Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

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: 001-36202

 

 

NAVIGATOR HOLDINGS LTD.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Republic of the Marshall Islands

(Jurisdiction of Incorporation or Organization)

c/o NGT Services (UK) Ltd

10 Bressenden Place

London, SW1E 5DH, United Kingdom

Telephone: +44 20 7340 4850

(Address of Principal Executive Offices)

Niall Nolan

Chief Financial Officer

10 Bressenden Place

London, SW1E 5DH, United Kingdom

Telephone: +44 20 7340 4850

Facsimile: +44 20 7340 4858

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on which Registered

Common Stock   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

 

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.

55,657,631 Shares of Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer” and emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐    Accelerated filer  ☒    Non-accelerated filer  ☐    Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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  ☐

   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  ☐                 Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

 

 


Table of Contents

NAVIGATOR HOLDINGS LTD.

INDEX TO REPORT ON FORM 20-F

 

PART I

     1  

Item 1.

  

Identity of Directors, Senior Management and Advisers

     1  

Item 2.

  

Offer Statistics and Expected Timetable

     1  

Item 3.

  

Key Information

     1  

A.

  

Selected Financial Data

     1  

B.

  

Capitalization and Indebtedness

     4  

C.

  

Reasons for the Offer and Use of Proceeds

     4  

D.

  

Risk Factors

     4  

Item 4.

  

Information on the Company

     30  

A.

  

History and Development of the Company

     30  

B.

  

Business Overview

     31  

C.

  

Organizational Structure

     56  

D.

  

Property, Plant and Equipment

     57  

Item 4A.

  

Unresolved Staff Comments

     57  

Item 5.

  

Operating and Financial Review and Prospects

     57  

A.

  

Operating Results

     57  

B.

  

Liquidity and Capital Resources

     69  

C.

  

Research and Development Patents and Licenses etc.

     77  

D.

  

Trend Information

     77  

E.

  

Off-Balance Sheet Arrangements

     77  

F.

  

Tabular Disclosure of Contractual Obligations

     78  

G.

  

Safe Harbor

     78  
  

Critical Accounting Estimates

     78  

Item 6.

  

Directors, Senior Management and Employees

     82  

A.

  

Directors and Senior Management

     82  

B.

  

Compensation

     84  

C.

  

Board Practices

     88  

D.

  

Employees

     88  

E.

  

Share Ownership

     88  

Item 7.

  

Major Shareholders and Related Party Transactions

     89  

A.

  

Major Shareholders

     89  

B.

  

Related Party Transactions

     90  

C.

  

Interests of Experts and Counsel

     90  

Item 8.

  

Financial Information

     90  

A.

  

Consolidated Statements and Other Financial Information

     90  

B.

  

Significant Changes

     91  

Item 9.

  

The Offer and Listing

     91  

A.

  

Offer and Listing Details

     91  

B.

  

Plan of distribution

     91  

C.

  

Markets

     91  

Item 10.

  

Additional Information

     91  

A.

  

Share Capital

     91  

B.

  

Memorandum and Articles of Association

     91  

C.

  

Material Contracts

     91  

D.

  

Exchange Controls

     93  

E.

  

Taxation

     93  

F.

  

Dividends and Paying Agents

     99  

G.

  

Statements by Experts

     99  

H.

  

Documents on Display

     99  

I.

  

Subsidiary Information

     100  


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Item 11.

  

Quantitative and Qualitative Disclosures About Market Risk

     100  

Item 12.

  

Description of Securities Other than Equity Securities

     101  

PART II

     102  

Item 13.

  

Defaults, Dividend Arrearages and Delinquencies

     102  

Item 14.

  

Material Modifications to the Rights of Security Holders and Use of Proceeds

     102  

Item 15.

  

Controls and Procedures

     102  

Item 16A.

  

Audit Committee Financial Expert

     103  

B.

  

Code of Ethics

     103  

C.

  

Principal Accountant Fees and Services

     103  

D.

  

Exemptions from the Listing Standards for Audit Committees

     103  

E.

  

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     103  

F.

  

Change in Registrant’s Certifying Accountant

     103  

G.

  

Corporate Governance

     104  

H.

  

Mine Safety Disclosure

     104  

PART III

     105  

Item 17.

  

Financial Statements

     105  

Item 18.

  

Financial Statements

     105  

Item 19.

  

Exhibits

     105  

Presentation of Information in this Annual Report

This annual report on Form 20-F for the year ended December 31, 2018, or this “annual report,” should be read in conjunction with our consolidated financial statements and notes thereto included in this annual report. Unless the context otherwise requires all references in this annual report to “Navigator Holdings,” “our,” “we,” “us” and the “Company” refer to Navigator Holdings Ltd., a Marshall Islands corporation. All references in this annual report to our wholly-owned subsidiary “Navigator Gas L.L.C.” refer to Navigator Gas L.L.C., a Marshall Islands limited liability company. As used in this annual report, unless the context indicates or otherwise requires, references to “our fleet” or “our vessels” include the 38 vessels we owned and operated as of December 31, 2018. As used in the annual report, (i) “WLR” refers to WL Ross & Co. LLC and (ii) the “WLR Group” refers to WLR and certain of its affiliated investment funds owning shares of our common stock, collectively.

Cautionary Statement Regarding Forward Looking Statements

This annual report contains certain forward-looking statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto, including our financial forecast. In addition, we and our representatives may from time to time make other oral or written statements that are also forward-looking statements. Such statements include, in particular, statements about our plans, strategies, business prospects, changes and trends in our business and the markets in which we operate as described in this annual report. In some cases, you can identify the forward-looking statements by the use of words such as “may,” “could,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “forecast,” “believe,” “estimate,” “predict,” “propose,” “potential,” “continue,” “scheduled,” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this annual report. These risks and uncertainties include, but are not limited to:

 

   

future operating or financial results;

 

   

pending acquisitions, business strategy and expected capital spending;

 

   

operating expenses, availability of crew, number of off-hire days, drydocking requirements and insurance costs;

 

   

fluctuations in currencies and interest rates;

 

   

general market conditions and shipping market trends, including charter rates and factors affecting supply and demand;

 

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our financial condition and liquidity, including our ability to refinance our indebtedness as it matures or obtain additional financing in the future to fund capital expenditures, acquisitions and other corporate activities;

 

   

estimated future capital expenditures needed to preserve our capital base;

 

   

our expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, or the useful lives of our vessels;

 

   

our continued ability to enter into long-term, fixed-rate time charters with our customers;

 

   

changes in governmental rules and regulations or actions taken by regulatory authorities;

 

   

potential liability from future litigation;

 

   

our expectations relating to the payment of dividends;

 

   

our expectation regarding providing in-house technical management for certain vessels in our fleet and our success in providing such in-house technical management;

 

   

our expectations regarding the construction and financing of the ethylene export marine terminal at Morgan’s Point, Texas (the “Marine Export Terminal”), the financing of our investment in the Marine Export Terminal and the financial success of the Marine Export Terminal and our related 50/50 joint venture with Enterprise Products Partners L.P. (the “Export Terminal Joint Venture”); and

 

   

other factors discussed in “Item 3—Key Information—Risk Factors” of this annual report.

All forward-looking statements included in this annual report are made only as of the date of this annual report. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our common stock.

 

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PART I

 

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 presents selected historical financial data for the years ended December 31, 2014, 2015, 2016, 2017 and 2018 which has been derived in part from our audited consolidated financial statements included elsewhere in this annual report, and should be read together with and qualified in its entirety by reference to such audited consolidated financial statements.

The following table should be read together with “Item 5—Operating and Financial Review and Prospects.”

 

    Navigator Holdings  
    Year Ended December 31,  
    2014     2015     2016     2017     2018  
    (in thousands, except per share data, fleet data and
average daily results)
 

Income Statement Data:

       

Operating Revenue

  $ 304,875     $ 315,223     $ 294,112     $ 298,595     $ 310,046  

Operating expenses:

         

Brokerage commissions

    6,697       6,995       5,812       5,368       5,142  

Voyage expenses

    45,003       33,687       42,201       55,542       61,634  

Charter-in costs

    9,111       —         —         —         —    

Vessel operating expenses

    70,198       78,842       90,854       100,968       106,719  

Depreciation and amortization

    45,809       53,453       62,280       73,588       76,140  

General and administrative costs

    10,335       11,011       12,528       13,816       16,346  

Other corporate expenses

    2,260       2,553       1,976       2,131       2,585  

Profit on sale of vessel

    —         (550     —         —         —    

Vessel write down following collision

    —         10,500       —         —         —    

Insurance recoverable from vessel repairs

    —         (9,892     504       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    189,413       186,599       216,155       251,413       268,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  $ 115,462     $ 128,624     $ 77,957     $ 47,182     $ 41,480  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of result of equity accounted affiliate

    —         —         —         —         (38

Foreign currency exchange gain on senior secured bonds

    —         —         —         —         2,360  

Unrealized loss on non-designated derivative instruments

    —         —         —         —         (5,154

Net interest expense

    (26,821     (29,730     (32,142     (41,475     (44,054
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) before income taxes

  $ 88,641     $ 98,894     $ 45,815     $ 5,707     $ (5,406

Income taxes

    (904     (800     (1,177     (397     (333
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

  $ 87,737     $ 98,094     $ 44,638     $ 5,310     $ (5,739
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

       

Basic

  $ 1.59     $ 1.77     $ 0.81     $ 0.10     $ (0.10

Diluted

  $ 1.58     $ 1.76     $ 0.80     $ 0.10     $ (0.10

Weighted average number of shares outstanding:

       

Basic

    55,336,402       55,360,004       55,418,626       55,508,974       55,629,023  

Diluted

    55,483,478       55,706,104       55,794,481       55,881,454       55,629,023  

 

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     Navigator Holdings  
     Year Ended December 31,  
     2014     2015     2016     2017     2018  
     (in thousands, except per share data, fleet data and
average daily results)
 

Balance Sheet Data (at end of period):

          

Cash and cash equivalents

   $ 62,526     $ 87,779     $ 57,272     $ 62,109     $ 71,515  

Total assets

     1,375,290       1,560,505       1,724,843       1,853,887       1,832,751  

Total liabilities

     564,726       650,414       768,363       890,674       877,641  

Total stockholders’ equity

     810,564       910,091       956,480       963,213       955,110  

Cash Flows Data:

          

Net cash provided by operating activities

   $ 133,114     $ 149,554     $ 86,748     $ 75,921     $ 77,517  

Net cash used in investing activities

     (231,874     (205,856     (238,153     (183,025     (42,327

Net cash provided by financing activities

     (33,454     81,555       120,898       111,941       (25,784

Fleet Data:

          

Weighted average number of vessels(2)

     24.8       27.8       31.3       36.2       38.0  

Ownership days(3)

     9,051       10,135       11,463       13,228       13,870  

Available days(4)

     8,906       9,865       11,255       13,195       13,767  

Operating days(5)

     8,666       9,298       9,888       11,564       12,247  

Fleet utilization(6)

     97.3     94.3     87.9     87.6     89.0

Average Daily Results:

          

Time charter equivalent rate(7)

   $ 29,988     $ 30,280     $ 25,476     $ 21,018     $ 20,284  

Daily vessel operating expenses(8)

   $ 8,068     $ 7,779     $ 7,925     $ 7,635     $ 7,694  

Other Data:

          

EBITDA(1)

   $ 161,271     $ 182,077     $ 140,237     $ 120,770     $ 114,788  

Adjusted EBITDA(1)

   $ 161,271     $ 182,077     $ 140,237     $ 120,770     $ 117,582  

 

 

(1)

EBITDA represents net income before net interest expense, income taxes and depreciation and amortization. We define Adjusted EBITDA as EBITDA before foreign currency exchange gain on senior secured bonds and unrealized loss on non-designated derivative instruments. EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to consolidated net income or cash generated from operations, as determined by U.S. GAAP, and our calculation of EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies. EBITDA and Adjusted EBITDA are not measurements prepared in accordance with U.S. GAAP.

EBITDA and Adjusted EBITDA are included herein because they are bases upon which we assess our financial performance and because we believe that they present useful information to investors regarding a company’s ability to service and/or incur indebtedness and are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

   

EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

EBITDA and Adjusted EBITDA do not recognize the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

   

EBITDA and Adjusted EBITDA ignore changes in, or cash requirements for, our working capital needs; and

 

   

other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

 

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Because of these limitations, EBITDA and Adjusted EBITDA should not be considered measures of discretionary cash available to us to invest in the growth of our business.

The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods presented:

 

     Navigator Holdings  
     Year Ended December 31,  
     2014      2015      2016      2017      2018  
     (in thousands)  

Net income/(loss)

   $ 87,737      $ 98,094      $ 44,638      $ 5,310      $ (5,739

Net interest expense

     26,821        29,730        32,142        41,475        44,054  

Income taxes

     904        800        1,177        397        333  

Depreciation and amortization

     45,809        53,453        62,280        73,588        76,140  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 161,271      $ 182,077      $ 140,237      $ 120,770      $ 114,788  

Foreign currency exchange gain on senior secured bonds

     —          —          —          —          (2,360

Unrealized loss on non-designated derivative instruments

     —          —          —          —          5,154  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 161,271      $ 182,077      $ 140,237      $ 120,770      $ 117,582  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

We calculate the weighted average number of vessels during a period by dividing the number of total ownership days during that period by the number of calendar days during that period.

(3)

We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and the potential amount of revenue that we record during a period.

(4)

We define available days as ownership days less aggregate off-hire days associated with scheduled maintenance, which includes drydockings, vessel upgrades or special or intermediate surveys. We use available days to measure the aggregate number of days in a period that our vessels should be capable of generating revenues.

(5)

We define operating days as available days less the aggregate number of days that our vessels are off-hire for any reason other than scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our vessels are servicing our customers.

(6)

We calculate fleet utilization by dividing the number of operating days during a period by the number of available days during that period. An increase in non-scheduled off-hire days would reduce our operating days, and therefore, our fleet utilization. We use fleet utilization to measure our ability to efficiently find suitable employment for our vessels.

(7)

Time charter equivalent, or “TCE rate”, is a measure of the average daily revenue performance of a vessel. TCE is not calculated in accordance with U.S. GAAP. For all charters, we calculate TCE by dividing total operating revenues, less any voyage expenses, by the number of operating days for the relevant period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses, whereas for voyage charters, also known as spot market charters, we pay all voyage expenses. TCE rate is a shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment (“COA’s”)) under which the vessels may be employed between the periods. We include average daily TCE rate, as we believe it provides additional meaningful information in conjunction with net operating revenues, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may not be comparable to that reported by other companies.

 

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The following table represents a reconciliation of TCE rate to operating revenue, the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented:

 

     Year Ended December 31,  
     2014      2015      2016      2017      2018  
     (in thousands, except operating days and
average daily time charter equivalent rate)
 

Fleet Data:

              

Operating revenue

   $ 304,875      $ 315,223      $ 294,112      $ 298,595      $ 310,046  

Voyage expenses

     45,003        33,687        42,201        55,542        61,634  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating revenue less Voyage expenses

     259,872        281,536        251,911        243,053        248,412  

Operating days

     8,666        9,298        9,888        11,564        12,247  

Average daily time charter equivalent rate

   $ 29,988      $ 30,280      $ 25,476      $ 21,018      $ 20,284  

 

(8)

Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant time period.

 

  B.

Capitalization and Indebtedness

Not applicable.

 

  C.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

  D.

Risk Factors

You should carefully consider the following risk factors together with all of the other information included in this annual report in evaluating an investment in our common stock. If any of the following risks were actually to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business

Charter rates for liquefied gas carriers are cyclical in nature.

The international liquefied gas carrier market is cyclical with attendant volatility in terms of profitability, charter rates and vessel values. The degree of charter rate volatility among different types of liquefied gas carriers has varied widely. Because many factors influencing the supply of, and demand for, vessel capacity are unpredictable, the timing, direction and degree of changes in the international liquefied gas carrier market are also unpredictable.

Future growth in the demand for our services will depend on changes in supply and demand, economic growth in the world economy and demand for liquefied gas transportation relative to changes in worldwide fleet capacity. Adverse economic, political, or social developments or other global financial turmoil, could have a material adverse effect on world economic growth and thus on our business and operating results.

The charter rates we receive will be dependent upon, among other things:

 

   

changes in the supply of vessel capacity for the seaborne transportation of liquefied gases, which is influenced by the following factors:

 

   

the number of newbuilding deliveries and the ability of shipyards to deliver newbuildings by contracted delivery dates and capacity levels of shipyards;

 

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the scrapping rate of older vessels;

 

   

the number of vessels that are out of service, as a result of vessel casualties, repairs and drydockings; and

 

   

changes in liquefied gas carrier prices.

 

   

changes in the level of demand for seaborne transportation of liquefied gases, which is influenced by the following factors:

 

   

the level of production of liquefied gases in net export regions;

 

   

the level of demand for liquefied gases in net import regions such as Asia, Europe, Latin America and India;

 

   

the level of internal demand for petrochemicals to supply integrated petrochemical facilities in net export regions;

 

   

a reduction in global demand for petrochemicals due to ecological or environmental concerns about the use of plastics;

 

   

a reduction in global or general industrial activity specifically in the plastics and chemical industry;

 

   

the price of oil and other alternative fuels;

 

   

changes in the cost of petroleum and natural gas from which liquefied gases are derived;

 

   

prevailing global and regional economic conditions;

 

   

political changes and armed conflicts in the regions traveled by our vessels and the regions where the cargoes we carry are produced or consumed that interrupt production, trade routes or consumption of liquefied gases and associated products;

 

   

developments in international trade;

 

   

the distances between exporting and importing regions over which liquefied gases are to be moved by sea;

 

   

infrastructure to support seaborne liquefied gases, including pipelines, railways and terminals;

 

   

the availability of alternative transportation means;

 

   

changes in seaborne and other transportation patterns; and

 

   

changes in environmental and other regulations that may limit the production or consumption of liquefied gases or the useful lives of vessels.

Adverse changes in any of the foregoing factors could have an adverse effect on our revenues, profitability, liquidity, cash flow and financial position.

We are partially dependent on voyage charters in the spot market, and any decrease in spot charter rates in the future may adversely affect our earnings.

We currently own and operate a fleet of 38 vessels. Of those, 16 vessels are employed in the spot market, exposing us to fluctuations in spot market charter rates.

Although spot chartering is common in our industry, the spot market may fluctuate significantly. The successful operation of our vessels in the competitive spot market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling in ballast and to pick up cargo. If future spot charter rates decline, we may be unable to operate our vessels trading

 

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in the spot market profitably or meet our obligations, including payments on indebtedness. Furthermore, as charter rates for spot charters are fixed for a single voyage or multiple voyages which may last up to several weeks or months, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.

We may be unable to charter our vessels at attractive rates, which would have an adverse impact on our business, financial condition and operating results.

Payments under our charters represent substantially all of our operating cash flow. Our time charters expire on a regular basis. If demand for liquefied gas carriers has declined at the time that our charters expire, we may not be able to charter our vessels at favorable rates or at all. If more vessels are added to the overall fleet through newbuilding programs, charter rates may reduce. In addition, while longer-term charters would become more attractive to us at a time when charter rates are declining, our customers may not want to enter into longer-term charters in such an environment. As a result, if our charters expire or newbuild vessels are delivered at a time when charter rates are declining, we may have to accept charters with lower rates or shorter terms than would be desirable. Furthermore, we may be unable to charter our vessels immediately after the expiration of their charters resulting in periods of non-utilization for our vessels. Our inability to charter our vessels at favorable rates or terms or at all would adversely impact our business, financial condition and operating results. Please read “Item 4—Information on the Company—Business Overview—Our Fleet.”

If the demand for liquefied gases and the seaborne transportation of liquefied gases does not grow, our business, financial condition and operating results could be adversely affected.

