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.
NONE
 (Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
  NONE
  (Title of class)
 
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
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.
 

 
3
 


 
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  


 
4
 


   
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       -       -  
 

 
5
 


 
(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.
 
 
D.
Risk Factors
 
Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common stock. 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;
 
 
·
weather;

 
6
 
 
 
 
·
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 price of steel;
 
 
·
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.
 

 
7
 


 
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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
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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:
 
 
·
identify suitable tankers and/or shipping companies for acquisitions at attractive prices;
 
 
·
obtain required financing for our existing and new operations;
 
 
·
identify businesses engaged in managing, operating or owning tankers for acquisitions or joint ventures;
 
 
·
integrate any acquired tankers or businesses successfully with our existing operations;
 
 
·
hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;
 
 
·
identify additional new markets; and
 
 
·
improve our operating, financial and accounting systems and controls.
 
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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
16
 


 
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.
 

 
17
 
 
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.
 

 
18
 


 
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:
 
 
·
seeking to raise additional capital;
 
 
·
refinancing or restructuring our debt;
 
 
·
selling tankers; or
 
 
·
reducing or delaying capital investments.
 
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:
 
 
·
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;
 
 
·
incur additional indebtedness, including the issuance of guarantees;
 
 
·
create liens on our assets;
 
 
·
change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;
 
 
·
sell our vessels;
 
 
·
merge or consolidate with, or transfer all or substantially all our assets to, another person; or
 
 
·
enter into a new line of business.
 

 
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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
 
 
A.
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.
 

 
B.
Business Overview
 
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
       
   
Vessel Name
 
Year Built
   
DWT
   
Class
 
Employment
 
Rate
   
Expiry (A)
 
                                     
  1  
Noemi
    2004       72,515       -  
 Time Charter (B)
  $ 24,500    
21-Jan-2012
 
  2  
Senatore
    2004       72,514       -  
 Time Charter
  $ 26,000    
04-Oct-2010
 
  3  
Venice
    2001       81,408       1C  
 SPTP (C)
    N/A       N/A  
  4  
STI Conqueror
    2005       40,158       1B  
 SHTP (D)
    N/A       N/A  
  5  
STI Harmony
    2007       73,919       1A  
 Time Charter (E)
  $ 25,500    
17-Oct-2010
 
  6  
STI Heritage
    2008       73,919       1A  
 Time Charter (E)
  $ 25,500    
08-Jan-2011
 
                    414,433                            
                                                 
Vessels Agreed to be Acquired :
       
  1  
STI Gladiator
    2003       40,083       -  
 SHTP (D)
    N/A       N/A  
  2  
STI Matador
    2003       40,096       -  
 SHTP (D)
    N/A       N/A  
  3  
STI Highlander
    2007       37,145       1A  
 SHTP (D)
    N/A       N/A  
                    117,324                            
                                                 
                    531,757                            

(A)
Redelivery from the charterer is plus or minus 30 days from the expiry date.
 
(B)
Noemi is time chartered by King Dustin, which is a related party.
 
(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.
 
(D)
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.
 
(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.
 
 
·
Venice was operating in the Scorpio Panamax Tanker Pool.
 
 
·
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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
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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:
 
 
·
natural resources damage and related assessment costs;
 
 
·
real and personal property damage;
 
 
·
net loss of taxes, royalties, rents, fees and other lost revenues;
 
 
·
lost profits or impairment of earning capacity due to property or natural resources damage; and
 
 
·
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.
 
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.
 

 
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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.
 

 
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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:
 
 
·
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;
 
 
·
on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore;
 
 
·
the development of vessel security plans;
 
 
·
ship identification number to be permanently marked on a vessel's hull;
 
 
·
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
 
 
·
compliance with flag state security certification requirements.
 
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:
 
 
·
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.
 
 
·
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.
 
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.
 

 
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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.
 
 
C.
Organizational Structure
 
As of December 31, 2009, Scorpio Tankers Inc. owned 100% of the four subsidiaries listed below.
 
Company:
Incorporated in:
Noemi Shipping Company Limited
The Republic of The Marshall Islands
Senatore Shipping Company Limited
The Republic of The Marshall Islands
Venice Shipping Company Limited
The Republic of The Marshall Islands
Sting LLC
State of Delaware, United States of America
 
 
D.
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
 
 
A.
Operating Results
 
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.
 

