or restrict the Company from making any award or payment to any Person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.
3.11. Headings
Any section, subsection, paragraph or other subdivision headings contained herein are for the purpose of convenience only and are not intended to expand, limit or otherwise define the contents of such subdivisions.
3.12. Effective Date and Term of Plan
(a)
Adoption; Stockholder Approval
. The Plan was adopted by the Board on March 17, 2010 and approved by the Company's stockholders on March 17, 2010. The Board may, but need not, make the granting of any Awards under the Plan subject to the approval of the Company's stockholders.
(b)
Termination of Plan
. The Board may terminate the Plan at any time. All Awards made under the Plan prior to its termination shall remain in effect until such Awards have been satisfied or terminated in accordance with the terms and provisions of the Plan and the applicable Award Agreements. No Awards may be granted under the Plan following the tenth anniversary of the date on which the Plan was adopted by the Board.
3.13. Restriction on Issuance of Stock Pursuant to Awards
The Company shall not permit any shares of Common Stock to be issued pursuant to Awards granted under the Plan unless such shares of Common Stock are fully paid and non-assessable under applicable law. Notwithstanding anything to the contrary in the Plan or any Award Agreement, at the time of the exercise of any Award, at the time of vesting of any Award, at the time of payment of shares of Common Stock in exchange for, or in cancellation of, any Award, or at the time of grant of any unrestricted shares under the Plan, the Company and the Administrator may, if either shall deem it necessary or advisable for any reason, require the holder of an Award (a) to represent in writing to the Company that it is the Award holder's then-intention to acquire the shares with respect to which the Award is granted for investment and not with a view to the distribution thereof or (b) to postpone the date of exercise until such time as the Company has available for delivery to the Award holder a prospectus meeting the requirements of all applicable securities laws; and no shares
shall be issued or transferred in connection with any Award unless and until all legal requirements applicable to the issuance or transfer of such shares have been complied with to the satisfaction of the Company and the Administrator. The Company and the Administrator shall have the right to condition any issuance of shares to any Award holder hereunder on such Person's undertaking in writing to comply with such restrictions on the subsequent transfer of such shares as the Company or the Administrator shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and all share certificates delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Company or the Administrator may deem advisable under the Plan, the applicable Award Agreement or the rules, regulations and other requirements of the SEC, any stock exchange upon which such shares are listed, and any applicable securities or other laws, and certificates representing such shares may contain a legend to reflect any such restrictions. The Administrator may refuse to issue or transfer any shares or other consideration under an Award if it determines that the issuance or transfer of such shares or other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the 1934 Act, and any payment tendered to the Company by a grantee or other Award holder in connection with the exercise of such Award shall be promptly refunded to the relevant grantee or other Award holder. Without limiting the generality of the foregoing, no Award granted under the Plan shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Administrator has determined that any such offer, if made, would be in compliance with all applicable requirements of any applicable securities laws.
3.14. Requirement of Notification of Election Under Section 83(b) of the Code
If an Award recipient, in connection with the acquisition of Company shares under the Plan, makes an election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Code), the grantee shall notify the Administrator of such election within ten days of filing notice of the election with the U.S. Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code.
3.15. Severability
If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Administrator, such provision shall be construed or deemed amended to conform to the applicable laws or, if it cannot be construed or deemed amended without, in the determination of the Administrator, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
3.16. Sections 409A and 457A
To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Sections 409A and 457A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder. Notwithstanding any provision of the Plan or any applicable Award Agreement to the contrary, in the event that the Administrator determines that any Award may be subject to Section 409A or 457A of the Code, the Administrator may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (i) exempt the Plan and Award from Sections 409A and 457A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (ii) comply with the requirements of Sections 409A and 457A of the Code and related Department of Treasury guidance and thereby avoid the application of penalty taxes under Sections 409A and 457A of the Code.
3.17.
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Forfeiture; Clawback
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The Administrator may, in its sole discretion, specify in the applicable Award Agreement that any realized gain with respect to options or stock appreciation rights and any realized value with respect to other Awards shall be subject to forfeiture or clawback, in the event of (a) a grantee's breach of any non-competition, non-solicitation, confidentiality or other restrictive covenants with respect to the Company or any of its Affiliates or (ii) a financial restatement that reduces the amount of bonus or incentive compensation previously awarded to a grantee that would have been earned had results been properly reported.
3.18.
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No Trust or Fund Created
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Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any of its Affiliates and an Award recipient or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any of its Affiliates pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or its Affiliates.
3.19.
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No Fractional Shares
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No fractional shares shall be issued or delivered pursuant to the Plan or any Award, and the Administrator shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional shares or whether such fractional shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.
3.20. Governing Law
The Plan will be construed and administered in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws.
Exhibit 8.1
SUBSIDIARIES OF SCORPIO TANKERS INC.
Name of Subsidiary
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Jurisdiction of Incorporation
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Noemi Shipping Company Limited
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Marshall Islands
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Senatore Shipping Company Limited
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Marshall Islands
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Venice Shipping Company Limited
STI Highlander Shipping Company Limited
STI Gladiator Shipping Company Limited
STI Matador Shipping Company Limited
STI Harmony Shipping Company Limited
STI Heritage Shipping Company Limited
STI Conqueror Shipping Company Limited
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Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
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|
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Exhibit 11.1
SCORPIO TANKERS INC.
CODE OF ETHICS
The Board of Directors of Scorpio Tankers Inc. (the "Company") has adopted this Code of Ethics (the "Code") for all of the Company's employees, directors, officers and agents ("Employees").