Our growth depends on continued growth in world and regional demand for liquefied gases and the seaborne transportation of liquefied gases, each of which could be adversely affected by a number of factors, such as:

 

   

increases in the demand for industrial and residential natural gas in areas linked by pipelines to producing areas, or the conversion of existing non-gas pipelines to natural gas pipelines in those markets;

 

   

increases in demand for chemical feedstocks in net exporting regions;

 

   

decreases in the consumption of petrochemical gases;

 

   

decreases in the consumption of liquefied petroleum gas, or “LPG,” due to increases in its price relative to other energy sources or other factors making consumption of liquefied gas less attractive;

 

   

the availability of competing, alternative energy sources, transportation fuels or propulsion systems;

 

   

decreases in demand for liquefied gases resulting from changes in feedstock capabilities of petrochemical plants in net importing regions;

 

   

changes in the relative values of hydrocarbon and liquefied gases;

 

   

a reduction in global industrial activity, especially in the plastics and petrochemical industries, particularly in regions with high demand growth for liquefied gas, such as Asia;

 

   

adverse global or regional economic or political conditions, particularly in liquefied gas exporting or importing regions, which could reduce liquefied gas shipping or energy consumption;

 

   

changes in governmental regulations, such as the elimination of economic incentives or initiatives designed to encourage the use of liquefied gases over other fuel sources; or

 

   

decreases in the capacity of petrochemical plants and crude oil refineries worldwide or the failure of anticipated new capacity to come online.

Reduced demand for liquefied gases and the seaborne transportation of liquefied gases would have a material adverse effect on our future growth and could adversely affect our business, financial condition and operating results.

 

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The expected growth in the supply of petrochemical gases, including ethane and ethylene, available for seaborne transport may not materialize, which would deprive us of the opportunity to obtain premium charters for petrochemical cargoes.

Charter rates for petrochemical gas cargoes can be higher than those for LPG, with charter rates for ethylene historically commanding an additional premium. While we believe that growth in production at petrochemical production facilities and regional supply and pricing imbalances will create opportunities for us to transport petrochemical gas cargoes, including ethane and ethylene, factors that are beyond our control may cause the supply of petrochemical gases available for seaborne transport to remain constant or even decline. For example, a significant portion of any increased production of petrochemicals in export regions may be used to supply local facilities that use petrochemicals as a feedstock rather than exported via seaborne trade. If the supply of petrochemical gases available for seaborne transport does not increase, we will not have the opportunity to obtain the increased charter rates associated with petrochemical gas cargoes, including ethane and ethylene, and our expectations regarding the growth of our business may not be met.

The market values of our vessels may fluctuate significantly. This could cause us to incur a loss, which could adversely affect our business, financial condition and operating results.

The market value of liquefied gas carriers fluctuates. While the market values of our vessels have declined as a result of the recent market slowdown, they still remain subject to a potential significant further decline depending on a number of factors including, among other things: shipyard capacity and the cost of newbuildings, general economic and market conditions affecting the shipping industry, prevailing charter rates, competition from other shipping companies, other modes of transportation, other types, sizes and age of vessels and applicable governmental regulations.

In addition, when vessel prices are considered to be low, companies not usually involved in shipping may make speculative vessel orders, thereby increasing the supply of vessel capacity, satisfying demand sooner and potentially suppressing charter rates.

Also, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that could have a material adverse effect on our business, financial condition and operating results.

Furthermore, each of our loan agreements and our bond agreements have covenants relating to asset values, whereby if vessel values were to reduce to below those set out in the covenants, a breach would occur and cause the loan amounts to be immediately repayable. This could have a material adverse effect on our business, financial condition and operating results.

Over the long-term, we will be required to make substantial capital expenditures to preserve the operating capacity of, and to grow, our fleet.

We must make substantial capital expenditures over the long-term to maintain the operating capacity and expansion of our fleet in order to preserve our capital base.

We estimate that drydocking expenditures can cost up to $2.0 million per vessel per drydocking, although these expenditures could vary significantly from quarter to quarter and year to year and could increase as a result of changes in:

 

   

the location and required repositioning of the vessel;

 

   

the cost of labor and materials;

 

   

customer requirements;

 

   

the types of vessels in our fleet;

 

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the cost of replacement vessels;

 

   

the age of our fleet;

 

   

governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment;

 

   

competitive standards; and

 

   

high demand for drydock usage.

Our ability to obtain bank financing or to access the capital markets for future debt or equity offerings in order to finance the expansion of our fleet may be limited by our financial condition at the time of any such financing or offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could limit our ability to expand our fleet. Even if we are successful in obtaining necessary funds, the terms of such financings may significantly increase our interest expense and financial leverage and issuing additional equity securities may result in significant shareholder dilution. Please read “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Liquidity and Cash Needs.”

We may be unable to make, or realize the expected benefits from, acquisitions and the failure to successfully implement our growth strategy through acquisitions could adversely affect our business, financial condition and operating results.

Our growth strategy may include newbuildings or selectively acquiring existing liquefied gas carriers and investing in complementary assets. Factors such as competition from other companies, many of which have significantly greater financial resources than we do, could reduce our acquisition and investment opportunities or cause us to pay higher prices.

Any existing vessel or newbuilding we acquire may not be profitable at or after the time of acquisition or delivery and may not generate cash flow sufficient to cover the cost of acquisition. Market conditions at the time of delivery of any newbuildings may be such that charter rates are not favorable and the revenue generated by such vessels is not sufficient to cover their purchase prices.

In addition, our acquisition and investment growth strategy exposes us to risks that could adversely affect our business, financial condition and operating results, including risks that we may:

 

   

fail to realize anticipated benefits of acquisitions, such as new customer relationships, cost savings or increased cash flow;

 

   

not be able to obtain charters at favorable rates or at all;

 

   

be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet or engage a third-party technical manager to do the same;

 

   

fail to integrate investments of complementary assets or vessels in capacity ranges outside our current operations in a profitable manner;

 

   

not have adequate operating and financial systems in place as we implement our expansion plan;

 

   

decrease our liquidity through the use of a significant portion of available cash or borrowing capacity to finance acquisitions;

 

   

significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;

 

   

incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or

 

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incur other significant charges, such as impairment of goodwill or other intangible assets, asset impairment or restructuring charges.

Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.

From time to time, we may selectively pursue new strategic acquisitions or ventures we believe to be complementary to our seaborne transportation services and any strategic transactions that are a departure from our historical operations could present unforeseen challenges and result in a competitive disadvantage relative to our more-established competitors.

We may pursue strategic acquisitions or investment opportunities we believe to be complementary to our core business of owning and operating handysize liquefied gas carriers and the transportation of LPG, petrochemical gases and ammonia. Such ventures may include, but are not limited to, operating liquefied gas carriers in different size categories, expanding the types of cargo we carry and/or ventures or facilities involved in the export, distribution, mixing and/or storage of liquefied gas cargoes. While we have general knowledge and experience in the seaborne transportation services industry, we currently have no meaningful operating history outside of the ownership and operation of liquefied gas carriers and the transportation of LPG, petrochemical gases and ammonia.

Any investments we pursue outside of our historical provision of seaborne transportation services could result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing operation and growth of our fleet.

We may face several factors that could impair our ability to successfully execute these acquisitions or investments including, among others, the following:

 

   

delays in obtaining regulatory approvals, licenses or permits from different governmental or regulatory authorities, including environmental permits;

 

   

unexpected cost increases or shortages in the equipment, materials or labor required for the venture, which could cause the venture to become economically unfeasible; and

 

   

unforeseen engineering, design or environmental problems.

Any of these factors could delay any such acquisitions or investment opportunities and could increase our projected capital costs. If we are unable to successfully integrate acquisitions or investments into our historical business, any costs incurred in connection with these projects may not be recoverable. If we experience delays, cost overruns, or changes in market circumstances, we may not be able to demonstrate the commercial viability of such acquisitions or investment opportunities or achieve the intended economic benefits, which would materially and adversely affect our business, financial condition and operating results.

We may be unable to realize the expected benefits from our investment in the Marine Export Terminal in the U.S. Gulf.

There are a number of contingencies that could impact the ability to benefit from the Marine Export Terminal on a timely basis or at all, including, among others, the following:

 

   

the ability to receive on a timely basis regulatory approval to operate the Marine Export Terminal;

 

   

committed financing for our investment in the Marine Export Terminal;

 

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to have the throughput to the Marine Export Terminal fully committed;

 

   

that the Marine Export Terminal is unable to operate due to operational issues; and

 

   

that existing customers may not renew their contracts.

In addition, a subsidiary of Enterprise Products Partners, L.P. is the sole managing member of the Export Terminal Joint Venture and it is also the operator of the related Marine Export Terminal. We have only certain limited negative controls over the Export Terminal Joint Venture and the business and operations of the Marine Export Terminal. The success of the Export Terminal Joint Venture and the Marine Export Terminal is dependent on the successful management and operation thereof by the managing member and operator. Further, the managing member’s and operator’s interests may not be entirely aligned with our interests.

If our expectations with respect to the construction of the Marine Export Terminal, the financing of our investment in the Marine Export Terminal or the success of the Marine Export Terminal and the Export Terminal Joint Venture are not realized, it could have a material adverse effect on our business, financial condition and operating results.

We operate in countries which can expose us to political, governmental and economic instability, which could adversely affect our business, financial condition and operating results.

Our operations are primarily conducted outside of the United States, and may be affected by economic, political and governmental conditions in the countries where we engage in business or where our vessels are registered. Any disruption caused by these conditions could adversely affect our business, financial condition and operating results. We derive some of our revenues from transporting gas cargoes from, to and within politically unstable regions. Conflicts in these regions have included attacks on ships and other efforts to disrupt shipping. In addition, vessels operating in some of these regions have been subject to piracy. Hostilities or other political instability in regions where we operate or may operate could have a material adverse effect on our business, financial condition and operating results. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries where we engage in business may limit, restrict or prohibit our trading activities with those countries, which could also harm our business. Finally, a government could requisition one or more of our vessels, which is most likely during a war or national emergency. Any such requisition would cause a loss of the vessel and would harm our business, financial condition and operating results.

If our vessels call on ports located in countries that are subject to restrictions imposed by the U.S. government, our reputation and the market for our securities could be adversely affected.

Although no vessels owned or operated by us have called on ports located in countries subject to comprehensive sanctions and embargoes imposed by the U.S. government and other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Cuba, Iran, North Korea, Sudan, Syria and the Crimean region of Ukraine, in the future our vessels may call on ports in these countries from time to time on charterers’ instructions in violation of contractual provisions that prohibit them from doing so. Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact the market for our common shares, our ability to access U.S. capital markets and conduct our business and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. Our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels and those violations could in turn negatively affect our reputation or the ability of our charters to meet their obligations to us or result in fines, penalties or sanctions.

 

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The geopolitical risks associated with chartering vessels to state-owned corporations are significant and could have an adverse impact on our business, financial condition and operating results.

PT Pertamina (Persero), or “Pertamina,” is a state-owned corporation of the Republic of Indonesia. Pertamina currently employs three of our vessels. Our vessels that are chartered to Pertamina are subject to various risks, including (i) loss of revenue, property or equipment as a result of expropriation, nationalization, changes in laws, exchange controls, war, insurrection, civil unrest, strikes or other political risks, (ii) being subject to foreign laws and legal systems and the exclusive jurisdiction of Indonesian courts or tribunals and (iii) the unilateral renegotiation of contracts and changes in laws and policies governing the operations of foreign companies in Indonesia. In addition, if a contract dispute arises it may be difficult for us to enforce our contractual rights against Pertamina, as it may claim sovereign immunity against judgments from foreign courts. As a result, we are subject to significant economic uncertainty associated with doing business with state-owned corporations. We cannot predict how government policies may change under the current or any future Indonesian administration, and future government policies could have a substantial adverse impact on our business, financial condition and operating results.

Operating our vessels in sanctioned areas or chartering our vessels to sanctioned individuals or entities could adversely affect our business, financial condition and operating results.

We have obligations and believe we comply fully with the various sanctions regimes around the world, not just the sanctions authorities of the United States, but also the relevant departments within the United Nations, European Union and other individual countries, as well as governmental institutions and agencies of those countries. Our current 38 vessels transport LPG and other liquefied petrochemical gases throughout the globe and we are vigilant in ensuring our vessels do not call to countries or ports or trade with persons that may be on any lists which restrict or inhibit such trade or relationship. Any actual or alleged violations could materially damage our reputation and ability to do business.

Furthermore, if any of our customers were to become a sanctioned entity, the charterparty would end immediately and become void which could lead to one or more vessels being redelivered to us, ending what may be a long-term charter commitment. For example, as a result of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designating Petróleos de Venezuela S.A., or “PDVSA”, pursuant to Executive Order 13850, dated January 28, 2018, for operating in the oil sector of the Venezuelan economy we have ceased operations with PDVSA (in accordance with OFAC general licenses) unless and until sanctions against PDVSA are lifted or we obtain specific authorization from OFAC to resume such activity. If we do not receive authorization from OFAC to resume the trade, our two vessels will have left Venezuela three months before the end of the current charter party.

We depend to a significant degree upon third-party managers to provide technical management services for our fleet.

We subcontract the majority of the technical management of our fleet, including crewing, maintenance and repair, to third-party technical managers, Northern Marine Management Ltd., or “NMM,” and Thome Ship Management Pte Ltd, or “Thome.” Our technical managers, in turn, contract with one or more manning agents for the provision of crews for our vessels. Although we have subcontracted the technical management of portions of our fleet to NMM since 2009 and Thome since 2015, our agreements with them are subject to annual renewal and may be terminated by us or our technical managers with three months’ notice. The loss of services of either or both of our technical managers or a failure to perform their obligations could have an adverse effect on our business, financial condition and operating results. Although we may have rights against our technical managers if they were to default on their obligations, shareholders will have no recourse against our technical managers. In addition, if we were to lose the services of one or all of our technical managers, we cannot guarantee that we will be able to find replacement technical managers on terms as favorable as those currently in place.

The ability of our technical managers to continue providing services for our benefit will depend in part on their financial strength. Circumstances beyond our control could impair our technical managers’ financial strength.

 

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Because our technical managers are privately held, it is unlikely that information about their financial strength will be available. As a result, we might have little advance warning of problems that affect our technical managers, even though those problems could have a material adverse effect on us. Our inability to replace our technical managers or to successfully take over and perform the technical management of the vessels being managed by our technical managers would materially and adversely affect our business, financial condition and operating results.

In 2016, we began providing in-house technical management, for the first time, for certain vessels in our fleet.

We currently provide in-house technical management for fourteen of our vessels. Providing in-house technical management for any vessel in our fleet may impose significant additional responsibilities on our management and staff. Further, because we had no experience providing technical management in-house prior to 2016, our management may encounter challenges as we develop and refine our technical management system.

Some charterers may not accept our in-house technical managers and, consequently, may not charter our vessels. Furthermore, some charterers and port terminals may require the crew of our fleet to have a minimum of two years of experience with our vessel’s on-board safety management systems. We switch to in-house technical management for a vessel in our fleet only if the existing charterer so agrees, but charterers may change and a new charterer may refuse to charter a vessel in our fleet if it is managed by our in-house technical managers. Similarly, certain ports may not allow our vessels that recently changed to in-house technical management into their terminals to load or discharge cargoes. If we are not successful with respect to any vessel for which we may provide technical management in-house, our reputation and ability to charter vessels may be negatively impacted, which could materially and adversely affect our business, financial condition and operating results.

A fluctuation in fuel prices may adversely affect our charter rates for time charters and our cost structure for voyage charters and COAs.

The price and supply of bunker fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil, actions by members of the Organization of the Petroleum Exporting Countries (“OPEC”) and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns and regulations. A significant portion of our revenues are generated by time charters, the terms of which require our customers to incur the cost of bunker fuel. Bunker fuel prices have increased over the past few years and are likely to further increase with the new low sulfur requirements from January 1, 2020 and if the fuel price increases significantly, our customers may be less willing in the future to enter into charters under which they bear the full risk of price increases or may shorten the periods for which they are willing to make such commitments. Under voyage charters and COAs, we bear the cost of bunker fuel used to power our vessels. In the future, we are likely to experience an increase in bunker fuel prices that would correspondingly increase our voyage expenses under each of our voyage charters and COAs, which would adversely affect our profitability.

Changes in fuel, or bunkers, prices may adversely affect our results of operation.

Fuel, or bunkers, is a significant expense for our vessels employed in the spot market and can have a significant impact on earnings. For our vessels employed on time charters, the charterer is generally responsible for the cost and supply 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. In addition, the high sulfur fuel type we currently use on our vessels is subject to change as a consequence of International Maritime Organisation regulations in January 2020 and availability of the new lower sulfur fuel may be limited, and the price of it or alternative fuels may be significantly higher, which may reduce our profitability and adversely affect our results of operation.

 

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The required drydocking of our vessels could have a more significant adverse impact on our revenues than we anticipate, which would adversely affect our business, financial condition and operating results.

The drydocking of our vessels requires significant capital expenditures and results in loss of revenue while our vessels are off-hire. Any significant increase in the number of days of off-hire due to such drydocking or in the costs of any repairs could have a material adverse effect on our financial condition. Although we attempt to ensure that no more than one vessel will be out of service at any given time, this may not always be possible because we may underestimate the time required to drydock our vessels, or unanticipated problems may arise.

Our operating costs are likely to increase in the future as our vessels age, which would adversely affect our business, financial condition and operating results.

In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As our vessels age, we will incur increased costs. Older vessels are typically less fuel-efficient and more costly to maintain than newer vessels due to improvements in engine technology. If equipment on board becomes obsolete and it is not cost effective to repair it, such equipment would have to be replaced. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations, including environmental, safety or other equipment standards related to the age of vessels may also require expenditures for alterations, or the addition of new equipment, to our vessels to comply. These laws or regulations may also restrict the type of activities in which our vessels may engage or limit their operation in certain geographic regions. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their expected useful lives.

The operation of ocean going vessels entails the possibility of marine disasters including damage or destruction of the vessel due to natural disasters, accident, the loss of a vessel due to piracy or terrorism, damage or destruction of cargo and similar events that may cause a loss of revenue from affected vessels and damage our business reputation, which may in turn lead to loss of business.

The operation of ocean going vessels entails certain inherent risks that may materially adversely affect our business and reputation, including:

 

   

damage or destruction of vessel due to natural disasters;

 

   

damage or destruction of vessel due to marine disasters such as a collision;

 

   

the loss of a vessel due to piracy and terrorism;

 

   

cargo and property losses or damage as a result of the foregoing or less drastic causes such as human error, mechanical failure, grounding, fire, explosions and bad weather;

 

   

environmental accidents as a result of the foregoing;

 

   

risks to the onboard vessel management personnel as a result of the foregoing; and

 

   

business interruptions and delivery delays caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions.

Any of these circumstances or events could substantially increase our costs. For example, the costs of replacing a vessel or cleaning up a spill could substantially lower our revenues by taking vessels out of operation permanently or for periods of time. The involvement of our vessels in a disaster or delays in delivery or loss of cargo may harm our reputation as a safe and reliable vessel operator and cause us to lose business.

The total loss or damage of any of our vessels or cargoes 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 that could negatively impact our business, financial condition and operating results.

 

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The loss of or inability to operate any of our vessels would result in a significant loss of revenues and cash flow which would adversely affect our business, financial condition and operating results.

We do not carry loss of hire insurance. If, at any time, we cannot operate any of our vessels due to mechanical problems, lack of seafarers to crew a vessel, prolonged drydocking periods, loss of certification, the loss of any charter or otherwise, our business, financial condition and operating results will be materially adversely affected. In the worst case, we may not receive any revenues because of the inability to operate any of our vessels, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition.

An economic downturn could have a material adverse effect on our business, financial condition and operating results.

Future adverse economic conditions may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels. There has historically been a strong link between the development of the world economy and demand for energy, including liquefied gases. The world economy is currently facing a number of challenges. An extended period of adverse development in the outlook for countries could reduce the overall demand for liquefied gases and have a negative impact on our customers. These potential developments, or market perceptions concerning these and related issues, could affect our business, financial condition and operating results.

Furthermore, a future economic slowdown could have an impact on our customers and/or suppliers including, among other things, causing them to fail to meet their obligations to us. Similarly, a future economic slowdown could affect lenders participating in our secured term loan and revolving credit facilities, making them unable to fulfill their commitments and obligations to us. Any reductions in activity owing to such conditions or failure by our customers, suppliers or lenders to meet their contractual obligations to us could adversely affect our business, financial condition and operating results.

Due to our lack of diversification, adverse developments in the seaborne liquefied gas transportation business could adversely affect our business, financial condition and operating results.