 
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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:
 
 
·
Voyage charters , which are charters for short intervals that are priced on current, or "spot," market rates; and
 
 
·
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.
 
 
The table below illustrates the primary distinctions among these types of charters and contracts:
 
       
 
Voyage Charter
 
Time Charter
Typical contract length
Single voyage
 
One year or more
Hire rate basis (1)
Varies
 
Daily
Voyage expenses (2)
We pay
 
Customer pays
Vessel operating costs (3)
We pay
 
We pay
Off-hire   (4)
Customer does not pay
 
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.
 

 
31
 


 
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.
 

 
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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
 

 
33
 

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 )


 
34
 


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.
 

 
35
 


 
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.
 

 
36
 

 
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.
 

 
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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.
 

 
38
 


 
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.
 

 
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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
 

 
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D.
Trend Information
 
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.
 

 
41
 
 
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.
 

 
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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.
 
 
43
 
 
 
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.
 

 
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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.
 

 
45
 


 
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.
 
 
B.
Compensation
 
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.
 

 
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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.
 
 
C.
Board Practices
 
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.
 
 
D.
Employees
 
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.
 
 
E.
Share Ownership
 
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.
 

 
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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
 
 
A.
Major Shareholders
 
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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
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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.
 

 
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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.
 
 
B.
Significant Changes
 
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
 
 
A.
Share Capital
 
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.
 
 
C.
Material Contracts
 
For a description of our credit facility, see ITEM 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources.
 

 
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We have no other material contracts, other than contracts entered into in the ordinary course of business, to which the Company is a party.
 
 
D.
Exchange Controls
 
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.
 
 
E.
Taxation
 
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.
 

 
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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."
 

 
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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:
 
 
·
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
 
 
·
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.
 

 
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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.
 

 
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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
 
 
·
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.
 

 
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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:
 
 
·
the excess distribution or gain would be allocated ratably over the Non-Electing Holder's aggregate holding period for the common shares;
 
 
·
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
 
 
·
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.
 
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.
 

 
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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:
 
 
·
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
 
 
·
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.
 
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:
 
 
·
fail to provide an accurate taxpayer identification number;
 
 
·
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
 
 
·
in certain circumstances, fail to comply with applicable certification requirements.
 
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.
 
 
F.
Dividends and Paying Agents
 
Not applicable.
 

 
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G.
Statement by Experts
 
Not applicable.
 
 
H.
Documents on Display
 
We file reports and other information with the SEC.  These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E. Washington, D.C. 20549, or from the SEC's website http://www.sec.gov .  You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates.
 
 
I.
Subsidiary Information
 
Not applicable.
 
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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:
 
   
As of December 31, 2009 in millions of $
 
   
2010
   
2011 to
2012
   
2013 to
2014
   
Thereafter
 
Principal payments- floating rate debt (1)  
  $ 3.6     $ 7.2     $ 7.2     $ 21.8  
Notional balance (1,2)  
    1.8       3.6       3.6       10.9  
 
       
 
(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.
 
(2)
We do not use hedge accounting for our interest rate swaps.
 
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.
 

 
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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.
 

 
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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
 
 
A.
Audit Fees
 
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.
 
 
B.
Audit-Related Fees
 
None.
 
 
C.
Tax Fees
 
None.
 
 
D.
All Other Fees
 
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.
 

 
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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.


 
64
 


 
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
     

 
F-1
 


 
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

 
F-2
 

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.

 
F-3
 

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.


 
F-4
 

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.


 
F-5
 
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.

 
F-6
 
 
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;
 

 
F-7
 
 

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:
 

 
F-8
 
 
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.
 
 
 
F-9
 
 
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.
 
 
 
F-10
 
 
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.
 
 
 
F-11
 
 
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.
 

 
F-12
 

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.
 
 
 
F-13
 
 
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.
 
 
 
F-14
 
2.           Accounts receivable
 
   
As of December 31,
 
      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
 
   
As of December 31,
 
      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
 
   
As of December 31,
 
      2009       2008  
      $        $   
                 
Lubricating oils
    422,153       465,643  
Other
    11,275       36,871  
      433,428       502,514  

 
F-15
 

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.
 

 
F-16
 
 
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.
 
 
 
F-17
 
 
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
 
   
As of December 31,
 
      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 .
 
   
As of December 31,
 
      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).
 
 
 
F-18
 
 
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).

 
F-19
 

 
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.
 
 
 
F-20
 
 
●       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.
 