A conflict of interest occurs when an Employee's private interests interfere, or even appears to interfere, with the interests of the Company as a whole. While it is not possible to describe every situation in which a conflict of interest may arise, Employees must never use or attempt to use their position with the Company to obtain improper personal benefits. Any Employee who is aware of a conflict of interest, or is concerned that a conflict might develop, should discuss the matter with the Audit Committee or counsel to the Company immediately.
II.
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Corporate Opportunities
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Employees owe a duty to advance the legitimate interests of the Company when the opportunities to do so arise. Employees may not take for themselves personally opportunities that are discovered through the use of corporate property, information or position.
III.
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Confidentiality and Privacy
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It is important that Employees protect the confidentiality of Company information. Employees may have access to proprietary and confidential information concerning the Company's business, clients and suppliers. Confidential information includes such items as non-public information concerning the Company's business, financial results and prospects and potential corporate transactions. Employees are required to keep such information confidential during employment as well as thereafter, and not to use, disclose, or communicate that confidential information other than in the course of employment. The consequences to the Company and the Employee concerned can be severe where there is unauthorized disclosure of any non-public, privileged or proprietary information.
To ensure the confidentiality of any personal information collected and to comply with applicable laws, any Employee in possession of non-public, personal information about the Company's customers, potential customers, or Employees, must maintain the highest degree of confidentiality and must not disclose any personal information unless authorization is obtained.
IV.
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Honest and Fair Dealing
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Employees must endeavor to deal honestly, ethically and fairly with the Company's customers, suppliers, competitors and employees. No Employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice. Honest conduct is considered to be conduct that is free from fraud or deception. Ethical conduct is considered to be conduct conforming to accepted professional standards of conduct.
V.
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Protection and Proper Use of Company Assets
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The Company's assets are only to be used for legitimate business purposes and only by authorized Employees or their designees. This applies to tangible assets (such as office equipment, telephone, copy machines, etc.) and intangible assets (such as trade secrets and confidential information). Employees have a responsibility to protect the Company's assets from theft and loss and to ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company's profitability. If you become aware of theft, waste or misuse of the Company's assets you should report this to your manager.
VI.
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Compliance with Laws, Rules and Regulations
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It is the Company's policy to comply with all applicable laws, rules and regulations. It is the personal responsibility of each Employee to adhere to the standards and restrictions imposed by those laws, rules and regulations, and in particular, those relating to accounting and auditing matters.
Any Employee who is unsure whether a situation violates any applicable law, rule, regulation or Company policy should contact the Company's outside legal counsel.
Because we are a public company, we are subject to a number of laws concerning the purchase of our shares and other publicly traded securities. Company policy prohibits Employees and their family members from trading securities while in possession of material, non-public information relating to the Company or any other company, including a customer or supplier that has a significant relationship with the Company.
Information is "material" when there is a substantial likelihood that a reasonable investor would consider the information important in deciding whether to buy, hold or sell securities. In short, any information that could reasonably affect the price of securities is material. Information is considered to be "public" only when it has been released to the public through appropriate channels and enough time has elapsed to permit the investment market to absorb and evaluate the information. If you have any doubt as to whether you possess material nonpublic information, you should contact a manager and the advice of legal counsel may be sought.
Employees are responsible for ensuring that the disclosure in the Company's periodic reports is full, fair, accurate, timely and understandable. In doing so, Employees shall take such action as is reasonably appropriate to (i) establish and comply with disclosure controls and procedures and accounting and financial controls that are designed to ensure that material information relating to the Company is made known to them; (ii) confirm that the Company's periodic reports comply with applicable law, rules and regulations; and (iii) ensure that information contained in the Company's periodic reports fairly presents in all material respects the financial condition and results of operations of the Company.
Employees will not knowingly (i) make, or permit or direct another to make, materially false or misleading entries in the Company's, or any of its subsidiary's, financial statements or records; (ii) fail to correct materially false and misleading financial statements or records; (iii) sign, or permit another to sign, a document containing materially false and misleading information; or (iv) falsely respond, or fail to respond, to specific inquiries of the Company's independent auditor or outside legal counsel.
IX.
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Procedures Regarding Waivers
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Because of the importance of the matters involved in this Code, waivers will be granted only in limited circumstances and where such circumstances would support a waiver. Waivers of the Code may only be made by the Audit Committee and will be disclosed by the Company.
Employees shall take all appropriate action to stop any known misconduct by fellow Employees or other Company personnel that violate this Code. Employees shall report any known or suspected misconduct to the Chairman of the Audit Committee or the Company's outside legal counsel. The Company will not retaliate or allow retaliation for reports made in good faith.
Exhibit 12.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
I, Emanuele Lauro, certify that:
1.
I have reviewed this annual report on Form 20-F of Scorpio Tankers Inc.;
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)) for the registrant 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)
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
(c)
Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5.
The company's other certifying officer(s) 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 functions):
(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: June 29, 2010
Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
I, Brian Lee, certify that:
1.
I have reviewed this annual report on Form 20-F of Scorpio Tankers Inc.;
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)) for the registrant 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)
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
(c)
Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5.
The company's other certifying officer(s) 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 functions):
(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: June 29, 2010
Brian Lee
Chief Financial Officer (Principal Financial Officer)
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Annual Report of Scorpio Tankers Inc. (the "Company") on Form 20-F for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Emanuele Lauro, 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)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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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: June 29, 2010
Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with this Annual Report of Scorpio Tankers Inc. (the "Company") on Form 20-F for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Brian Lee, 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)
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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: June 29, 2010
Brian Lee
Chief Financial Officer (Principal Financial Officer)