We rely exclusively on the cash flow generated from vessels that operate in the seaborne liquefied gas transportation business. Unlike many other shipping companies, which have vessels that can carry drybulk, crude oil and oil products, we depend exclusively on the transport of LPG, petrochemicals and ammonia. Due to our lack of diversification, an adverse development in the international liquefied gas shipping industry would have a significantly greater impact on our business, financial condition and operating results than it would if we maintained more diverse assets or lines of business.

If in the future our business activities involve countries, entities and individuals that are subject to restrictions imposed by the U.S. or other governments, we could be subject to enforcement action and our reputation and the market for our common stock could be adversely affected.

The tightening of U.S. sanctions in recent years has affected non-U.S. companies. In particular, sanctions against Iran have been significantly expanded. In 2012 the U.S. signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (“TRA”), which placed further restrictions on the ability of non-U.S. companies to do business or trade with Iran and Syria. A major provision in the TRA is that issuers of securities must disclose to the SEC in their annual and quarterly reports filed after February 6, 2013 if the issuer or “any affiliate” has “knowingly” engaged in certain activities involving Iran during the timeframe covered by the report. This disclosure obligation is broad in scope in that it requires the reporting of activity that would not be considered a violation of U.S. sanctions as well as violative conduct, and is not subject to a materiality threshold. The SEC publishes these disclosures on its website and the President of the United States must initiate an investigation in response to all disclosures.

In addition to the sanctions against Iran, the U.S. also has sanctions that target other countries, entities and individuals. These sanctions have certain extraterritorial effects that need to be considered by non-U.S.

 

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companies. It should also be noted that other governments have implemented versions of U.S. sanctions. We believe that we are in compliance with all applicable sanctions and embargo laws and regulations imposed by the U.S., the United Nations or European Union countries and intend to maintain such compliance. However, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our common stock. Additionally, some investors may decide to divest their interest, or not to invest, in our common stock simply because we may do business with companies that do business in sanctioned countries. Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

We are a Marshall Islands corporation and a majority of our subsidiaries are Marshall Islands entities, and the European Union has put the Republic of the Marshall Islands on a blacklist of non-cooperative tax jurisdictions.

The European Union finance ministers rate jurisdictions for tax transparency, governance, real economic activity, and corporate tax rate. Countries which do not cooperate with the finance ministers are put on a “grey list” or a blacklist. While the Republic of the Marshall Islands was previously on the European Union’s grey list, on March 12, 2019, the Marshall Islands (along with Barbados and the United Arab Emirates) was moved to the “blacklist”. In making this announcement, the European Union state that the Marshall Islands did not follow up on prior commitments.

European Union member states have agreed upon a set of countermeasures, which they can choose to apply against the listed countries, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The European Commission has stated it will continue to support Member States’ work to develop a more coordinated approach to sanctions for the EU list in 2019. According to the European Commission, new provisions in EU legislation also prohibits EU funds from being channelled or transited through entities in countries on the blacklist.

We and a majority of our subsidiaries are Marshall Islands entities, and it is difficult to say how or if this new development will impact our business. We do not know what actions the Marshall Islands may take to remove itself from the blacklist; how quickly the European Union would react to the Marshall Islands’ behavior or attempts to rectify any concerns; or how banks or other counterparties will act until the European Union removes the Marshall Islands from this “list of non-cooperative tax jurisdictions”. If banks or counterparties refuse to conduct transactions with us or route money through our accounts, we may need to change the domicile of our company and its subsidiaries, which could be expensive, time-consuming, and substantially disruptive to our business and our ability to repay our debts as they become due.

Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract termination and an adverse effect on our business.

We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 and the Bribery Act 2010 of the Parliament of the United Kingdom. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, operating results or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and could consume significant time and attention of our senior management.

 

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A cyber-attack could materially disrupt our business.

We rely on information technology systems and networks in our operations, communication with our vessels and the administration of our business. Our operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business, operating results, financial condition, our reputation, or cash flows. We may be required to incur additional costs to modify or enhance our information technology systems or to prevent or remediate any such attacks.

Our business is subject to complex and evolving laws and regulations regarding privacy and data protection (“data protection laws”).

The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including the European Union General Data Protection Regulation and recent California legislation, pose increasingly complex compliance challenges and potentially elevate our costs. Any failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. As noted above, we are also subject to the possibility of cyber attacks, which themselves may result in a violation of these laws. Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.

Maritime claimants could arrest our vessels, which could interrupt our cash flow.

Crew members, suppliers of goods and services to a vessel, shippers of cargo, cargo receivers and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lienholder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums to have the arrest lifted.

In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel that 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 all of the vessels in our fleet for claims relating to only one of our ships. The arrest of any of our vessels would adversely affect our business, financial condition and operating results.

We may experience operational problems with vessels that reduce revenue and increase costs.

Liquefied gas carriers are complex vessels and their operation is technically challenging. Marine transportation operations are subject to mechanical risks and problems. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could adversely affect our business, financial condition and operating results.

A shortage of qualified officers makes it more difficult to crew our vessels and increases our operating costs. If a shortage were to develop, it could impair our ability to operate and have an adverse effect on our business, financial condition and operating results.

Our liquefied gas carriers require technically skilled officer staff with specialized training. As the world liquefied gas carrier fleet and the liquefied natural gas, or “LNG,” carrier fleet grows, the demand for such technically skilled officers increases and could lead to a shortage of such personnel. If our crewing managers were to be

 

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unable to employ such technically skilled officers, they would not be able to adequately staff our vessels and effectively train crews. The development of a deficit in the supply of technically skilled officers or an inability of our crewing managers to attract and retain such qualified officers could impair our ability to operate and increase the cost of crewing our vessels and, thus, materially adversely affect our business, financial condition and operating results. Please read “Item 4—Information on the Company—Business Overview—Crewing and Staff.”

Compliance with safety and other vessel requirements imposed by classification societies may be very costly and could adversely affect our business, financial condition and operating results.

The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and the Safety of Life at Sea Convention. Our vessels are currently enrolled with, Lloyd’s Register, DNV GL Group AS or the American Bureau of Shipping. All of our vessels have been awarded International Safety Management certification.

As part of the certification process, a vessel must undergo annual surveys, intermediate surveys and special surveys. In lieu of a special survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. All of the vessels in our existing fleet are on a planned maintenance system, or “PMS,” approval, and as such the classification society attends on-board once every year to verify that the maintenance of the on-board equipment is done correctly. Each of the vessels in our fleet have been qualified within its respective classification society for drydocking once every five years, subject to an intermediate underwater survey done using an approved diving company in the presence of a surveyor from the classification society twice in each five-year cycle, with a maximum of 30 months between each underwater survey.

If any vessel does not maintain its class and/or fails any annual survey, intermediate survey or special survey, the vessel will be unable to trade between ports and will be unemployable. This would adversely affect our business, financial condition and operating results.

Our fleet includes sets of sister ships, which have identical specifications. As a result, any latent design or equipment defect discovered in one of our sister ships will likely affect all of the other vessels.

Our vessels consist of a number of sets of sister ships, ranging from two vessels to six vessels. The vessels in each set of sister ships were built based on standard designs and are uniform in all material respects. Any latent design defects in one of the sister ships would likely affect all of its respective sister ships. We cannot assure you that latent defects will not be discovered in any of these vessels. In addition, all vessels that are sister ships have the same or similar equipment as all other such vessels. As a result, any equipment defect discovered in one vessel may affect one or all of the vessels that are sister ships with that vessel. Any disruptions in the operation of the vessels in our fleet, resulting from any such defects could adversely affect our business, financial condition and operating results.

Delays in deliveries of newbuildings or acquired vessels, or deliveries of vessels with significant defects, could harm our operating results and lead to the termination of any related charters that may be entered into prior to their delivery.

The delivery of any newbuildings we may order or of any vessels we agree to acquire in the future could be delayed, which would delay our receipt of revenues under any future charters we enter into for the vessels. In addition, under some of the charters we may enter into for newbuildings, if our delivery of a vessel to the customer is delayed, we may be required to pay liquidated damages in amounts equal to or, under some charters, almost double the hire rate during the delay. For prolonged delays, the customer may terminate the time charter, resulting in loss of revenues. The delivery of any newbuilding with substantial defects could have similar consequences.

 

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Our receipt of newbuildings could be delayed because of many factors, including:

 

   

quality or engineering problems;

 

   

changes in governmental regulations or maritime self-regulatory organization standards;

 

   

work stoppages or other labor disturbances at the shipyard;

 

   

bankruptcy or other financial crisis of the shipbuilder;

 

   

a backlog of orders at the shipyard;

 

   

political or economic disturbances in the locations where the vessels are being built;

 

   

weather interference or catastrophic event, such as a major earthquake or fire;

 

   

our requests for changes to the original vessel specifications;

 

   

shortages of, or delays in the receipt of necessary construction materials, such as steel;

 

   

our inability to finance the purchase of the vessels; or

 

   

our inability to obtain requisite permits or approvals.

We do not carry delay of delivery insurance to cover any losses that are not covered by delay penalties in our construction contracts. As a result, if delivery of a vessel is materially delayed, it could adversely affect our business, financial condition and operating results.

Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.

The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids, and often extends for several months. Contracts are awarded based upon a variety of factors, including:

 

   

the operator’s industry relationships, experience and reputation for customer service, quality operations and safety;

 

   

the quality, experience and technical capability of the crew;

 

   

the age, type, capability and versatility of our vessels;

 

   

the operator’s construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;

 

   

the operator’s willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and

 

   

the competitiveness of the bid in terms of overall price.

Our ability to obtain new customers will depend upon a number of factors, including our ability to:

 

   

successfully manage our liquidity and obtain the necessary financing to fund our growth;

 

   

attract, hire, train and retain qualified personnel and ship management companies to manage and operate our fleet;

 

   

identify and consummate desirable acquisitions, joint ventures or strategic alliances; and

 

   

identify and capitalize on opportunities in new markets.

We expect substantial competition for providing transportation services from a number of experienced companies. As a result, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, financial condition and operating results.

 

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The marine transportation industry is subject to substantial environmental and other regulations, which may limit our operations and increase our expenses.

Our operations are affected by extensive and changing environmental protection laws and other regulations and international treaties and conventions, including those relating to equipping and operating vessels and vessel safety. These regulations include the U.S. Oil Pollution Act of 1990, or “OPA 90,” the U.S. Clean Water Act, the U.S. Maritime Transportation Security Act of 2002 and regulations of the International Maritime Organization, or “IMO,” including the International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended and generally referred to as the CLC, the IMO International Convention for the Prevention of Pollution from Ships of 1975, as from time to time amended and generally referred to as MARPOL, the International Convention for the Prevention of Marine Pollution of 1973, 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, the International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the “ISM Code,” the International Convention on Civil Liability for Bunker Oil Pollution Damage, generally referred to as the Bunker Convention, and the European Union 2015 Regulation on the monitoring, reporting, and verification of carbon dioxide emissions from maritime transport. We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and regulations, including expenses for vessel modifications and changes in operating procedures. Additional laws and regulations may be adopted that could limit our ability to do business or further increase costs, which could harm our business. For example, under MARPOL Annex VI, fuels used by vessels in all seas may contain no more than 0.5% sulfur effective January 1, 2020. In addition, failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of operations. We may become subject to additional laws and regulations if we enter into new markets or trades.

In addition, we believe that the heightened environmental, quality and security concerns of the public, regulators, insurance underwriters and charterers will generally lead to additional regulatory requirements, including enhanced risk assessment and security requirements, greater inspection and safety requirements on all vessels in the marine transportation markets and possibly restrictions on the emissions of greenhouse gases from the operation of vessels. These requirements are likely to add incremental costs to our operations and the failure to comply with these requirements may affect the ability of our vessels to obtain and, possibly, collect on insurance or to obtain the required certificates for entry into the different ports where we operate.

Please read “Item 4—Information on the Company—Business Overview—Environmental and Other Regulation” for a more detailed discussion on these topics.

Climate change and greenhouse gas restrictions may adversely impact our operations and markets.

Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from vessel emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Additionally, a treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws and regulations relating to climate change could increase our costs of operating and maintaining our vessels and could require us to make significant financial expenditures that we cannot predict with certainty at this time.

Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.

 

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Marine transportation is inherently risky. An incident involving significant loss of product or environmental contamination by any of our vessels could adversely affect our reputation, business, financial condition and operating results.

Our vessels and their cargoes and the LPG and petrochemical production and terminal facilities that we service are at risk of being damaged or lost because of events such as:

 

   

marine disasters;

 

   

bad weather;

 

   

mechanical failures;

 

   

grounding, capsizing, fire, explosions and collisions;

 

   

piracy;

 

   

human error; and

 

   

war and terrorism.

An accident involving any of our vessels could result in any of the following:

 

   

death or injury to persons, loss of property or damage to the environment and natural resources;

 

   

delays in the delivery of cargo;

 

   

loss of revenues from time charters;

 

   

liabilities or costs to recover any spilled cargo and to restore the ecosystem where the spill occurred;

 

   

governmental fines, penalties or restrictions on conducting business;

 

   

higher insurance rates; and

 

   

damage to our reputation and customer relationships generally.

Any of these results could have a material adverse effect on our business, financial condition and operating results.

Our operating results are subject to seasonal fluctuations.

We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. The liquefied gas carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of propane and butane for heating during the winter months in the Northern Hemisphere. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. While our time charters typically provide a uniform monthly fee over the term of the charter, to the extent any of our time charters expires during the relatively weaker fiscal quarters ending June 30 and September 30, we may have difficultly re-chartering those vessels at similar rates or at all.

Competition from more technologically advanced liquefied gas carriers could reduce our charter hire income and the value of our vessels.

The charter 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 fuel economy, speed and the ability to be loaded and unloaded quickly. Flexibility includes the ability to enter ports, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new liquefied gas carriers are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced liquefied gas carriers could adversely affect the charter rates we receive for our vessels once their current charters are terminated and the resale value of our vessels. As a result, our business, financial condition and operating results could be adversely affected.

 

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Acts of piracy on any of our vessels or on ocean going vessels could adversely affect our business, financial condition and operating results.

Acts of piracy have historically affected ocean going vessels trading in regions of the world such as the South China Sea, the Gulf of Aden off the coast of Somalia, and West Africa. If such piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas, war-risk insurance premiums payable for such coverage could increase significantly and such insurance coverage might become more difficult to obtain. In addition, crew costs, including costs that may be incurred to the extent we employ on-board 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, hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and operating results.

Terrorist attacks, increased hostilities, piracy or war could lead to further economic instability, increased costs and disruption of business.

Terrorist attacks may adversely affect our business, operating results, financial condition, ability to raise capital and future growth. Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute further to economic instability and disruption of production and distribution of LPG, petrochemical gases and ammonia, which could result in reduced demand for our services.

In addition, petrochemical production and terminal facilities and vessels that transport petrochemical products could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport gases to or from certain locations. Terrorist attacks, piracy, war or other events beyond our control that adversely affect the distribution, production or transportation of gases to be shipped by us could entitle customers to terminate our charters, which would harm our cash flow and business. In addition, the loss of a vessel as a result of terrorism or piracy would have a material adverse effect on our business, financial condition and operating results.

Exposure to currency exchange rate fluctuations results in fluctuations in cash flows and operating results.

Substantially all of our cash receipts are in U.S. Dollars. Our disbursements, however, are in the currency invoiced by the supplier. We remit funds in the various currencies invoiced. We convert the non-U.S. Dollar invoices received and their subsequent payments into U.S. Dollars when the transactions occur. Fluctuating exchange rates may result in increased payments by us if the strength of the U.S. Dollar declines relative to such other currencies.

Our insurance may be insufficient to cover losses that may occur to our vessels or result from our operations.

The operation of liquefied gas carriers is inherently risky. We may not be able to adequately insure against all risks, and any particular claim may not be paid by insurance. None of our vessels are insured against loss of revenues resulting from vessel off-hire time. Certain insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if members claims exceed association reserves.

We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. The costs arising from a catastrophic spill or marine disaster could exceed the insurance coverage. Changes in the insurance markets attributable to terrorist attacks or piracy may also make certain types of insurance more expensive or more difficult to obtain. In addition, the insurance may be voidable by the insurers as a result of certain actions, such as vessels failing to maintain certification with applicable maritime self-regulatory

 

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organizations. Any uninsured or underinsured loss could have a material adverse effect on our business, financial condition and operating results.

Restrictive covenants in our secured term loan facilities and revolving credit facilities and in our secured and unsecured bonds and our Terminal Facility impose, and any future debt facilities will impose, financial and other restrictions on us.

The secured term loan facilities and revolving credit facilities and the secured bonds and unsecured bonds impose, and any future debt facility will impose, operating and financial restrictions on us. The restrictions in the existing secured term loan facilities and revolving credit facilities and the secured bonds and unsecured bonds may limit our ability to, among other things:

 

   

pay dividends out of operating revenues generated by the vessels securing indebtedness under the facility, redeem any shares or make any other payment to our equity holders, if there is a default under any secured term loan facility, revolving credit facility or secured term loan and revolving credit facility;

 

   

incur additional indebtedness, including through the issuance of guarantees;

 

   

create liens on our assets;

 

   

sell our vessels;

 

   

merge or consolidate with, or transfer all or substantially all our assets to, another person;

 

   

change the flag, class or management of our vessels; and

 

   

enter into a new line of business.

The secured term loan facilities and revolving credit facility require us to maintain various financial ratios. These include requirements that we maintain specified maximum ratios of net debt to total capitalization, that we maintain specified minimum levels of cash and cash equivalents (including undrawn lines of credit with maturities greater than 12 months), that we maintain specified minimum ratios of consolidated earnings before interest, taxes, depreciation and amortization (consolidated EBITDA), to consolidated interest expense and that we maintain specified minimum levels of collateral coverage. Under our secured term loan facilities, if at any time the aggregate fair market value of (i) the vessels subject to a mortgage in favor of our lenders and (ii) the value of any additional collateral we grant to the lenders is less than 125% to 135%, as applicable, of the outstanding principal amount under the secured term loan facilities and any commitments to borrow additional funds, our lenders may require us to provide additional collateral. Upon notice from our lenders that additional collateral is required, we will have 30 days to either provide collateral that is acceptable to the lenders, cancel remaining commitments to lend and/or prepay outstanding debt in an amount to maintain the minimum collateral coverage ratio. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facility; 2017 Senior Unsecured Bonds; and 2018 Senior Secured Bonds—Financial Covenants.” The failure to comply with such covenants would cause an event of default that could materially adversely affect our business, financial condition and operating results.

In addition, following completion of the Marine Export Terminal, Navigator Ethylene Terminals LLC, our wholly-owned subsidiary and the borrower under our Terminal Facility (as defined in “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Terminal Facility”), can only pay dividends if it satisfies certain customary conditions to paying a dividend, including maintaining a debt service coverage ratio for the immediately preceding four consecutive fiscal quarters and the projected immediately succeeding four consecutive fiscal quarters of not less than 1.20 to 1.00 and no default or event of default has occurred or is continuing. The Terminal Facility also limits Navigator Ethylene Terminals LLC from, among other things, incurring indebtedness or entering into mergers and divestitures. The Terminal Facility also contains general covenants that will require Navigator Ethylene Terminals LLC to vote its interest in the Marine Terminal Joint Venture to cause the Marine Terminal Joint Venture to maintain adequate insurance coverage, complete the Marine Export Terminal and maintain its property (but only to the extent Navigator Ethylene Terminals LLC has

 

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the power under the organizational documents of the Marine Terminal Joint Venture to so cause such actions). Further, the loans under the Terminal Facility are secured by first priority liens on the rights to Navigator Ethylene Terminals LLC’s distributions from the Marine Terminal Joint Venture and our equity interests in the Marine Terminal Borrower.

Because of these covenants, we may 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 finance our future operations and make acquisitions or pursue business opportunities. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facility” and “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Terminal Facility.”

The secured term loan facilities and the Terminal Facility are reducing facilities. The required repayments under the secured term loan facilities and the Terminal Facility may adversely affect our business, financial condition and operating results.

Loans under the secured term loan facilities are subject to quarterly repayments. In addition, the loans under the Terminal Facility are subject to quarterly repayments of principal and interest beginning three months after the completion of the Marine Export Terminal. If at such time we have not made alternative financing arrangements or generate substantial cash flows, any such repayments and our declining borrowing availability could have a material adverse effect on our business, financial condition and operating results.