 
F-21
 
 
 
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:
 
   
As of December 31
 
   
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  

 
 
F-22
 

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.

 
 
F-23
 

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  

 
F-24
 
 
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.
 

 
F-25
 

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:
 
●   
$922,124 for the year ended December 31, 2010
 
●   
$1,702,383 for the year ended December 31, 2011
 
 
F-26
 
 
●   
$1,702,383 for the year ended December 31, 2012
 
●   
$1,151,776 for the year ended December 31, 2013
 
●   
$562,848 for the year ended December 31, 2014
 
●   
$106,929 for the year ended December 31, 2015
 
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:
 
 
●
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.
 
 
 
F-27
 
 
 
●
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.
 
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.

 
 
F-28
 
 
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.
 
(Registrant)
   
   
   
Dated:  June 29, 2010
/s/ Emanuele Lauro  
 
Emanuele Lauro
 
 
Chief Executive Officer
 






 
 


SK 26596 0004 1107665 v4



 
Exhibit 1.2

 
SCORPIO TANKERS INC.
(the "Corporation")

AMENDED AND RESTATED BYLAWS

As Adopted March 17, 2010

ARTICLE I

OFFICES
 
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.
 
ARTICLE II

SHAREHOLDERS
 
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.
 
ARTICLE III

DIRECTORS
 
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.
 
ARTICLE IV

COMMITTEES
 
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.
 
 

 
 
 

ARTICLE V

OFFICERS
 
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.
 
ARTICLE VII

DIVIDENDS
 
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.
 
ARTICLE XI

AMENDMENTS
 
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

 
 
LOAN AGREEMENT
 
 
 

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
     
 
 
 
 
 
 
INDEX
     
Clause
 
Page
 
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
   
     
 
 
 
 
ii
 
 
INDEX
     
Clause
 
Page
 
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
   

 
iii
 
 
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
INTERPRETATION
 
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;
 
 
 
2
 

 
" 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
 
 
 
3
 

 
 
(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;
 
 
 
4
 

 
" 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;
 
 
 
5
 

 
" 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:
 
 
 
6
 

 
 
(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;
 
 
 
7
 
 
" 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;
 
 
 
8
 
 
" 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
 
 
 
9
 

 
 
(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);
 
 
 
10
 
 
" Fee Letter "   means the letter dated March 9, 2010 from the Lead Arrangers to the Borrower;

" Finance Documents " means:

 
(a)  
this Agreement;
 
 
(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;
 
 
(g)  
the Note;
 
 
(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
 
 
 
11
 

 
 
(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);
 
 
 
12
 

 
" 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:

 
(a)  
the ISSC; and
 
 
(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;
 
 
 
13
 
 
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;
 
 
 
14
 

 
" 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;
 
 
 
15
 
 
 
(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;
 
 
 
16
 
 
 
(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;
 
 
 
17
 

 
" 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;
 
 
 
18
 

 
" 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;
 
 
 
19
 
 
" 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:

 
(a)  
any Initial Ship;
 
 
(b)  
any Additional Ship;
 
 
(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
 
 
 
20
 
 
 
(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;
 
 
 
21
 

 
" 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;
 
 
 
22
 

 
" 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
 
 
 
23
 
 
(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
FACILITY
 
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.
 
 
 
24
 
 
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
 
 
 
25
 
 
 
(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,
 
 
 
26
 
 
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.
 
(a)
If at any time:
 
 
(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:
 
 
 
27
 
 
 
(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
DRAWDOWN
 
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.
 
 
 
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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
INTEREST
 
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:
 
 
 
29
 
 
(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.
 
 
 
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5.15
Application of prepayment.   The provisions of Clause 8 shall apply in relation to the prepayment.
 
6
INTEREST PERIODS
 
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
DEFAULT INTEREST
 
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
 
 
 
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(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:
 
 
(i)
LIBOR; or
 
 
(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.
 
 
 
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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).
 
 
 
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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).
 
 
 
34
 
 
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.
 
 
 
35
 
 
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
CONDITIONS PRECEDENT
 
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
 
 
 
36
 
 
(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;
 
 
 
37
 
 
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.
 
 
 
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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.
 
 
 
39
 
 
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.
 
10.8
Taxes.
 
(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:
 
 
 
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(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;
 
 
 
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(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.
 
 
 
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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
 
 
 
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(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.
 