If interest rates increase, it will affect the interest rates under our credit facilities, which could affect our operating results.

Amounts borrowed under our existing credit facilities bear interest at an annual rate ranging from 2.10% to 2.70% above LIBOR and loans under our Terminal Facility bear interest at an annual rate of 2.50% to 3.00% above LIBOR. Interest rates have, in recent years, been at historic lows and any normalization in interest rates would lead to an increase in LIBOR, which would affect the amount of interest payable on amounts that we borrow under our credit facilities, which in turn could have an adverse effect on our operating results.

In addition, we are exposed to a market risk relating to increases in interest rates because the amounts borrowed under our existing credit facilities bear interest at rates based on LIBOR. On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021 (“FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021. Significant increases in LIBOR or uncertainty surrounding its phase out after 2021 could adversely affect our business, financial condition, operating results and cash flows.

The derivative contracts we may enter into to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and reductions in our shareholders’ equity, as well as charges against our income.

We may enter into interest rate swaps and foreign exchange rate swaps for purposes of managing our exposure to fluctuations in interest rates and foreign exchange rates applicable to indebtedness under our secured term loan facilities and revolving credit facility which were advanced at floating rates based on LIBOR. Our hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially differently from our expectations.

To the extent our future derivative contracts may not qualify for treatment as hedges for accounting purposes, we will recognize fluctuations in the fair value of such contracts in our statement of income. In addition, changes in the fair value of future derivative contracts, even those that qualify for treatment as hedges, will be recognized as derivative assets or liabilities on our balance sheet, and can affect compliance with the net worth covenant requirements in our secured term loan facilities. The unrealized gains or losses relating to changes in fair value of

 

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our derivative instruments do not impact our cash flows. However, our financial condition could also be materially adversely affected to the extent we do not hedge our exposure to interest rate fluctuations under our financing arrangements under which loans have been advanced at a floating rate based on LIBOR.

Any hedging activities we engage in may not effectively manage our interest rate exposure or have the desired impact on our financial conditions or operating results.

Our business depends upon certain key employees.

Our future success depends to a significant extent upon our senior management, who have substantial experience in the shipping industry and are crucial to the development of our business strategy and to the growth and development of our business. The loss of any of these individuals could adversely affect our business, financial condition and operating results.

Our major shareholder may exert considerable influence on the outcome of matters on which our shareholders will be entitled to vote, and its interests may be different from yours.

The WLR Group, our principal shareholder, owned approximately 39.3% of our common stock, as of December 31, 2018. The WLR Group may exert considerable influence on the outcome of matters on which our shareholders are entitled to vote, including the election of our directors to our board of directors and other significant corporate actions. The interests of the WLR Group may be different from your interests.

We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations.

We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to satisfy our financial obligations depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third-party, including a creditor, or by the Republic of the Marshall Islands law, which regulates the payment of dividends by companies formed thereunder. In addition, under the secured term loan facilities, Navigator Gas L.L.C., our wholly-owned subsidiary, and our vessel-owning subsidiaries that are parties to the secured term loan facilities and revolving credit facility may not make distributions to us out of operating revenues from vessels securing indebtedness thereunder, redeem any shares or make any other payment to our shareholders if an event of default has occurred and is continuing. Please read “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facility.” Further, following completion of the Marine Export Terminal, Navigator Ethylene Terminals LLC, our wholly-owned subsidiary and the borrower under our Terminal Facility, can only pay dividends if it satisfies certain customary conditions to paying a dividend, including maintaining a debt service coverage ratio for the immediately preceding four consecutive fiscal quarters and the projected immediately succeeding four consecutive fiscal quarters of not less than 1.20 to 1.00 and no default or event of default has occurred or is continuing. The inability of our subsidiaries to make distributions to us would have an adverse effect on our business, financial condition and operating results.

The vote by the United Kingdom to leave the EU could adversely affect us.

The 2016 United Kingdom (the “U.K.”) referendum on its membership in the European Union (the “EU”) resulted in a majority of U.K. voters voting to exit the EU (“Brexit”), and in March 2017, the U.K. formally initiated the Brexit process. The referendum was advisory, and any terms of the withdrawal are subject to a negotiation period that lasts at least two years after the March 2017 initiation. Though the U.K. withdrawal from the EU was initially scheduled to occur in March 2019, there is currently no agreement in place regarding the withdrawal, creating significant uncertainty about the future relationship between the U.K. and the EU, including with respect to the laws and regulations that will apply as the U.K. determines which EU-derived laws and

 

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regulations to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other EU member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could adversely affect our business, financial condition and operating results. As a result of the uncertainty and the potential consequences that may follow Brexit, we face risks with respect to volatility in exchange rates and interest rates, customs restrictions or delays in delivering our cargoes into the U.K. as well as our ability to employ or retain employees in our UK Representative Office. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, operating results and financial condition.

Risks Relating to Our Common Stock

We may issue additional equity securities without your approval, which would dilute your ownership interests.

We may issue additional shares of common stock or other equity or equity-linked securities without the approval of our shareholders, subject to certain limited approval requirements of the NYSE. In particular, we may finance all or a portion of the acquisition price of future vessels, including newbuildings, that we agree to purchase, or our portion of the construction cost of the Marine Export Terminal, through the issuance of additional shares of common stock. Our amended and restated articles of incorporation, which became effective on November 5, 2013, authorize us to issue up to 400,000,000 shares of common stock, of which 55,657,631 shares were outstanding as of December 31, 2018. The issuance by us of additional shares of common stock or other equity or equity-linked securities of equal or senior rank will have the following effects:

 

   

our shareholders’ proportionate ownership interest in us will decrease;

 

   

the relative voting strength of each previously outstanding share may be diminished; and

 

   

the market price of the common stock may decline.

Future sales of our common stock could cause the market price of our common stock to decline.

Sales of a substantial number of our shares of common stock in the public market, or the perception that these sales could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. The WLR Group, our principal shareholder, owned 39.3% of our common stock, as of December 31, 2018. In the future, the WLR Group may elect to sell large numbers of shares from time to time.

We have no current plans to pay dividends on our common stock. Consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We have no current plans to declare dividends on our common stock in the foreseeable future. Consequently, your only opportunity to achieve a return on your investment in us will be if you sell your shares of common stock at a price greater than you paid for it. There is no guarantee that the market price of our common stock will ever exceed the price that you pay.

The obligations associated with being a public company requires significant resources and management attention.

As a public company in the United States, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” the listing requirements of the NYSE and other applicable securities rules and regulations. The Exchange Act requires that we file annual and current reports with respect to our business,

 

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financial condition and operating results. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we continue to take may not be sufficient to satisfy our obligations as a public company.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative costs and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business, financial condition, operating results and cash flow could be adversely affected.

Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may issue an adverse report on the effectiveness of our internal control over financial reporting. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise capital, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, as amended, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2019.

In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission, or the “SEC,” which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F, including this annual report, permits foreign private issuers to disclose compensation information on an aggregate basis. We would also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders would become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

 

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We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law.

Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or the “BCA.” The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the Republic of the Marshall Islands law are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain U.S. jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.

Because we are a Marshall Islands corporation, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

We are a Marshall Islands corporation, and substantially all of our assets are located outside of the United States. A majority of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Republic of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or the assets of our directors and officers.

There is substantial doubt that the courts of the Republic of the Marshall Islands would (1) enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws; or (2) recognize or enforce against us or any of our officers, directors or experts, judgments of courts of the United States predicated on U.S. federal or state securities laws. We are a Marshall Islands corporation, have limited operations in the United States and maintain limited assets in the United States. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding involving us, bankruptcy laws other than those of the United States could apply. The Republic of the Marshall Islands does not have a bankruptcy statute or general statutory mechanism for insolvency proceedings. If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction. These factors may delay or prevent us from entering bankruptcy in the United States and may affect the ability of our shareholders to receive any recovery following our bankruptcy.

Provisions of our articles of incorporation and bylaws may have anti-takeover effects.

Several provisions of our articles of incorporation, which are summarized below, may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire our company. However, these anti-takeover provisions could also discourage, delay or prevent the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and the removal of incumbent officers and directors.

Blank Check Preferred Stock. Under the terms of our articles of incorporation our board of directors has the authority, without any further vote or action by our shareholders, to issue up to 40,000,000 shares of “blank

 

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check” preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of us or the removal of our management and may harm the market price of our common stock.

Election of Directors. Our articles of incorporation provide that directors will be elected at each annual meeting of shareholders to serve until the next annual meeting of shareholders and until his or her successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal or the earlier termination of his or her term of office. Our articles of incorporation do not provide for cumulative voting in the election of directors. Our bylaws require shareholders to provide advance written notice of nominations for the election of directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors.

Advance Notice Requirements for Shareholder Proposals and Director Nominations. Our bylaws provide that, with a few exceptions, shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder’s notice must be received at our principal executive office not less than 90 days or more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of shareholders. Our bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede a shareholder’s ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.

Limited Actions by Shareholders. Our bylaws provide that only the board of directors may call special meetings of our shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice.

Tax Risks

In addition to the following risk factors, please read “Item 4—Information on the Company—Business Overview—Taxation of the Company” and “Item 10—Additional Information—Taxation” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common stock.

We will be subject to taxes.

We and our subsidiaries will be subject to tax in the jurisdictions in which we are organized or operate. In computing our tax obligations in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. Upon review of these positions the applicable authorities may disagree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our subsidiaries in jurisdictions in which operations are conducted.

U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.

A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes if at least 75.0% of its gross income for any taxable year consists of “passive income” or at least 50.0% of the average value of its assets produce, or are held for the production of, “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other

 

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than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC.

Based on our current and projected method of operation we believe that we were not a PFIC for any prior taxable year, and we expect that we will not be treated as a PFIC for the current or any future taxable year. We believe that more than 25.0% of our gross income for each taxable year was or will be non-passive income, and more than 50.0% of the average value of our assets for each such year was or will be held for the production of such non-passive income. This belief is based on certain valuations and projections regarding our assets, income and charters, and its validity is conditioned on the accuracy of such valuations and projections. While we believe such valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that our assumptions and conclusions will continue to be accurate at any time in the future.

Moreover, there are legal uncertainties involved in determining whether the income derived from our time-chartering activities constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the United States Court of Appeals for the Fifth Circuit, or the “Fifth Circuit,” held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a provision of the Internal Revenue Code of 1986, as amended, or the “Code,” relating to foreign sales corporations. In that case, the Fifth Circuit did not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how the income from a time charter would be classified under such rules. If the reasoning of the case were extended to the PFIC context, the gross income we derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published guidance, the Internal Revenue Service, or “IRS,” stated that it disagreed with the holding in Tidewater, and specified that time charters similar to those at issue in that case should be treated as service contracts. We have not sought, and we do not expect to seek, an IRS ruling on the treatment of income generated from our time-chartering activities. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to each taxable year, we cannot assure shareholders that the nature of our operations will not change in the future and that we will not become a PFIC in the future. If the IRS were to determine that we are or have been a PFIC for any taxable year (and regardless of whether we remain a PFIC for subsequent taxable years), our U.S. shareholders would face adverse U.S. federal income tax consequences. Please read “Item 10—Additional Information—Taxation—Material U.S. Federal Income Tax Consequences—U.S. Federal Income Taxation of U.S. Holders—PFIC Status and Significant Tax Consequences” for a more detailed discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.

We may have to pay tax on U.S. source income with respect to the operation of our vessels, and business conducted within the United States, which would reduce our cash flow.

Under the Code, “U.S. source gross transportation income” (as defined below) generally is subject to a 4.0% U.S. federal income tax without allowance for deductions, unless an exemption from tax applies under a tax treaty or Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50.0% of the gross transportation income of a vessel owning or chartering corporation, such as ourselves that is attributable to transportation that either begins or ends, but that does not both begin and end, in the United States.

If a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury Regulations thereunder, it will not be subject to the 4.0% U.S. federal income tax referenced above on its U.S. source gross transportation income. The Section 883 exemption does not apply to income attributable to transportation that both begins and ends in the United States.

 

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We believe that with respect to the operation of our vessels, we satisfied the requirements to qualify for an exemption from U.S. tax on our U.S. source gross transportation income imposed by Section 883 of the Code for 2017 and 2018, and that we will be able to satisfy those requirements for 2019 and future taxable years provided that our common stock satisfies certain listing and trading requirements and not more than 50.0% of our common stock is owned, or is deemed to be owned by operation of certain attribution rules, for more than half of the days of such year, by 5.0% shareholders. The composition of owners of our common stock, including the quantity a shareholder may purchase in a given year, and the trading volumes of our common stock, are beyond our control. As a result, there can be no assurance that we can satisfy this stock ownership requirement for the current or any future year. If we did not satisfy the stock ownership requirement, we would likely not qualify for an exemption under Section 883 for such year. If we fail to qualify for this exemption in any taxable year, U.S. source gross transportation income earned by us and our subsidiaries will generally be subject to a 4.0% U.S. federal income tax. For a more detailed discussion of Section 883 of the Code, the rules relating to exemptions under Section 883 and our ability to qualify for an exemption, please read “Item 4—Information on the Company—Business Overview—Taxation of the Company—U.S. Taxation.”

The vessels in our fleet do not currently engage in transportation that begins and ends in the United States, and we do not expect that we or our subsidiaries will in the future earn income from such transportation. If, notwithstanding this expectation, our subsidiaries earn income in the future from transportation that begins and ends in the United States, that income would be subject to a net income tax in the United States (currently at a 21% rate).

In addition to our U.S. source gross transportation income, we could generate U.S. taxable income that is effectively connected with the conduct of a U.S. trade or business when our proposed terminal in the U.S. Gulf Coast becomes operational. Such U.S. taxable income generally would be subject to U.S. federal income tax on a net income basis (currently at a flat rate of 21%). We do not expect that the generation of U.S. taxable income in respect of the proposed terminal would affect our ability to qualify for the above-described exemption for U.S. source gross transportation income unrelated to the operations of the terminal.

 

Item 4.

Information on the Company

 

  A.

History and Development of the Company

General

Navigator Holdings Ltd. was formed in 1997 as an Isle of Man public limited company for the purpose of building and operating a fleet of five semi-refrigerated, ethylene-capable liquefied gas carriers. In January 2003, the previous owners and managers filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. On August 9, 2006, the Company emerged from bankruptcy. As part of the plan of reorganization, the bondholders received all of the equity interests in the Company. Lehman Brothers Inc. became our principal shareholder, holding an approximate 44.1% ownership interest (subsequently reduced to 33.0% following the issue of additional shares). In October 2012, the ownership interests held by Lehman Brothers Holdings Inc. were acquired by our principal shareholder, the WLR Group, which currently owns 39.3% of our common stock. Please see “Item 7—Major Shareholders and Related Party Transactions.”

In November 2013, we completed our initial public offering of 13,800,000 shares of our common stock at $19.00 per share, including the full exercise by the underwriters of their option to purchase an additional 1,800,000 shares of common stock from the selling stockholders. We offered 9,030,000 shares of common stock and certain selling shareholders offered 4,770,000 shares of common stock. We received net proceeds of approximately $156.4 million, after deducting underwriting discounts and expenses, from our sale of 9,030,000 shares in the offering.

Our shares of common stock are traded on the New York Stock Exchange under the ticker symbol “NVGS.”

 

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In March 2008, we redomiciled as a corporation in the Republic of the Marshall Islands and we maintain our principal executive offices at 10 Bressenden Place, London, SW1E 5DH. Our telephone number at that address is +44 20 7340 4850. Our agent for service of process in the United States is CT Corporation System and its address is 28 Liberty Street, New York, New York 10005.

We maintain a website on the Internet at www.navigatorgas.com. The SEC maintains a website on the Internet that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

 

  B.

Business Overview

We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional seaborne transportation services of LPG, petrochemical gases and ammonia for energy companies, industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure, reducing volume by up to 900 times depending on the cargo, making their transportation more efficient and economical. Vessels in our fleet are capable of loading, discharging and carrying cargoes across a range of temperatures from ambient to minus 104° Celsius and pressures from 1 bar to 6.4 bar.

Our fleet consists of 38 vessels. We have 33 semi- or fully-refrigerated handysize liquefied gas carriers, of which ten are ethylene/ethane capable. We define handysize liquefied gas carriers as those liquefied gas carriers with capabilities between 15,000 and 24,999 cubic meters, or “cbm”. Our handysize liquefied gas carriers can accommodate medium- and long-haul routes that may be uneconomical for smaller vessels and can call at ports that are unable to support larger vessels due to limited onshore capacity, absence of fully-refrigerated loading infrastructure and/or vessel size restrictions.

In addition, we have four midsize 37,300 cbm ethylene/ethane-capable semi-refrigerated liquefied gas carriers. Our midsize ethylene/ethane-capable semi-refrigerated gas carriers enable long-haul transportation of ethylene/ethane that may be uneconomical for smaller vessels.

We have one 38,000 cbm fully-refrigerated gas carrier which trades predominately from the Caribbean and the Mediterranean to Morocco, carrying ammonia.

We play a vital role in the liquefied gas supply chain for energy companies, industrial consumers and commodity traders, with our sophisticated vessels providing an efficient and reliable ‘floating pipeline’ between the parties. We continue to build strong, long-term partnerships based on mutual trust, our deep technical expertise and a modern versatile fleet.

We also carry LPG for major international energy companies, state-owned utilities and reputable commodities traders. LPG, which consists of propane and butane, is a relatively clean alternative energy source with more than 1,000 applications, including as a heating, cooking and transportation fuel and as a petrochemical and refinery feedstock. LPG is a by-product of oil refining and natural gas extraction, and shale gas, principally from the U.S.

We also carry petrochemical gases for numerous industrial users. Petrochemical gases, including ethylene, propylene, butadiene and vinyl chloride monomer, are derived from the cracking of petroleum feedstocks such as ethane, LPG and naphtha and are primarily used as raw materials in various industrial processes, like the manufacture of plastics, vinyl and rubber, with a wide application of end uses.

Our vessels also carry ammonia for the producers of fertilizers, a main use of ammonia for the agricultural industry, and for ammonia traders.

In January 2018, we entered into a 50/50 joint venture with Enterprise Products Partners L.P. (the “Export Terminal Joint Venture”) to construct and operate an ethylene export marine terminal at Morgan’s Point, Texas

 

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on the Houston Ship Channel (the “Marine Export Terminal”). Enterprise Products Partners, L.P. is the sole managing member of the Export Terminal Joint Venture and it is also the operator of the Marine Export Terminal. In May 2018, we announced the beginning of construction on the Marine Export Terminal, which will have the capacity to export approximately one million tons of ethylene per year. Refrigerated storage for 30,000 tons of ethylene will be constructed on-site and will provide the capability to load ethylene at rates of 1,000 tons per hour. We expect the project to initially be supported by two long-term contracts with ethylene producer Flint Hills Resources and a major Japanese trading company, with further contracts expected to be finalized before commencement of operation of the terminal. Commercial operations are scheduled to begin in the fourth quarter of 2019, with the refrigerated storage expected to be completed in late 2020.

Our Business Strategies

Our objective is to enhance shareholder value by executing the following business strategies:

 

   

Maintain a customer-driven chartering strategy. We will continue to seek and build strong partnerships through open collaboration and by continually meeting our clients’ specialist requirements, and in doing so enhance our returns through a flexible vessel employment strategy that includes a base of long-term time charter commitments. In addition, we will seek to further strengthen our existing relationships with customers based on mutual trust, our depth of technical expertise and a modern versatile fleet.

 

   

Capitalize on the increasing demand for seaborne transportation of ethane and ethylene. We intend to use our ethane and ethylene capable vessels to pursue long-term charter commitments from the anticipated increases in transportation opportunities globally for ethane and ethylene that we expect will result directly and indirectly from the growth in U.S. shale oil and gas production and associated hydro-carbons.

 

   

Become a leading participant in the seaborne transportation of the increasing U.S. petrochemicals production. We intend to take a leading role in the transportation of the sizeable volumes of additional petrochemical cargos expected to originate from the U.S. following the recent extensive investments in petrochemical production by producers and oil majors.

 

   

Assist in the development of global petrochemical infrastructure projects. We intend to use our knowledge and expertise in supporting the growth of petrochemical infrastructure projects around the world to provide stable returns and to provide incremental demand for our fleet of versatile liquefied gas carriers. We seek to assist in enabling the global flow of these petrochemical gases by providing an efficient and reliable ‘floating pipeline’ between the producers and consumers.

 

   

Maintain reputation for operational excellence. We believe we have established a track record in the industry of operational excellence based on our significant experience in the operation and ownership of highly sophisticated liquefied gas carriers. We will endeavor to maintain and improve these high standards with regard to cargo handling, vessel performance and reliability and operational excellence.

 

   

Create a strong in-house technical management function. We plan to increase the number of vessels from our fleet that we technically manage in-house, enabling us to sustain and improve the first-rate quality of our vessels’ capabilities. We now provide in-house technical management for 14 of our 38 vessels, as we continue to refine and improve our systems, whilst understanding the importance of complying with health, safety and environmental regulations and well as operating to the highest standards transporting cargoes safely, efficiently and securely around the globe.

 

   

Maintain a strong balance sheet with moderate debt levels. We will seek to maintain our moderate leverage in the future by financing our growth or refinancing our expiring debt facilities with a balanced mix of cash from operations, bank, bond and equity financings.

 

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Our Fleet

The following table sets forth our vessels as of April 1, 2019:

 

Operating Vessel

   Year
Built
   Vessel Size
(CBM)
 

Employment
Status

 

Charter
Expiration Date

Ethylene/ethane capable semi-refrigerated

         

Navigator Orion (formerly known as Navigator Mars)

   2000    22,085   Time charter   October 2020

Navigator Neptune

   2000    22,085   Spot market   —  

Navigator Pluto

   2000    22,085   Time charter   June 2019

Navigator Saturn

   2000    22,085   Spot market   —  

Navigator Venus

   2000    22,085   Spot market   —  

Navigator Atlas

   2014    21,000   Contract of affreightment   April 2019

Navigator Europa

   2014    21,000   Contract of affreightment   May 2019

Navigator Oberon

   2014    21,000   Spot market   —  

Navigator Triton

   2015    21,000   Spot market   —  

Navigator Umbrio

   2015    21,000   Contract of affreightment   April 2019

Navigator Aurora

   2016    37,300   Time charter   December 2026

Navigator Eclipse

   2016    37,300   Time charter   November 2020

Navigator Nova

   2017    37,300   Time charter   May 2019

Navigator Prominence

   2017    37,300   Spot market   —  

Semi-refrigerated

         

Navigator Magellan

   1998    20,700   Spot market   —  

Navigator Aries

   2008    20,750   Time charter   April 2019

Navigator Capricorn

   2008    20,750   Time charter   February 2020

Navigator Gemini

   2009    20,750   Spot market   —  

Navigator Pegasus

   2009    22,200   Spot market   —  

Navigator Phoenix

   2009    22,200   Time charter   September 2019

Navigator Scorpio

   2009    20,750   Spot market   —  

Navigator Taurus

   2009    20,750   Time charter   May 2019

Navigator Virgo

   2009    20,750   Time charter   May 2019

Navigator Leo

   2011    20,600   Time charter   December 2023

Navigator Libra

   2012    20,600   Time charter   December 2023

Navigator Centauri

   2015    21,000   Contract of affreightment   April 2019

Navigator Ceres

   2015    21,000   Spot market   —  

Navigator Ceto

   2016    21,000   Spot market   —  

Navigator Copernico

   2016    21,000   Spot market   —  

Navigator Luga

   2017    22,000   Time charter   February 2022

Navigator Yauza

   2017    22,000   Time charter   April 2022

Fully-refrigerated

         

Navigator Glory

   2010    22,500   Spot market   —  

Navigator Grace

   2010    22,500   Spot market   —  

Navigator Galaxy

   2011    22,500   Time charter   April 2019

Navigator Genesis

   2011    22,500   Spot market   —  

Navigator Global

   2011    22,500   Time charter   November 2019

Navigator Gusto

   2011    22,500   Time charter   October 2019

Navigator Jorf

   2017    38,000   Time charter   August 2027

 

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Navigator Pluto, Navigator Aries and Navigator Global, which are chartered to Pertamina, the Indonesian state-owned producer of hydrocarbons, are owned by PT Navigator Khatulistiwa, an Indonesian limited liability company, or “PTNK.” Operations in Indonesia are subject, among other things, to the Indonesian Shipping Act. That law generally provides that in order for certain vessels involved in Indonesian cabotage to obtain the requested licenses, the owners must either be wholly Indonesian owned or have a majority Indonesian shareholding. PTNK is a joint venture of which 49% of the voting and dividend rights are owned by a wholly owned subsidiary of Navigator Holdings, and 51% of such rights are owned by Indonesian limited liability companies. The joint venture agreement for PTNK provides that certain actions relating to the joint venture or the vessels require the prior written approval of Navigator Holdings’ subsidiary, which may be withheld only on reasonable grounds and in good faith. PTNK is accounted for as a fully consolidated VIE in our consolidated financial statements.

As of December 31, 2018, the average monthly time charter rate for our 23 vessels operating under time charters was approximately $667,784 ($21,955 per day) per calendar month. Our current monthly charter rates range from approximately $412,000 to approximately $1,095,000. These time charter rates are the gross monthly charter rates before payment of address and brokerage commissions to charterers and their shipbrokers. Address and brokerage commissions typically range between 1.0% and 5.0% of the gross monthly charter rate. On average, we pay a 1.8% address and brokerage commission with respect to our current time charters.

Our Customers

We provide seaborne transportation and distribution services for LPG, ethylene, petrochemical gases and ammonia to:

 

   

Major Oil and Gas Companies, such as ExxonMobil, ENI, Repsol, Shell, and Total SA,; as well as state affiliated companies such as ENAP, PEMEX, BPCL, PDVSA the Venezuelan state-owned integrated oil and petrochemical company (prior to the implementation of sanctions in February 2019); Pertamina, the Indonesian state-owned producer of hydrocarbons and petrochemicals; and Sonatrach, the national oil and gas company of Algeria;

 

   

Chemical Companies, such as SABIC, a multi-national chemical manufacturing corporation; OCP a world leading fertilizer producer and ammonia importer; Borealis and Evonik, both leading multi-national chemical corporations; Muntajat, a Qatari state-owned chemical producer; Braskem, a Brazilian petrochemical manufacturer; and Sibur, a Russian gas processing and petrochemicals company

 

   

Energy Trading Companies, such as Mitsubishi International Corporation, Marubeni and Mitsui, all major commodities, finance and investment conglomerates; Kolmar, Integra, Vinmar and BGN, international commodity trading companies; Geogas and Petredec, LPG trading companies; Trafigura Limited, an international commodities trading and logistics company; SHV, a multi-national energy trader and leading LPG distributor; Vitol Group, an independent energy trading company; EA Temile, a West African offshore oil and gas engineering company; and Glencore PLC, a multi-national commodity trading and mining company.

We have derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of customers. Our customers include major oil and gas companies, chemical companies, energy trading companies, state owned oil companies and various other entities that depend upon marine transportation. Three of our customers accounted for more than 10.0% each, and in aggregate, 45.4% of our consolidated revenues during the year ended December 31, 2018, equivalent to $140.8 million of our total revenue. (Four of our customers accounted for more than 10.0% each, and in aggregate, 55.1% of our consolidated revenues during the year ended December 31, 2017 equivalent to $165.2 million of our total revenue). During these periods, no other customer accounted for over 10% of our revenues for the year ended December 31, 2018. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer, or the inability of a significant customer to pay for our services, could have a material adverse effect on our business, financial condition and results of operations.

 

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Vessel Employment

Our chartering strategy is to combine a base of both short and long-term time charters, and COAs with voyage charters. We currently operate a total of 38 vessels. As of December 31, 2018, 23 were employed under time charters, 10 were employed in the spot market and five were employed under contracts of affreightment.

Our voyage charters during 2018 continued to focus on the seaborne transportation of petrochemicals. Our semi-refrigerated vessels are highly versatile in that they, unlike fully-refrigerated vessels, can accommodate petrochemicals, LPG and ammonia at ambient as well as fully-refrigerated temperatures.

In 2018, we saw a significant increase in the amount of ethane carried across spot and time charter tonnage, from 130,000 mt in 2017 to 338,000 mt in 2018. Ethane is a highly specialized gas that requires sophisticated ethylene/ethane-capable tonnage to transport it. We currently have 14 ethane/ethylene carriers on the water, the largest fleet of such vessels.

Petrochemicals (such as ethylene, ethane, propylene and butadiene) transported on spot voyage contracts during the 12 months of 2018 accounted for 83% of all voyage days compared to 84% of all voyage days in 2017. LPG transported on spot voyage contracts accounted for the remaining 17% of spot voyage days in 2018 compared to 16% in 2017.

A typical petrochemical voyage is categorized as long haul, or deep sea, and is typically much longer in duration compared to handysize LPG voyages, which tend to be regional based.

The underlying petrochemical voyages principally commence in the U.S., South America and the Middle East and sail to the Far East and Europe to discharge. However, these trade routes may change in the future, subject to fluctuating arbitrages between the various geographical regions.

Time Charter

A time charter is a contract under which a vessel is chartered for a defined period of time at a fixed daily or monthly rate. Under time charters, we are responsible for providing crewing and other vessel operating services, the cost of which is intended to be covered by the fixed rate, while the customer is responsible for substantially all of the voyage expenses, including any bunker fuel consumption, port expenses and canal tolls.

Initial Term. The initial term for a time charter commences upon the vessel’s delivery to the customer. Under the terms of our charters, the customer may redeliver the vessel to us up to 15 to 30 days earlier or up to 15 to 30 days later than the respective charter expiration dates, upon advance notice to us.

Hire Rate. The hire rate refers to the basic payment by the customer for the use of the vessel. Under our time charters, the hire rate is payable monthly in advance in U.S. Dollars, Euros or in case of the three ships chartered to Pertamina, in Indonesian Rupiah, as specified in the charter.

Hire payments may be reduced if the vessel does not perform to certain of its specifications, such as if the average vessel speed falls below a guaranteed speed or the amount of fuel consumed to power the vessel under normal circumstances exceeds a guaranteed amount.

Off-hire. Under our time charters, when the vessel is “off-hire” (or not available for service), the customer generally is not required to pay the charter hire, and the shipowner is responsible for all costs. Prolonged off-hire may lead to vessel substitution or termination of the time charter. A vessel generally will be deemed off-hire if there is a loss of time due to, among other things:

 

   

technical breakdowns; drydocking for repairs, maintenance or inspections; equipment breakdowns; or delays due to accidents, strikes, certain vessel detentions or operational issues; or

 

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our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

Management and Maintenance. Under our time charters, we are responsible for providing for the technical management of the vessel and for maintaining the vessel, periodic drydocking, cleaning and painting and performing work required by regulations. Currently, we work with two third-party technical managers, NMM and Thome as well as our own in-house technical management function, to arrange for these services to be provided for all of our vessels. Please read “—Technical Management of the Fleet” for a description of the material terms of the technical management agreements.

Termination. Each of our time charters terminates automatically in the event of loss of the applicable vessel. In addition, we are generally entitled to suspend performance (but with the continuing accrual to our benefit of hire payments and default interest) under most of the time charters if the customer defaults in its payment obligations. Under most of the time charters, either party may also terminate the charter in the event of war in specified countries or in locations that would significantly disrupt the free trade of the vessel.

Voyage Charter/ Contract of Affreightment (“COA”)

A voyage charter is a contract, typically for shorter intervals, for transportation of a specified cargo between two or more designated ports. A COA essentially constitutes a series of voyage charters to carry a specified quantity of cargo during a specified time period, or for a specified number of voyages. A voyage charter is priced on a current or “spot” market rate, typically on a price per ton of product carried rather than a daily or monthly rate. Under voyage charters, we are responsible for all of the voyage expenses in addition to providing the crewing and other vessel operating services.

Term. Our voyage charters are typically for periods ranging from 10 days to three months.

Freight Rate. The freight rate refers to the basic payment by the customer for the use of the vessel or movement of cargo. Under our voyage charters, the freight rate is payable upon discharge, in U.S. Dollars, as specified in the charter.

Management, Maintenance and Voyage Expenses. Under our voyage charters, we are responsible for providing for the technical management of the vessel in the same manner as for time charters referred to above.

We are also responsible for all expenses unique to a particular voyage, including any bunker fuel consumption, port expenses and canal tolls.

Termination. Each of our voyage charters terminates automatically upon the discharge of the cargo at the discharge port and a COA terminates when we have discharged the final cargo at its discharge port.

Classification and Inspections

Every seagoing 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 inspections that are required by the 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.

 

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For maintenance of the class, regular and extraordinary surveys of hull and 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 machinery, including the electrical plant, and where applicable, on special equipment classed at intervals of 12 months from the date of commencement of the class period indicated in the certificate.

Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and a 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), which require the vessel to enter drydock, are carried out on the ship’s hull and machinery, including the electrical plant, and on any special equipment classed at the intervals indicated by the character of classification for the hull. During 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. On vessels which are over 15 years old, substantial amounts of funds 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, a shipowner 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.

Commercial Management of the Fleet

We perform commercial management of our vessels in-house through our wholly-owned subsidiary, Navigator Gas L.L.C., under the terms of individual management contracts between Navigator Gas L.L.C. and each of our vessel-owning subsidiaries. Commercial management includes all chartering services for our vessels. Navigator Gas L.L.C. in turn has appointed its wholly-owned subsidiary, NGT Services (UK) Limited, as its agent for commercial services for our vessels.

Technical Management of the Fleet

General

We outsource the technical management for approximately two-thirds of our vessels, to NMM and Thome, third-party technical management companies, under the terms of standard BIMCO ship management agreements, or the “technical management agreements.” We refer to NMM and Thome herein as our “technical managers.” We currently provide in-house technical management for 14 of our 38 vessels.

Northern Marine Management (NMM) is a wholly-owned subsidiary of Stena AB Gothenburg, formed in 1983 and located in Clydebank, Scotland. Thome Ship Management (Thome) was formed in 1976 and is a wholly owned subsidiary of Thome Group located in Singapore. Each of our technical managers are involved in the management of a wide range of vessels and both are very well established and respected companies within the ship management community. Our technical managers have fully-owned crew recruitment agencies in major crew recruitment centers around the world and are able to provide us with good quality competent officers and crews, to meet all of our crewing requirements. We believe our technical managers manage our vessels in a safe and proper manner in accordance with owners’ requirements, design parameters, flag state and classification society requirements, charter party requirements and the international safety management (ISM) code. Both NMM and Thome are accredited to International Standards Organization (“ISO”) 9001 and ISO 14001 standards.

During the year ended December 31, 2018, we continued to expand our in-house technical management activity, transferring a further four vessels in-house from our technical managers. As we grow, we intend to seek

 

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opportunities to gain greater control over the management of our vessels and enhance safety, risk management, customer service, reliability and build strong relationships with our charterers. Providing in-house technical management for any vessel in our fleet may impose significant additional responsibilities on our management and staff. Please see “Item 3—Key Information—Risk Factors—Risks Related to Our Business”. During 2018, Navigator Gas Shipmanagement Ltd was accredited with ISO 9001 (Quality Management System) and ISO 45001 (Occupational Health & Safety) standards and is working towards achieving ISO 14001 accreditation within the next 12 months.

We believe our vessels are operated in a manner intended to protect the safety and health of employees, the general public and the environment. We actively manage the risks inherent in our business and are committed to eliminating incidents that threaten safety and the integrity of the vessels, such as groundings, fires, collisions and spills. We are actively committed to reducing greenhouse gas emissions and any waste generated by our activities.

Technical Management Services

Under the terms of our ship management agreements with our technical managers, and under our supervision, our technical managers are responsible for the day-to-day activities of our externally managed fleet and are required to, among other things:

 

   

provide competent personnel to operate and supervise the maintenance and general efficiency of our vessels;

 

   

arrange and supervise the maintenance, drydockings, repairs, alterations and upkeep of our vessels to the standards required by us and in accordance with all requirements and recommendations of our vessels’ classification society, flag state and applicable national and international regulations;

 

   

ensure that our vessels comply with the law of their flag state;

 

   

arrange the supply of necessary stores, spares and lubricating oil for our vessels;

 

   

appoint such surveyors and technical consultants as they may consider from time to time necessary;

 

   

operate the vessels in accordance with the ISM Code and The International Security Code for Ports and Ships (“ISPS Code”);

 

   

develop, implement and maintain a safety management system in accordance with the ISM Code;

 

   

arrange the sampling and testing of bunkers;

 

   

install planned maintenance system software on-board our vessels;

 

   

provide emergency response services and support to our vessels in case of an incident or accident; and

 

   

operate our vessels in accordance with the agreed budgets.

In the event that our technical managers pay certain expenses attributable to us, we have agreed to indemnify our technical managers against such expenses. In the event that our technical managers (or any of their related companies) are sued as a result of a breach or alleged breach of an obligation of ours to a third-party, we have agreed to defend our technical managers (or their related companies) and indemnify our technical managers (and their related companies) against certain expenses incurred in their defense.

Fees and Expenses

As consideration for providing us with both technical and crewing management for our fleet, our third-party managers currently receive a management fee of approximately $0.2 million per vessel per year, payable in equal monthly installments in advance. We pay for any expenses incurred in connection with operating expenses for our vessels.

 

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We carry insurance coverage consistent with industry standards for certain matters, but we cannot assure you that our insurance will be adequate to cover all extraordinary costs and expenses. Please read “—Insurance and Risk Management.”

Notwithstanding the foregoing, if any costs and expenses are caused solely by our technical managers’ negligence or willful default, our technical managers will be responsible for them subject to certain limitations. Our technical managers are insured against claims of errors and omissions by third parties.

Term and Termination Rights

The ship management agreements automatically renew on their termination dates unless terminated by either party with three months’ prior written notice. Our technical managers may also terminate any of the ship management agreements immediately upon written termination notice to us if:

 

   

they do not receive amounts payable by us under the agreement within the time period specified for payment thereof, or if the vessels are repossessed by any vessel mortgagees; or

 

   

after notice to us of the default and a reasonable amount of time to remedy, we fail to:

 

   

comply with our obligation to indemnify them for any expenses attributable to us or defend them (and their related companies) against any third-party claims based on a breach or alleged breach of an obligation of ours to a third-party; or

 

   

cease the employment of our vessels in the transportation of contraband, blockage running, or in an unlawful trade, or on a voyage that in their reasonable opinion is unduly hazardous or improper.

If, for any reason under our technical managers’ control, our technical managers fail to provide the services agreed upon under the terms of the management agreements or they fail to provide for the satisfaction of all requirements of the law of the vessels’ flag state or the ISM Code, we may terminate the agreements immediately upon written notice of termination to our technical managers, as applicable, if, after notice to our technical managers of the default and a reasonable amount of time to remedy, they fail to remedy the default to our satisfaction.

The technical management agreements will automatically terminate (i) if the vessels are sold, are requisitioned, become a total loss or are declared as a constructive, compromised or arranged total loss, (ii) in the event of our winding up, dissolution, bankruptcy or the appointment of a receiver, or (iii) if we suspend payments, cease to carry on business or make any special arrangement with our creditors.

Under the terms of the NMM and Thome ship management agreements, in the event that the technical management agreement is terminated for any reason other than by reason of default by either technical manager or the loss, sale or other disposition of the vessels, we are obligated to continue to pay the management fee for three calendar months from the termination date.

Crewing

We have entered into crew management agreements with our technical managers for each of our vessels. Under the terms of the crew management agreements, our technical managers are responsible for arranging crews for our fleet and are required to, among other things:

 

   

select and supply a suitably qualified crew for each vessel in our fleet;

 

   

pay all crew wages and salaries;

 

   

ensure that the applicable requirements of the laws of our vessels’ flag states are satisfied in respect of the rank, qualification and certification of the crew;

 

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pay the costs of obtaining all documentation necessary for the crew’s employment, such as vaccination certificates, passports, visas and licenses; and

 

   

pay all costs and expenses of transportation of the crews to and from the vessels while traveling.