10.20
ERISA.
 
(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;
 
 
 
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(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:
 
 
150 East 58 th Street
New York, New York 10155
 
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:
 
 
 
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(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.
 
 
 
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(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
 
 
 
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(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.
 
 
 
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(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.
 
 
 
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(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;
 
 
 
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(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.
 
 
 
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(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.
 
 
 
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(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
FINANCIAL COVENANTS
 
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.
 
 
 
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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);
 
(b)
war 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:
 
(a)
in Dollars;
 
(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.
 
 
 
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(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;
 
 
 
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(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
 
 
 
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(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;
 
 
 
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(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
 
 
 
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(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
SHIP COVENANTS
 
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.
 
 
 
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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
 
 
 
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(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:
 
 
 
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(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;
 
 
 
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(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
 
 
 
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(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.
 
 
 
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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
GUARANTEE
 
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 .
 
 
 
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(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);
 
 
 
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(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.
 
 
 
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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:
 
 
 
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(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.
 
 
 
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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:
 
 
 
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(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.
 
 
 
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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:
 
 
 
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(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
 
 
 
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(b)
any other liability or obligation of the Borrower or any other Security Party under any Finance Document.
 
20
EVENTS OF DEFAULT
 
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
 
 
 
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(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
 
 
 
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(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.
 
 
 
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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
FEES AND EXPENSES
 
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;
 
 
 
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(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.
 
 
 
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22
INDEMNITIES
 
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
 
 
 
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(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.
 
 
 
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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:
 
 
 
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(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.
 
 
 
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24
ILLEGALITY, ETC
 
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
INCREASED COSTS
 
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
 
 
 
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(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.
 
 
 
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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
SET-OFF
 
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
 
(b)
for that purpose:
 
 
(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.
 
 
 
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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.
 
 
 
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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
 
 
 
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(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.
 
 
 
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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;
 
 
 
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(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
NOTICES
 
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:
 
 
 
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(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
 
 
 
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(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.
 
 
 
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30
SUPPLEMENTAL
 
30.1
Rights cumulative, non-exclusive.   The rights and remedies which the Finance Documents give to each Creditor Party are:
 
(a)
cumulative;
 
(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
THE SERVICING BANKS
 
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
 
 
 
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  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;
 
 
 
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(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.
 
 
 
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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.
 
 
 
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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
LAW AND JURISDICTION
 
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.
 
 
 
97
 
 
(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
WAIVER OF JURY TRIAL
 
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.
 
 
 
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34
PATRIOT ACT NOTICE
 
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.
 
 
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99
 

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







 
101
 

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
 
 



 

 
102
 
 


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
 

 
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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.
 
 
 
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(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.
 

 
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(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:
 

 
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(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.
 
 
 
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(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;
 

 
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(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.
 
 
 
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(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.
 

 
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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
 

 
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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.
 

 
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(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.
 

 
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(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.
 

 
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(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.
 
 
 
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(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.
 
 
 
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(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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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(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;
 
 
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(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.
 
 
 
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(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.
 
 
 
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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.
 
 
 
21
 
 
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.
 
 
 
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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.
Forfeiture; Clawback
 
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.
No Trust or Fund Created
 
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.
No Fractional Shares
 
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.
 

 




 
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Exhibit 8.1
 
SUBSIDIARIES OF SCORPIO TANKERS INC.
 

 


Name of Subsidiary
Jurisdiction of Incorporation
Noemi Shipping Company Limited
Marshall Islands
Senatore Shipping Company Limited
Marshall Islands
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
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
   



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").
 
I.
Conflicts of Interest
 
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.
Corporate Opportunities
 
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.
Confidentiality and Privacy
 
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.
Honest and Fair Dealing
 
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.
Protection and Proper Use of Company Assets
 
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.
Compliance with Laws, Rules and Regulations
 
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.
 
VII.
Securities Trading
 
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.
 

 
 
 


 
VIII.
Disclosure
 
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.
Procedures Regarding Waivers
 
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.
 
X.
Internal Reporting
 
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


/s/ Emanuele Lauro
 
Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)



Exhibit 12.2
 

 
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


/s/ Brian Lee
 
Brian Lee
Chief Financial Officer (Principal Financial Officer)



 
Exhibit 13.1
 

 
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)
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


/s/ Emanuele Lauro
 
Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)




Exhibit 13.2
 

 
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)
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


/s/ Brian Lee
 
Brian Lee
Chief Financial Officer (Principal Financial Officer)