Unless two months’ prior written notice of termination is given, the agreements are automatically extended. Crewing costs could be higher due to increased demand for qualified officers as the worldwide LNG and LPG carrier fleet continues to grow. Please read “Item 3—Key Information—Risk Factors—Risks Related to Our Business—A shortage of qualified officers makes it more difficult to crew our vessels and increases our operating costs. If a shortage were to develop, it could impair our ability to operate and have an adverse effect on our business, financial condition and operating results.”

The crewing management fee is included with the technical management fee referred to above. For our in-house technically managed vessels, NMM provide separate crew management agreements costing approximately $0.06 million per vessel per year.

We believe that the crewing arrangements ensure that our vessels are crewed with qualified and competent seafarers that have the licenses required by international regulations and conventions. As of December 31, 2018, our vessels were crewed by 1,600 seagoing staff.

Insurance and Risk Management

The operation of any ocean going vessel carries an inherent risk of catastrophic marine disasters, death or injury of persons and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. The occurrence of any of these events may result in loss of revenues or increased costs. While we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.

Hull and Machinery

We carry “hull and machinery” insurance for each of our vessels, which insures against the risk of actual or constructive total loss of our vessels. Hull and machinery insurance also covers damage to mechanical equipment on board and loss of, or damage to a vessel due to marine perils such as collisions, grounding and weather. Each vessel in our existing fleet is covered for up to $100.0 million, with deductibles of $0.1 million.

War Risks Insurance

We also carry insurance policies covering war risks (including piracy and terrorism). Each vessel in our existing fleet is covered for up to $100.0 million, with no deductible. When our vessels travel into certain hostile regions, we are required to notify our war risk insurance carrier and may incur an additional premium of approximately $4,000 per breach, generally for up to seven days. These additional premiums are typically paid by the charterers pursuant to the terms of our time charter agreements and are paid by us under the terms of our voyage charter and COA agreements.

Protection and Indemnity Insurance Associations

We also carry “protection and indemnity” insurance for each of the vessels in our existing fleet to protect against most of the accident-related risks involved in the conduct of our business. 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 of injury or death of crew, passengers and other third parties, loss of or damage to cargo, claims arising from

 

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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. Each of the vessels in our existing fleet is entered in the Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Limited, or “The Standard Club,” or the Britannia Steam Ship Insurance Association Limited, or “Britannia,” both P&I Associations which are members of The International Group of P&I Clubs, or “The International Group.”

The Standard Club and Britannia each insure in excess of 100 million gross tons of shipping from all parts of the world and from all sectors of the shipping industry. The Standard Club and Britannia each have entered into pooling agreements to reinsure the respective association’s liabilities. Each International Group P&I Association currently bears the first $10.0 million of each claim. The excess of each claim over $10.0 million up to $30.0 million is shared by the P&I Associations under the pooling agreement. The excess of each claim over $30.0 million is shared by the members of The International Group under a reinsurance contract, which provides coverage of up to $3.1 billion per claim. Claims which exceed $3.1 billion are pooled between The International Group by way of “overspill” up to approximately $5.5 billion, which represents the current coverage limit per vessel per incident. Our current protection and indemnity insurance coverage for pollution is limited to $1.0 billion per vessel per incident, with the following per vessel per incident deductibles: $22,000 to $24,200 for fixed and floating objects claims, $50,000 to $55,000 for collisions, $6,050 to $7,500 for crew claims, $8,500 to $12,500 for cargo damage and $5,500 to $7,000 for all other incidents. As a member of both The Standard Club and Britannia, each of which is a member of The International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations, and members of the pool of P&I Associations comprising The International Group.

Risk Management

To assess and mitigate risk we use computer based risk assessment tools, root cause analysis programs, planned and condition based maintenance programs, seafarers competence training programs, computer based training modules, seafarers workshops and seminars, as well as membership in emergency response organizations.

Environmental and Other Regulation

General

Governmental and international agencies extensively regulate the ownership and operation of our vessels. These regulations include international conventions and national, state and local laws and regulations in the countries where our vessels now or, in the future, will operate or where our vessels are registered. We cannot predict the ultimate cost of complying with these regulations, or the impact that these regulations will have on the resale value or useful lives of our vessels. Various governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our vessels.

Although we believe that we are substantially in compliance with applicable environmental laws and regulations and have all permits, licenses and certificates required for our vessels, future non-compliance or failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels. A variety of governmental and private entities inspect our vessels on both a scheduled and unscheduled basis. These entities, each of which may have unique requirements and each of which conducts frequent inspections, include local and port state authorities, such as the U.S. Coast Guard, harbor master or equivalent, classification societies, flag state, or the administration of the country of registry and charterers. We expect that our vessels will continue to be subject to inspection by these governmental and private entities on both a scheduled and unscheduled basis.

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 industry. Increasing environmental concerns have created a demand

 

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for tankers that conform to the stricter environmental standards. We will be 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. We intend to assure that the operation of our vessels will be in substantial compliance with applicable environmental laws and regulations and that our vessels will have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations are frequently changed and may impose increasingly stricter 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 vessels. 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 results of operations or financial condition.

NMM and Thome have been certified to the ISO 14001:2015 Environmental Management Standard. NMM has also certified to the ISO 50001:2018 (energy efficiency) standard. In summary terms, ISO 14000 is a family of standards related to environmental management systems that exists to help organizations minimize how their operations negatively affect the environment; comply with applicable laws, regulations, and other environmentally oriented requirements; and continually improve. Navigator Gas Shipmanagement is in the process of preparing for ISO 14001 certification.

International Maritime Regulations

The IMO is the United Nations’ agency that provides international regulations governing shipping and international maritime trade. The requirements contained in the ISM Code, promulgated by the IMO, govern our operations. Among other requirements, 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 policy for safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and also describing procedures for responding to emergencies. We and our ship managers each hold a Document of Compliance under the ISM Code for operation of Gas Carriers.

Vessels that transport gas, including our vessels, are also subject to regulation under the International Gas Carrier Code, or the “IGC Code,” published by the IMO. The IGC Code provides a standard for the safe carriage of liquid gases by prescribing the design and construction standards of vessels involved in such carriage. Compliance with the IGC Code must be evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases in Bulk. Each of our vessels is in compliance with the IGC Code. Non-compliance with the IGC Code or other applicable IMO regulations may subject a shipowner or a bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.

The IMO also promulgates ongoing amendments to the international convention for the Safety of Life at Sea 1974 and its protocol of 1988, otherwise known as “SOLAS.” SOLAS provides rules for the construction of and equipment required for commercial vessels and includes regulations for safe operation. It requires the provision of lifeboats and other life-saving appliances, requires the use of the Global Maritime Distress and Safety System which is an international radio equipment and watchkeeping standard, afloat and at shore stations, and relates to the Treaty on the Standards of Training and Certification of Watchkeeping Officers, or “STCW,” also promulgated by the IMO. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.

SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving appliances, radio equipment and the global maritime distress and safety system, are applicable to our operations. Non-compliance with these types of IMO regulations may subject us to increased liability or penalties, may lead to decreases in available insurance coverage for affected vessels and may result in

 

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the denial of access to or detention in some ports. For example, the U.S. Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and European Union ports, respectively.

In January 2016, additional amendments became effective to the International Code for the Construction of Equipment of Ships Carrying Dangerous Chemicals in Bulk (IBC Code) that was adopted in May 2014. The provisions of the IBC Code are mandatory under MARPOL and SOLAS. These amendments, which entered into force in June 2014, pertain to revised international certificates of fitness for the carriage of dangerous chemicals in bulk and identifying new products that fall under the IBC Code.

In the wake of increased worldwide security concerns, the IMO amended SOLAS and added the ISPS Code as a new chapter to that convention effective July 1, 2004. The objective of the ISPS Code is to detect security threats and take preventive measures against security incidents affecting ships or port facilities. NMM has developed Security Plans, appointed and trained Ship and Office Security Officers and all of our vessels have been certified to meet the ISPS Code. See “—Vessel Security Regulations” for a more detailed discussion about these requirements.

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 regulation may have on our operations.

Air Emissions

The International Convention for the Prevention of Marine Pollution from Ships, or “MARPOL,” is the principal international convention negotiated by the IMO governing marine pollution prevention and response. MARPOL imposes environmental standards on the shipping industry relating to oil spills, management of garbage, the handling and disposal of noxious liquids, sewage and air emissions. MARPOL 73/78 Annex VI “Regulations for the prevention of Air Pollution,” or “Annex VI,” entered into force on May 19, 2005, and applies to all ships, fixed and floating drilling rigs and other floating platforms. Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts, emissions of volatile compounds from cargo tanks, incineration of specific substances, and prohibits deliberate emissions of ozone depleting substances. Annex VI also includes a global cap on sulfur content of fuel oil and allows for emission control areas (“ECAs”) to be established with more stringent controls on sulfur emissions. The certification requirements for Annex VI depend on size of the vessel and time of periodical classification survey. Ships weighing more than 400 gross tons and engaged in international voyages involving countries that have ratified the conventions, or ships flying the flag of those countries, are required to have an International Air Pollution Certificate, or an “IAPP Certificate.” Annex VI came into force in the United States on January 8, 2009. As of December 31, 2018, all our ships delivered or drydocked since May 19, 2005, have all been issued with IAPP Certificates.

Annex I to MARPOL, which applies to various ships delivered on or after August 1, 2010, includes requirements for the protected location of the fuel tanks, performance standards for accidental oil fuel outflow, a tank capacity limit and certain other maintenance, inspection and engineering standards. IMO regulations also require owners and operators of vessels to adopt Ship Oil Pollution Emergency Plans. Periodic training and drills for response personnel and for vessels and their crews are required.

On July 1, 2010, amendments to Annex VI proposed by the United States, Norway and other IMO member states took effect that require progressively stricter reductions in sulfur emissions from ships. Beginning on January 1, 2012, fuel used to power ships in all seas may contain no more than 3.5% sulfur. This cap will decrease progressively. For fuels used in ECAs, the cap settled at 0.1% in January 2015. For fuels used in non-ECA areas, the cap decreases progressively and will settle at 0.5% on January 1, 2020. The amendments also establish new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The European directive 2005/33/EU, which is effective from January 1, 2010, bans the use of fuel

 

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oils containing more than 0.1% sulfur by mass by any merchant vessel while at berth in any EU country. In 2011, the European Commission adopted a proposal to amend directive 2005/33/EU to bring it into alignment with the latest IMO provisions on the sulfur content of marine fuels. Review of the directive under this amendment is ongoing. Our vessels have achieved compliance, where necessary, by purchasing and utilizing fuel that meets the low-sulfur requirements.

Additionally, there are several other regulatory requirements to use low sulfur fuel or restrict or regulate emissions from vessels that are either already in force or are upcoming. The EU Directive 33/2005 requiring the use of low sulfur fuel came into force on January 1, 2010. Under this legislation, vessels are required to burn fuel with sulfur content below 0.1% while berthed or anchored in an EU port. More stringent emission standards for sulfur and nitrogen oxide apply in United States and Canadian coastal areas designated by the IMO’s Marine Environment Protection Committee, as discussed in “—Clean Air Act” below. On March 26, 2010, the IMO designated waters off North American coasts as an ECA in which stringent emission standards would apply. The first-phase fuel standard for sulfur in the North American ECA went into effect in 2012, and the second phase began in 2015. Further, on July 15, 2011, the IMO designated waters around Puerto Rico and the U.S. Virgin Islands as an ECA. The first-phase fuel standard for sulfur in the U.S. Caribbean ECA went into effect in 2014, and the second phase began in 2015. Beginning in 2016, stringent engine standards for nitrogen oxide became effective in both the North American ECA and the U.S. Caribbean ECA. U.S. air emissions standards have incorporated these amended Annex VI requirements, and once these amendments become fully effective, we may incur costs to comply with these revised standards. Finally, China has designated three ECAs at the Pearl River Delta, the Yangtze River Delta and Bohai Bay. Beginning January 1, 2019, vessels operating within these areas will be required to use fuels with no more than 0.5% sulfur. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems.

Ballast Water Management Convention

The IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the “BWM Convention,” in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention was ratified by the sufficient number of states on September 8, 2016 and entered into force on September 8, 2017. As referenced below, the U.S. Coast Guard issued new ballast water management rules on March 23, 2012, and the U.S. Environmental Protection Agency, or “EPA,” issued a five year Vessel General Permit (VGP) in March 2013 that contains numeric technology-based ballast water effluent limitations. The VGP program is in the process of being phased out and replaced with National Standards of Performance (NSPs) to be developed by EPA and implemented and enforced by the U.S. Coast Guard. From 2016 (or not later than the first intermediate or renewal survey after 2016), only ballast water treatment will be accepted by the BWM Convention. Installation of ballast water treatments systems will be needed on all our vessels to comply with the BWM Convention and U.S. regulations discussed below. We began fitting ballast water treatment system (“BWTS”) on the remaining 22 vessels in the fleet that do not already have a BWTS fitted, at an additional cost of approximately $0.6 million per vessel commencing on drydocks scheduled from January 1, 2018.

Bunker Convention/CLC State Certificate

The International Convention on Civil Liability for Bunker Oil Pollution 2001, or the “Bunker Convention,” entered into force in State Parties to the Convention on November 21, 2008. The Bunker Convention provides a liability, compensation and compulsory insurance system for the victims of oil pollution damage caused by spills of bunker oil. The Bunker Convention requires the ship owner liable to pay compensation for pollution damage (including the cost of preventive measures) caused in the territory, including the territorial sea of a State Party, as well as its economic zone or equivalent area. Registered owners of any sea going vessel and seaborne craft over 1,000 gross tonnage, of any type whatsoever, and registered in a State Party, or entering or leaving a port in the territory of a State Party, will be required to maintain insurance which meets the requirements of the Bunker

 

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Convention and to obtain a certificate issued by a State Party attesting that such insurance is in force. The State issued certificate must be carried on-board at all times.

Although the United States is not a party to these conventions, 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 of 1969, as amended in 2000, or the “CLC.” 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 for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. The limited liability protections are forfeited under the CLC where the spill is caused by the owner’s actual fault and under the 1992 Protocol where the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to 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 on a strict-liability basis.

P&I Clubs in the International Group issue the required Bunkers Convention “Blue Cards” to provide evidence that there is in place insurance meeting the liability requirements. All of our vessels have received “Blue Cards” from their P&I Club and are in possession of a CLC State-issued certificate attesting that the required insurance coverage is in force.

Anti-Fouling Requirements

In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the “Anti-fouling Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels after September 1, 2003. Vessels of over 400 gross tons engaged in international voyages must obtain an International Anti-fouling System Certificate and undergo a survey before the vessel is put into service or when the anti-fouling systems are altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels and we do not believe that maintaining such certificates will have an adverse financial impact on the operation of our vessels.

Compliance Enforcement

The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for the implementation and enforcement of international maritime regulations for all ships granted the right to fly its flag. The “Shipping Industry Guidelines on Flag State Performance” evaluates flag states based on factors such as sufficiency of infrastructure, ratification of international maritime treaties, implementation and enforcement of international maritime regulations, supervision of surveys, casualty investigations, and participation at IMO meetings. As of January 2016, auditing of flag states that are parties to the SOLAS convention is mandatory and will be conducted under the IMO Instruments Implementation Code (III Code), which provides guidance on implementation and enforcement of IMO policies by flag states. These audits may lead the various flag states to be more aggressive in their enforcement, which may in turn lead us to incur additional costs.

Non-compliance with the ISM Code and other IMO regulations may subject the vessel owner or bareboat charterer to increased liability, may lead to decreases in 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, respectively.

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.

 

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U.S. Environmental Regulation of Our Vessels

Our vessels operating in U.S. waters now or in the future will be subject to various federal, state and local laws and regulations relating to protection of the environment. In some cases, these laws and regulations require us to obtain governmental permits and authorizations before we may conduct certain activities. These environmental laws and regulations may impose substantial penalties for noncompliance and substantial liabilities for pollution. Failure to comply with these laws and regulations may result in substantial civil and criminal fines and penalties. As with the industry generally, our operations will entail risks in these areas, and compliance with these laws and regulations, which may be subject to frequent revisions and reinterpretation, increases our overall cost of business.

Oil Pollution Act of 1990

The U.S. Oil Pollution Act of 1990, or “OPA 90,” established an extensive regulatory and liability regime for environmental protection and cleanup of oil spills. OPA 90 affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial waters and the two hundred nautical mile exclusive economic zone of the United States. OPA 90 may affect us because we carry oil as fuel and lubricants for our engines, and the discharge of these could cause an environmental hazard. Under OPA 90, vessel operators, including vessel owners, managers and bareboat or “demise” charterers, are “responsible parties” who are all liable regardless of fault, individually and as a group, for all containment and clean-up costs and other damages arising from oil spills from their vessels. These “responsible parties” would not be liable if the spill results solely from the act or omission of a third-party, an act of God or an act of war. The other damages aside from clean-up and containment costs are defined broadly to include:

 

   

natural resource damages and related assessment costs;

 

   

real and personal property damages;

 

   

net loss of taxes, royalties, rents, profits or earnings capacity;

 

   

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 December 21, 2015, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,200 per gross ton or $18,797 million for any double-hull tanker that is over 3,000 gross tons (subject to possible adjustment for inflation) (relevant to the Alma Maritime carriers). These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible party’s gross negligence or willful misconduct. These limits likewise do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. This limit is subject to possible adjustment for inflation. OPA 90 specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. In some cases, states, which have enacted their own legislation, have not yet issued implementing regulations defining shipowners’ responsibilities under these laws. We believe that we are in substantial compliance with OPA 90 and all applicable state regulations in the ports where our vessels call. OPA 90 requires 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 strict liability under OPA 90. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA 90 regulations, an owner or operator of more than one vessel is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the vessel having the greatest maximum liability under OPA 90. Each of our ship-owning subsidiaries that has vessels trading in U.S. waters has applied for and obtained from the U.S. Coast Guard

 

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National Pollution Funds Center, three-year certificates of financial responsibility, or “COFRs,” supported by guarantees which we purchased from an insurance based provider. We believe that we will be able to continue to obtain the requisite guarantees and that we will continue to be granted COFRs from the U.S. Coast Guard for each of our vessels that is required to have one.

Future spills could prompt the U.S. Congress to consider legislation to increase or even eliminate the limits of liability under OPA 90. Compliance with any new requirements of OPA 90 may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Any additional legislation or regulation applicable to the operation of our vessels that may be adopted in the future could adversely affect our business and ability to make distributions to our shareholders.

Clean Water Act

The United States Clean Water Act, or “CWA,” prohibits the discharge of oil or hazardous substances in United States navigable waters unless authorized by a permit or exemption and imposes strict liability in the form of penalties for unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The EPA has enacted rules governing the regulation of ballast water discharges and other discharges incidental to the normal operation of vessels within U.S. waters. The rules have historically required commercial vessels 79 feet in length or longer (other than commercial fishing vessels), or “Regulated Vessels,” to obtain a CWA permit regulating and authorizing such normal discharges. This permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or “VGP,” incorporates the current U.S. Coast Guard requirements for ballast water management as well as supplemental ballast water requirements, including limits applicable to 26 specific discharge streams, such as deck runoff, bilge water and gray water.

The VGP was updated in 2013 to incorporate numeric effluent limits for ballast water expressed as the maximum concentration of living organisms in ballast water, as opposed to the prior non-numeric requirements. These requirements correspond with the IMO’s requirements under the BWM Convention, as discussed above. The permit also contains maximum discharge limitations for biocides and residuals. All vessels calling on U.S. ports are now subject to the requirements of the VGP.

The 2013 VGP includes a tiered requirement for obtaining coverage based on the size of the vessel and the amount of ballast water carried. Vessels that are 300 gross tons or larger and have the capacity to carry more than eight cubic meters of ballast water must submit notices of intent (NOIs) to receive permit coverage between six and nine months after the permit’s issuance date. Vessels that do not need to submit NOIs are automatically authorized under the permit.

The VGP imposes additional requirements on certain Regulated Vessel types that emit discharges unique to those vessels. Administrative provisions, such as inspection, monitoring, recordkeeping and reporting requirements, are also included for all Regulated Vessels.

In December 2018, the Vessel Incidental Discharge Act (VIDA) was signed into law and restructured the EPA and the U.S. Coast Guard programs for regulating incidental discharges from vessels. Rather than requiring CWA permits, the discharges will be regulated under a new CWA Section 312(p) establishing Uniform National Standards for Discharges Incidental to Normal Operation of Vessels. Under VIDA, VGP provisions and existing U.S. Coast Guard regulations will be phased out over a period of approximately four years and replaced with National Standards of Performance (NSPs) to be developed by EPA and implemented and enforced by the U.S. Coast Guard. The scheduled expiration date of the 2013 VGP was December 18, 2018, but under VIDA the provisions of the VGP will remain in place until the new regulations are in place.

In addition to the requirements in the VGP (to be replaced by the NSPs established under VIDA), vessel owners and operators must meet 25 sets of state-specific requirements under the CWA’s § 401 certification process.

 

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Because the CWA § 401 process allows tribes and states to impose their own requirements for vessels operating within their waters, vessels operating in multiple jurisdictions could face potentially conflicting conditions specific to each jurisdiction that they travel through.

National Invasive Species Act

In March 2012, the U.S. Coast Guard issued a final rule establishing standards for the allowable concentration of living organisms in ballast water discharged in U.S. waters and requiring the phase-in of Coast Guard approved BWM Systems. The rule went into effect in June 2012, and adopts ballast water discharge standards for vessels calling on U.S. ports and intending to discharge ballast water equivalent to those set in IMO’s BWM Convention. The final rule requires that ballast water discharge have fewer than 10 living organisms per milliliter for organisms between 10 and 50 micrometers in size. For organisms larger than 50 micrometers, the discharge must have fewer than 10 living organisms per cubic meter of discharge. In May 2016, the U.S. Coast Guard published a review of the practicability of implementing a more stringent ballast water discharge standard. The results concluded that the technology to achieve a significant improvement in ballast water treatment efficacy cannot be practically implemented. If Coast Guard type approved technologies are not available by a vessel’s compliance date, the vessel may request an extension to the deadline from the U.S. Coast Guard. While the 2012 rule imposes consistent numeric effluent limits for living organisms in ballast water discharges, it does not provide for compliance date extensions if Coast Guard-approved treatment technologies are not available.

In February 2016, the U.S. Coast Guard issued a new rule amending the Coast Guard’s ballast water management recordkeeping requirements. Effective February 22, 2016, vessels with ballast tanks operating exclusively on voyages between ports or places within a single Captain of the Port zone must submit an annual report of their ballast water management practices. Further, under the amended requirements, vessels may submit their reports after arrival at the port of destination instead of prior to arrival. As discussed above, under VIDA, existing U.S. Coast Guard ballast water management regulations will be phased out over a period of approximately four years and replaced with National Standards of Performance (NSPs) to be developed by EPA and implemented and enforced by the U.S. Coast Guard.

Clean Air Act

The U.S. Clean Air Act of 1970, as amended, or the “CAA,” requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards for so-called “Category 3” marine diesel engines operating in U.S. waters. The marine diesel engine emission standards are currently limited to new engines beginning with the 2004 model year. On April 30, 2010, the EPA promulgated final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. These emission standards require an 80% reduction in nitrogen dioxides for newly-built engines effective 2016. In February 2015, the EPA amended its marine diesel engine requirements to temporarily allow marine equipment manufacturers to use allowances if a compliant marine engine is not available. Compliance with these standards may cause us to incur costs to install control equipment on our vessels in the future.

European Union Regulations

The European Union has also adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies.

The European Union has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/EC/33 (amending Directive 1999/32/EC) introduced parallel

 

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requirements in the European Union to those in MARPOL Annex VI in respect of the sulfur content of marine fuels. In addition, it has introduced a 0.1% maximum sulfur requirement for fuel used by ships at berth in EU ports, effective January 1, 2010. In 2011, the European Commission adopted a proposal to amend directive 2005/33/EU to bring it into alignment with the latest IMO provisions on the sulfur content of marine fuels. Review of the directive under this amendment is ongoing.

In 2005, the European Union adopted a directive on ship-source pollution, imposing criminal sanctions for intentional, reckless or negligent pollution discharges by ships. The directive could result in criminal liability for pollution from vessels in waters of European countries that adopt implementing legislation. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. We cannot predict what regulations, if any, may be adopted by the European Union or any other country or authority.

Regulation of Greenhouse Gas Emissions

Currently, the emissions of greenhouse gases from ships involved in international transport are not subject to the Kyoto Protocol, which entered into force in 2005 and which countries have relied on to produce national plans to reduce greenhouse gas emissions. The Paris Agreement, which was announced by the Parties to the United Nations Framework Convention on Climate Change in December 2015, similarly does not cover international shipping, however the IMO has subsequently reaffirmed its strong commitment to continue to work to address greenhouse gas emissions from ships engaged in international trade. The IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or a carbon tax. In June 2013, the European Commission developed a strategy to integrate maritime emissions into the overall European Union strategy to reduce greenhouse gas emissions. In accordance with this strategy, in April 2015 the European Parliament and Council adopted regulations requiring large vessels using European Union ports to monitor, report and verify their carbon dioxide emissions beginning in January 2018.

As of January 1, 2013, all new ships must comply with mandatory requirements adopted by the Marine Environment Protection Committee (MEPC) of IMO in July 2011 in part to address greenhouse gas emission. These requirements add energy efficiency standards through an Energy Efficiency Design Index (EEDI). IMO’s Greenhouse Gas Working Group agreed on these guidelines to require all ships to develop and implement a Ship Energy Efficiency Plan (SEEMP). The regulations apply to all ships of 400 tonnes gross tonnage and above. The IMO also adopted a mandatory requirement in October 2016 that ships of 5000 gross tonnage and above record and report their fuel oil consumption. The requirement entered into force on March 1, 2018. These new rules will likely affect the operations of vessels that are registered in countries that are signatories to MARPOL Annex VI or vessels that call upon ports located within such countries. The IMO is also considering the development of a market-based mechanism for greenhouse gas emissions from ships. At the October 2016 Marine Environmental Protection Committee session, the IMO adopted a roadmap for developing a comprehensive IMO strategy on reduction of GHG emissions. In April 2018, the MEPC adopted an initial strategy designed to reduce the emission of greenhouse gases from vessels, including short-term, mid-term and long-term candidate measures with a vision of reducing and phasing out greenhouse gas emissions from vessels as soon as possible in the 21st Century. The EU has indicated that it intends to implement regulation in an effort to limit emissions of greenhouse gases from vessels if such emissions are not regulated through the IMO.

In the United States, the EPA issued a final finding that greenhouse gases threaten public health and safety and has promulgated regulations under the Clean Air Act that control the emission of greenhouse gases from mobile sources, but not from marine shipping vessels and their engines and fuels. The EPA may decide in the future to regulate greenhouse gas emissions from these sources. The Agency has already been petitioned by the California Attorney General to regulate greenhouse gas emissions from oceangoing vessels. Other federal and state regulations relating to the control of greenhouse gas emissions may follow, including climate change initiatives that have recently been considered by the U.S. Congress and by individual states.

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restrict emissions of greenhouse gases could require us to make significant financial expenditures that we cannot predict with certainty at this time.

Safety Requirements

The IMO has adopted the International Convention for the Safety of Life at Sea, or “SOLAS Convention,” and the International Convention on Load Lines, 1966, or “LL Convention,” which impose a variety of standards to regulate design and operational features of ships. SOLAS Convention and LL Convention standards are revised periodically. All of our vessels are in compliance with SOLAS Convention and LL Convention standards.

Chapter IX of SOLAS, the requirements contained in the ISM Code, promulgated by the IMO, also affects our operations. The ISM Code requires the party with operational control of a vessel to develop and maintain 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.

The ISM Code requires that vessel operators 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. NMM has obtained documents of compliance and safety management certificates for all of our vessels for which certificates are required by the IMO.

The International Labour Organization, or “ILO,” is a specialized agency of the United Nations with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006, or “MLC 2006,” to improve safety on-board merchant vessels. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. On August 20, 2012, the required number of countries ratified the MCL 2006 and it came into force on August 20, 2013. MLC 2006 requires us to develop new procedures to ensure full compliance with its requirements.

Vessel Security Regulations

Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Act of 2002, or “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 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;

 

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ship identification number to be permanently marked on a vessel’s hull;

 

   

a continuous synopsis record kept on-board 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 non-U.S. vessels from obtaining U.S. Coast Guard-approved MTSA vessel security plans provided such vessels have on-board an International Ship Security Certificate, or “ISSC,” that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code.

Our vessel managers have developed Security Plans, appointed and trained Ship and Office Security Officers and each of our vessels in our fleet complies with the requirements of the ISPS Code, SOLAS and the MTSA.

Other Regulation

Our vessels may also become subject to the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 as amended by the Protocol to the HNS Convention, adopted in April 2010, or the “2010 HNS Protocol,” and collectively, the “2010 HNS Convention,” if it is entered into force. The Convention creates a regime of liability and compensation for damage from hazardous and noxious substances, or “HNS.” The 2010 HNS Convention sets up a two-tier system of compensation composed of compulsory insurance taken out by shipowners and an HNS Fund which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused by bulk HNS, claims for compensation will first be sought from the shipowner up to a maximum of 100 million Special Drawing Rights, or “SDR,” which was equivalent to $138 million U.S. dollars as of January 31, 2016. SDRs are supplementary, foreign exchange reserve assets created and maintained by the International Monetary Fund, or “IMF,” based upon a basket of currencies (consisting of the euro, Japanese yen, pound sterling and U.S. dollar). SDRs are not a currency, but instead represent a claim to currency held by IMF member countries for which SDRs may be exchanged. Monetary values and limits in many international maritime treaties are expressed in terms of SDRs. As of January 31, 2016, the exchange rate was 1 SDR equal to 1.37618 U.S. dollars. If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR (equivalent to $158 million U.S. dollars as of January 31, 2016). Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR (equivalent to $344 million U.S. dollars as of January 31, 2016). The 2010 HNS Convention has not been ratified by a sufficient number of countries to enter into force, and we cannot estimate the costs that may be needed to comply with any such requirements that may be adopted with any certainty at this time.

In-House Inspections

We, NMM and Thome carry out inspections of the ships under management on a regular basis; to verify conformity with managers’ reports on upkeep and maintenance. The results of these inspections, which are conducted both in port and underway, result in a report containing action items and recommendations for improvements to the overall condition of the vessel, maintenance, safety and crew welfare. The vessels we manage in house are inspected on a regular basis to verify their condition and that upkeep, maintenance, crewing standards and welfare are in compliance with the requirements of our Safety Management System.

Competition

The process of obtaining new charters is highly competitive, generally involves an intensive screening process and competitive bids, and often extends for several months.

 

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A large proportion of our handysize liquefied gas carriers are contracted on 12 month or shorter time charters. There is competition for the employment of vessels when these charters expire and for the employment of those vessels which trade on the spot market. Competition for mid- or longer-term charters is based primarily on industry relationships, experience and reputation for customer service, reliability, quality operations and safety, the experience and technical capability of the crews, the vessel’s efficiency, operational flexibility and physical life, and the competitiveness of the bid in terms of overall price.

Our existing fleet had an average age of 7.8 years as of December 31, 2018, which is significantly less than the average age of the world-wide fleet of handysize liquefied gas carriers. We believe that our relatively young fleet positions us well to compete in terms of our vessels meeting the strategic and operational needs of our charterers. We own and operate the largest fleet in our size segment, which, in our view, enhances our position relative to our competitors. While there are some barriers to entry, including the complexity of operating semi-refrigerated gas carriers that constantly require switching between a myriad of cargo types, crew expertise and the cost of, and availability of finance for, liquefied gas carriers, new entrants have entered the market over the last three years.

We believe that the market for obtaining new charters will continue to be highly competitive for the foreseeable future. However, we believe that our relationships, the reliability we strive to provide to our customers, the experience of the crews that service our vessels and the age and technical ability of our versatile fleet will provide us with a competitive advantage, both within the handysize segment and across the broader liquefied gas carrier industry.

Properties

Other than our vessels, we do not own any material property. We lease office space for our representative offices in New York, London and Gdynia.

The lease term for our representative office in London is for a period of 10 years with a mutual break option in February 2022, which is the fifth anniversary from the lease commencement date. The gross rent per year for our new office lease is approximately $1.1 million.

The lease term for our representative office in Gdynia, Poland is for a period of five years commencing from April 2017. The gross rent per year is approximately $60,000.

The lease term for our representative office in New York is for a period of three years from June 2017. The total rent per year is approximately $365,000.

Employees

We had 76 employees as of December 31, 2018. We consider our employee relations to be good. Our crewing and technical managers provide crews for our vessels under separate crew management agreements.

Legal Proceedings

We expect that in the future we will be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on us.

Exchange Controls

Under the Republic of the Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of distributions, interest or other payments to non-resident shareholders.

 

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Taxation of the Company

Certain of our subsidiaries are subject to taxation in the jurisdictions in which they are organized, conduct business or own assets. We intend that our business and the business of our subsidiaries will be conducted and operated in a manner designed to minimize the tax imposed on us and our subsidiaries. However, we cannot assure this result as tax laws in these or other jurisdictions may change or we may enter into new business transactions relating to such jurisdictions, which could affect our tax liability.

U.S. Taxation

The following is a discussion of the material U.S. federal income tax considerations applicable to us. This discussion is based upon provisions of the Code, final and temporary Treasury Regulations thereunder, and administrative rulings and court decisions, all as in effect as of the date hereof and all of which are subject to change or differing interpretation, possibly with retroactive effect. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. The following discussion is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations applicable to us.

Status as a Corporation. We are treated as a corporation for U.S. federal income tax purposes. As such, we are subject to U.S. federal income tax on our income to the extent it is from U.S. sources or is effectively connected with the conduct of a trade or business in the United States as discussed below, unless such income is exempt from tax under Section 883 of the Code.

Taxation of Operating Income. Substantially all of our gross income is, and we expect that substantially all of our gross income will be, attributable to the transportation of LPGs and petrochemicals and related products until December 2019 at the earliest, when our proposed terminal on the U.S. Gulf Coast is anticipated to become operational. Gross income that is attributable to transportation that either begins or ends, but that does not both begin and end, in the United States, or “U.S. Source International Transportation Income,” is considered to be 50.0% derived from sources within the United States and may be subject to U.S. federal income tax as described below. Gross income attributable to transportation that both begins and ends in the United States, or “U.S. Source Domestic Transportation Income,” is considered to be 100.0% derived from sources within the United States and generally is subject to U.S. federal income tax. Gross income attributable to transportation exclusively between non-U.S. destinations is considered to be 100.0% derived from sources outside the United States and generally is not subject to U.S. federal income tax. We are not permitted by law to engage in transportation that gives rise to U.S. Source Domestic Transportation Income. However, certain of our activities give rise to U.S. Source International Transportation Income, and we may in the future increase our operations in the United States, which would result in an increase in the amount of our U.S. Source International Transportation Income, all of which would be subject to U.S. federal income taxation unless the exemption from U.S. taxation under Section 883 of the Code, or the “Section 883 Exemption,” applies.

The Section 883 Exemption. In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury Regulations thereunder, or the “Section 883 Regulations,” it will not be subject to the net basis and branch profits taxes or the 4.0% gross basis tax described below on its U.S. Source International Transportation Income. The Section 883 Exemption applies only to U.S. Source International Transportation Income and does not apply to U.S. Source Domestic Transportation Income.

We will qualify for the Section 883 Exemption if, among other things, we meet the following three requirements:

 

   

we are organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations organized in the United States with respect to the types of U.S. Source International Transportation Income that we earn, or an “Equivalent Exemption”;

 

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we satisfy the Publicly Traded Test (as described below); and

 

   

we meet certain substantiation, reporting and other requirements (or the Substantiation Requirement).

In order for a non-U.S. corporation to meet the Publicly Traded Test, its equity interests must be “primarily traded” and “regularly traded” on an established securities market either in the United States or in a jurisdiction outside the United States that grants an Equivalent Exemption. The Section 883 Regulations provide, in pertinent part, that equity interests in a non-U.S. corporation will be considered to be “primarily traded” on an established securities market in a given country if, with respect to the class or classes of equity relied upon to meet the “regularly traded” requirement described below, the number of shares of each such class that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in such class that are traded during that year on established securities markets in any other single country.

Equity interests in a non-U.S. corporation will be considered to be “regularly traded” on an established securities market under the Section 883 Regulations if one or more classes of such equity interests that, in the aggregate, represent more than 50.0% of the combined vote and value of all outstanding equity interests in the non-U.S. corporation satisfy certain listing and trading volume requirements. These listing and trading volume requirements will be satisfied with respect to a class of equity interests if trades in such class are effected, other than in de minimis quantities, on an established securities market on at least 60 days during the taxable year and the aggregate number of shares in such class that are traded on an established securities market during the taxable year is at least 10.0% of the average number of shares outstanding in that class during the taxable year (with special rules for short taxable years). In addition, a class of equity interests will be considered to satisfy these listing and trading volume requirements if the equity interests in such class are traded during the taxable year on an established securities market in the United States and are “regularly quoted by dealers making a market” in such class (within the meaning of the Section 883 Regulations).

Even if a class of equity satisfies the foregoing requirements, and thus generally would be treated as “regularly traded” on an established securities market, an exception may apply to cause the class to fail the regularly traded test if, for more than half of the number of days during the taxable year, one or more 5.0% shareholders (i.e., shareholders owning, actually or constructively, at least 5.0% of the vote and value of that class) own in the aggregate 50.0% or more of the vote and value of the class (which we refer to as the “Closely Held Block Exception”). For purposes of identifying its 5.0% shareholders, a corporation is entitled to rely on Schedule 13D and Schedule 13G filings made with the SEC. The Closely Held Block Exception does not apply, however, in the event the corporation can establish that a sufficient proportion of such 5.0% shareholders are Qualified Shareholders (as defined below) so as to preclude other persons who are 5.0% shareholders from owning 50.0% or more of the value of that class for more than half the days during the taxable year. Qualified Shareholders include:

 

   

individual residents of jurisdictions that grant an Equivalent Exemption;

 

   

non-U.S. corporations organized in jurisdictions that grant an Equivalent Exemption and that meet the Publicly Traded Test; and

 

   

certain other qualified persons described in the Section 883 Regulations.

We are organized under the laws of the Republic of the Marshall Islands, which is a jurisdiction that the U.S. Treasury Department has recognized as granting an Equivalent Exemption with respect to the type of U.S. Source International Transportation Income we earn. Provided we satisfy the Substantiation Requirement, which we believe we will be able to satisfy, our U.S. Source International Transportation Income (including for this purpose, any such income earned by our subsidiaries) will be exempt from U.S. federal income taxation provided we meet the Publicly Traded Test.

We did not satisfy the requirements for the Section 883 exemption for our 2013 taxable year because our common stock was not traded on an established securities market for most of the year and therefore we did not

 

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satisfy the “regularly traded” requirement of the Publicly Traded Test. However, for 2014, 2015, 2016, 2017 and 2018 we believe that we satisfied the requirements of Section 883 exemption and therefore we were not subject to U.S. federal income taxation on our U.S. Source International Transportation Income. For the current and future taxable years, we believe we will be able to satisfy the Publicly Traded Test, provided we satisfy the listing and trading volume requirements described previously and the Closely Held Block Exception does not apply for such year. Our common stock, which is our only class of equity outstanding, represents more than 50.0% of the total combined voting power and value of all classes of our equity interests entitled to vote. In addition, because our common stock is traded only on the NYSE, which is considered to be an established securities market, our equity interests are “primarily traded” on an established securities market for purposes of the Publicly Traded Test. Further, we anticipate that our common stock will meet the “regularly traded” requirement of the Publicly Traded Test.

According to Schedule 13D and Schedule 13G filings with the SEC, 5.0% shareholders currently own, in the aggregate, less than 50.0% of the total vote and value of our common stock. Provided that in each of the current and future taxable years, 5.0% shareholders own, in the aggregate, less than 50.0% of the total vote and value of our common stock for more than half the days of such taxable year, and we continue to satisfy the listing and trading volume requirements described previously, we believe that we will satisfy the Publicly Traded Test for such year. However, additional persons that are not Qualified Shareholders may become 5.0% shareholders at any time. If more than 50.0% of our common stock were held by 5.0% shareholders (other than Qualified Shareholders) for more than half of the days of the current or any future year, we would likely not qualify for an exemption under Section 883 for such taxable year, due to the Closely Held Block Exception. Because qualification for the Section 883 Exception depends upon factual matters that are subject to change and are outside of our control, there can be no assurance that we will be able to satisfy the Publicly Traded Test for the current or any future taxable year. Please see “—The Net Basis Tax and Branch Profits Tax” and “—The 4.0% Gross Basis Tax” below for a discussion of the consequences in the event we do not satisfy the Publicly Traded Test or otherwise fail to qualify for the Section 883 Exemption.

The Net Basis Tax and Branch Profits Tax. If we earn U.S. Source International Transportation Income, and, the Section 883 Exemption does not apply, the U.S. source portion of such income may be treated as effectively connected with the conduct of a trade or business in the United States, or “Effectively Connected Income,” if (1) we have a fixed place of business in the United States involved in the earning of U.S. Source International Transportation Income and (2) substantially all of our U.S. Source International Transportation Income is attributable to regularly scheduled transportation or, in the case of vessel leasing income, is attributable to a fixed place of business in the United States. In addition, if we earn other types of income within the territorial seas of the United States, such income may be treated as Effectively Connected Income.

Based on our current and projected methods of operation, we do not believe that any of our U.S. Source International Transportation Income will be treated as Effectively Connected Income for any taxable year. However, there is no assurance that we will not earn substantial amounts of income from regularly scheduled transportation or bareboat charters attributable to a fixed place of business in the United States (or earn income from other activities within the territorial seas of the United States) in the future, which would result in such income being treated as Effectively Connected Income. In addition, we anticipate deriving Effectively Connected Income in the future once our proposed terminal in the U.S. Gulf Coast becomes operational and generates profits.

Any income we earn that is treated as Effectively Connected Income, net of applicable deductions, would be subject to U.S. federal corporate income tax (generally at a rate of 21.0%). In addition, a 30.0% branch profits tax could be imposed on any income we earn that is treated as Effectively Connected Income, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid by us in connection with the conduct of our U.S. trade or business.

On the sale of a vessel that has produced Effectively Connected Income, we could be subject to the net basis U.S. federal corporate income tax as well as branch profits tax with respect to the gain recognized up to the amount of

 

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certain prior deductions for depreciation that reduced Effectively Connected Income. Otherwise, we would not be subject to U.S. federal income tax with respect to gain realized on the sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, the sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside the United States. It is expected that any sale of a vessel by us will be considered to occur outside the United States.

The 4.0% Gross Basis Tax. If the Section 883 Exemption does not apply and the net basis tax does not apply, we will be subject to a 4.0% U.S. federal income tax on the U.S. source portion of our gross U.S. Source International Transportation Income, without benefit of deductions. Under the sourcing rules described above under “—Taxation of Operating Income,” 50.0% of our U.S. Source International Transportation Income would be treated as being derived from U.S. sources.

Republic of the Marshall Islands Taxation

We believe that because we and our controlled affiliates do not, and do not expect to, conduct business or operations in the Republic of the Marshall Islands, neither we nor our controlled affiliates will be subject to income, capital gains, profits or other taxation under current Republic of the Marshall Islands law. As a result, distributions by our controlled affiliates to us will not be subject to Republic of the Marshall Islands taxation.

U.K. Taxation

NGT Services (UK) Limited, Navigator Gas Invest Limited, Navigator Gas Shipmanagement Ltd and Navigator Terminals Invest Ltd, as U.K. incorporated companies, are subject to U.K. corporation tax on all their profits wherever arising. If we and any of our controlled affiliates not incorporated in the United Kingdom ensure that our central management and control is exercised outside of the United Kingdom, and we do not otherwise create a U.K. permanent establishment by carrying on business in the United Kingdom, we should not become subject to U.K. corporation tax. Where a company’s central management and control is exercised is a question of fact to be decided in accordance with the particular circumstances of each company. Any distributions paid to us by NGT Services (UK) Limited will not be subject to U.K. taxation.

Singapore Taxation

Falcon Funding PTE Ltd is a Singaporean service company and is subject to Singaporean tax on all its profits wherever arising.

Indonesia Taxation

PT Navigator Khatulistiwa “PTNK” is a joint venture of which 49% of the voting and dividend rights are owned by a subsidiary though ultimately controlled at the shareholder level by a subsidiary of Navigator Holdings, and 51% of such rights are owned by Indonesian limited liability companies. PTNK is subject to Indonesian freight tax on all of its gross shipping transportation revenue at a rate of 1.2%.

Poland Taxation

NGT Services (Poland) Sp. Z O.O. is a Polish service company and is subject to Polish tax on all its profits wherever arising.

 

  C.

Organizational Structure

See Note 9 (Group Subsidiaries) to the consolidated financial statements, which is incorporated by reference in this Item 4.C.

 

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  D.

Property, Plant and Equipment

Other than our vessels mentioned above, we do not have any material property.

 

Item 4A.

Unresolved Staff Comments

Not applicable.

 

Item 5.

Operating and Financial Review and Prospects

 

  A.

Operating Results

You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report. Among other things, those consolidated financial statements include more detailed information regarding the basis of presentation for the following information. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or “U.S. GAAP,” and are presented in U.S. Dollars unless otherwise indicated. Any amounts converted from another non-U.S. currency to U.S. Dollars in this annual report were converted at the rate applicable at the relevant date, or the average rate during the applicable period.

Overview

We are the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. We provide international and regional seaborne transportation services of petrochemical gases, LPG and ammonia for energy companies, industrial users and commodity traders. These gases are transported in liquefied form, by applying cooling and/or pressure, to reduce volume by up to 900 times depending on the cargo, making their transportation more efficient and economical.

We employ our vessels through a combination of time charters, voyage charters and COAs. Our fleet consists of 38 vessels; 33 of these are semi- or fully-refrigerated liquefied handysize gas carriers; four are midsize 37,300 cbm ethylene capable semi-refrigerated liquefied gas carriers and one is a 38,000 cbm fully refrigerated liquefied gas carrier. We define handysize as liquefied gas carriers between 15,000 and 24,999 cbm.

We currently own and operate a total of 38 vessels, of which 18 are employed under time charters, 4 under contracts of affreightment and 16 are employed in the spot market. As of December 31, 2018, 23 vessels were employed under time charters (As of December 31, 2017: 21 vessels), five were employed under contracts of affreightment (As of December 31, 2017: five vessels) and 10 were employed in the spot market (As of December 31, 2017: 12 vessels). Our operated vessels earned an average time charter equivalent rate of approximately $616,965 per vessel per calendar month ($20,284 per day) during the year ended December 31, 2018, compared to approximately $639,318 per vessel per calendar month ($21,018 per day) for the year ended December 31, 2017.

Our largest customers by revenue for the year ended December 31, 2018, include four companies that currently time charter and voyage charter, either on a spot basis or under a contract of affreightment, a total of 16 of our 38 operated vessels: Mitsubishi International Corporation, a leading trade, commodities, finance and investment company; Pertamina, the Indonesian state-owned producer of hydrocarbons; Braskem S.A. a leading Brazilian petrochemical gas producer and Sibur, a Russian gas processing and petrochemicals company. For the year ended December 31, 2018, these customers accounted for approximately 55.1% of our revenue in the aggregate. Other than those customers listed above we have in the past and still currently in some cases, chartered vessels to a range of trading, shipping and other customers on both time charter and voyage charter bases such as Kolmar AG Group, a large Swiss based integrated petroleum and petrochemicals company; Vitol Group, an independent energy trading company; Borealis, a leading multinational chemical corporation; Geogas, a leading LPG trading company; OCP, a world leading fertilizer producer and ammonia importer and PDVSA, the Venezuelan state-owned integrated oil and petrochemical company, prior to the implementation of US sanctions in February 2019.

 

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Vessel Contracts

We generate revenue by providing seaborne transportation services to customers pursuant to the following three types of contractual relationships:

Time Charters. A time charter is a contract under which a vessel is chartered for a defined period of time at a fixed daily or monthly rate. Under time charters, we are responsible for providing crewing and other vessel operating services, the cost of which is intended to be covered by the fixed rate, while the customer is responsible for substantially all of the voyage expenses, including any bunker fuel consumption, port expenses and canal tolls. LPG is typically transported under a time charter arrangement, generally with a term of 12 months. However, 9 of our current 18 time charters are for long-term charters exceeding 12 months. For the year ended December 31, 2018, approximately 54.3% of our revenue was generated pursuant to time charters, compared to the approximately 48.2% for the year ended December 31, 2017 and 50.5% for the year ended December 31, 2016.

Voyage Charters. A voyage charter is a contract, typically for shorter intervals, for transportation of a specified cargo between two or more designated ports. This type of charter is priced on a current or “spot” market rate, typically on a price per ton of product carried rather than a daily or monthly rate. Under voyage charters, we are responsible for all of the voyage expenses in addition to providing the crewing and other vessel operating services. Petrochemical gases have typically been transported pursuant to voyage charters, as the seaborne transportation requirements of petrochemical product traders have historically resulted from a particular product arbitrage at a point in time. For the year ended December 31, 2018, approximately 29.1% of our revenue was generated pursuant to voyage charters, compared to approximately 24.5% for the year ended December 31, 2017 and 37.0% for the year ended December 31, 2016.

Contracts of Affreightment. A COA is a contract to carry specified quantities of cargo, usually over prescribed shipping routes, at a fixed price per ton basis (often subject to fuel price or other adjustments) over a defined period of time. As such, a COA essentially consists of a number of voyage charters to carry a specified amount of cargo over a specified time period (i.e., the term of the COA), which can span for months to potentially years. Similar to a voyage charter, we are typically responsible for all voyage expenses in addition to providing all crewing and other vessel operating services when trading under a COA. For the year ended December 31, 2018, approximately 16.6% of our revenue was generated pursuant to COAs, compared to approximately 27.3% for the year ended December 31, 2017 and 12.5% for the year ended December 31, 2016.

Vessels operating on time charters and longer-term COAs provide more predictable cash flows but can potentially yield lower profit margins than vessels operating in the spot charter market during periods of favorable market conditions. Accordingly, as a result of a portion of our fleet being committed on time charters and COAs, we will be unable to take full advantage of improving charter rates to the same extent as we would if our liquefied gas carriers were employed only on spot charters. Conversely, vessels operating in the spot charter market generate revenue that is less predictable, but they may enable us to capture increased profit margins during periods of improving charter rates. However, operating in the spot charter market exposes us to the risks of declining liquefied gas carrier charter rates and relatively lower utilization rates as compared to time charters and certain COAs, which may have a materially adverse impact on our financial performance. Notwithstanding these risks, we believe that providing liquefied gas transportation services in the spot charter market is important to us, as it provides us with greater insight into market trends and opportunities.

We believe that the size and versatility of our fleet, which enables us to carry the broadest set of liquefied gases subject to seaborne transportation across a diverse range of conditions and geographies, together with our track record of operational excellence, positions us as the partner of choice for many companies requiring handysize liquefied gas transportation and distribution solutions. In addition, we believe that the versatility of our fleet affords us with backhaul and triangulation opportunities not available to many of our competitors, thereby providing us with opportunities to increase utilization and profitability. We seek to enhance our returns through a

 

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flexible, customer-driven chartering strategy that combines a base of time charters and COAs with more opportunistic, higher-rate voyage charters.

Important Financial and Operational Terms and Concepts

We use a variety of financial and operational terms and concepts in the evaluation of our business and operations. These include the following:

Operating Revenue. Our operating revenue includes revenue from time charters, voyage charters and COAs. Operating revenue is affected by charter rates and the number of days a vessel operates, as well as address commissions deducted by charterers. Rates for voyage charters are more volatile as they are typically tied to prevailing market rates at the time of the voyage. Historically, voyage charters have usually represented a minority of our annual operating revenue, which is consistent with our vessel employment strategy for the near future.

Address Commissions. Address commissions are amounts deducted by charterers from revenue for placing business with our vessels and are calculated as a percentage of chartering income. Address commissions are deducted from operating revenue.

Brokerage Commissions. Brokerage commissions are costs remitted to shipping brokers for placing business with our vessels and are calculated as a percentage of chartering income.

Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, principally bunker fuel consumption, port expenses and canal tolls. Voyage expenses are typically paid by the shipowner under voyage charters and contracts of affreightment and by the charterer under time charters. Accordingly, we generally only incur voyage expenses when performing voyage charters and COAs or during repositioning voyages between time charters for which no cargo is available. The gross revenue received by the shipowner under voyage charters and COAs are higher than those received under comparable time charters so as to compensate the shipowner for bearing all voyage expenses. As a result, our operating revenue and voyage expenses may vary significantly depending on our mix of time charters, voyage charters and COAs.

Charter-in Costs. Charter-in costs represent charter hire costs incurred by us for non-owned vessels that we charter into our fleet. While it is not a focus of our operational strategy, we may opportunistically charter-in vessels if we either have a need for a vessel to perform a specific undertaking or consider the charter rate requested by a vessel owner to be sufficiently attractive.

Vessel Operating Expenses. Vessel operating expenses are expenses that are not unique to a specific voyage. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses will increase with the expansion of our fleet. Other factors that are beyond our control may also cause these expenses to increase, including developments relating to market prices for insurance and crewing costs.

In connection with providing us with technical management for our fleet, NMM and Thome currently receive crewing and technical management fees of approximately $0.2 million per vessel per year in the aggregate, which fees are considered to be vessel operating expenses. The vessels which are under in-house technical management have the crewing function managed by one of our third-party technical managers for a fee. Our technical and crew management agreements have terms through December 2021 and thereafter continue until terminated on at least three months’ notice by either party, subject to certain exceptions. During 2018 we continued to expand our in-house technical management scope, transferring a further four vessels to in-house technical management. As of December 31, 2018, we directly managed twelve of the vessels in our fleet, compared to eight as of December 31, 2017. We expect to continue into 2019 with additional vessels being integrated into our in-house technical management. See “Item 4—Information on the Company—Business Overview—Technical Management of the Fleet.”

 

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Depreciation and Amortization. Depreciation and amortization expense consists of:

 

   

charges related to the depreciation of the historical cost of our fleet (or the revalued amount), less the estimated residual value of our vessels, calculated on a straight-line basis over their useful life, which is estimated to be 30 years; and

 

   

charges related to the amortization of capitalized drydocking expenditures relating to our fleet over the period between drydockings.

General and Administrative Costs. General and administrative costs principally consist of the costs incurred in operating our London representative office, which manages our chartering, operations, accounting and administrative functions; our Gdynia representative office, which manages our in-house technical management and oversees the technical management of our other vessels; our New York representative office; and certain costs and expenses attributable to our board of directors. Please read “Item 4—Information on the Company—Business Overview—Commercial Management of the Fleet.” We incur additional expenses as a result of being a publicly-traded corporation, including costs associated with annual reports to shareholders and SEC filings, investor relations and NYSE annual listing fees. We may also grant equity compensation that would result in an expense to us, which may result in an increase in expenses. Please read “Item 6—Directors, Senior Management and Employees—Compensation—Equity Compensation Plans—2013 Long-Term Incentive Plan.”

Other Corporation Expenses. Other corporation expenses consist of our advisors’ services, including ongoing audit, taxation, legal and corporate services.

Drydocking. We must periodically drydock each of our vessels for any major repairs and maintenance, for inspection of the underwater parts of the vessel, that cannot be performed while the vessels are operating and for any modifications to comply with industry certification or governmental requirements. We are required to drydock a vessel once every five years until it reaches 15 years of age, after which we are required to drydock the applicable vessel every two and a half to three years.

We capitalize costs associated with the drydockings as “built in overhauls” in accordance with U.S. GAAP and amortize these costs on a straight-line basis over the period between drydockings. Costs incurred during the drydocking period which relate to routine repairs and maintenance are expensed as incurred. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.

Ownership Days. We define ownership days as the aggregate number of days in a period that each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and the potential amount of revenue and expenses that we record during a period.

Available Days. We define available days as ownership days less aggregate off-hire days associated with major scheduled maintenance, which principally include drydockings, special or intermediate surveys, vessel upgrades or major repairs. We use available days to measure the number of days in a period that our operated vessels should be capable of generating revenues.

Operating Days. We define operating days as available days less the aggregate number of days that our operated vessels are not generating revenue, which includes idle days and off-hire days for any reason other than major scheduled maintenance. We use operating days to measure the aggregate number of days in a period that our operated vessels are servicing our customers.

Fleet Utilization. We define fleet utilization as the total number of operating days in a period divided by the total number of available days during that period.

Time Charter Equivalent Rate. TCE rate not is calculated in accordance with U.S. GAAP. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a

 

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company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment) under which the vessels may be employed between the periods. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses, whereas for voyage charters, also known as spot market charters, we pay all voyage expenses. For all charters, we calculate TCE by dividing operating revenue for the charter, less any voyage expenses, by the number of operating days for the relevant time period of that charter.

Daily Vessel Operating Expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days (excluding ownership days attributable to chartered-in vessels) for the relevant time period.

Results of Operations

Factors Affecting Comparability

You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:

 

   

We increased our fleet size. Our historical financial performance has been significantly impacted by the increasing size of our fleet.

 

   

Historical Fleet Size. Our consolidated financial statements for the year ended December 31, 2018 reflect the results of a fleet size of 38 owned and operated vessels for the year, compared to a weighted average fleet size of 36.2 for the year ended December 31, 2017 and a weighted average fleet size of 31.3 for the year ended December 31, 2016.

 

   

On January 31, 2018, the Company entered into the Export Terminal Joint Venture relating to the Marine Export Terminal that will have the capacity to export approximately one million tons of ethylene per year. Refrigerated storage for 30,000 tons of ethylene will be constructed on-site and will provide the capability to load ethylene at rates of 1,000 tons per hour. The facilities are expected to begin commercial operations in the fourth quarter of 2019. The project is supported by long-term contracts with customers that include U.S. ethylene producer Flint Hills Resources and a major Japanese trading company.

 

   

We will have different financing arrangements. On November 2018, we issued senior secured bonds. These bonds were issued to partially finance our portion of the capital cost for the construction of the Marine Export Terminal and will incur interest expense from the date of issue, although no profits will be generated by the terminal until it becomes operational, which is expected in the fourth quarter of 2019. In March 2019 we entered into a secured term loan to re-finance four of our vessels as well as entering into a credit agreement, the proceeds of which will be used solely for the payment of project costs relating to our Marine Export Terminal. Please read “—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities,” “2017 Senior Unsecured Bonds,” “2018 Senior Secured Bonds” and “Terminal facility”.

 

   

Changes in Accounting Standards. On January 1, 2018 we adopted the new accounting standard described below. Please read Note 2 (Summary of Significant Accounting Policies) to our consolidated financial statements attached hereto for more information regarding this standard and other recently adopted new accounting standards.

 

   

Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). We have adopted the new accounting standard on revenue recognition using the modified retrospective method to incorporate the cumulative effect at the date of initial application for reporting periods presented beginning January 1, 2018. By using the modified retrospective method approach, we have made an adjustment to the consolidated statement of shareholders’ equity which represents the amount of net revenue that would not have been recognized in retained earnings for the year ended December 31, 2017 under ASU 2014-09. Consequently, the comparable amounts for the years ended December 31, 2017 have not been adjusted.

 

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Results of Operations for the Year Ended December 31, 2017 Compared to Year Ended December 31, 2018

The following table compares our operating results for the years ended December 31, 2017 and 2018:

 

     Year Ended
December 31,
2017
     Year Ended
December 31,
2018
     Percentage
Change
 
     (in thousands, except percentages)  

Operating revenue

   $ 298,595      $ 310,046        3.8

Operating expenses:

        

Brokerage Commissions

     5,368        5,142        (4.2 %) 

Voyage expenses

     55,542        61,634        11.0

Vessel operating expenses

     100,968        106,719        5.7

Depreciation and amortization

     73,588        76,140        3.5

General and administrative costs

     13,816        16,346        18.3

Other corporate expenses

     2,131        2,585        21.3
  

 

 

    

 

 

    

Total operating expenses

   $ 251,413      $ 268,566        6.8
  

 

 

    

 

 

    

Operating income

   $ 47,182      $ 41,480        (12.1 %) 

Share of results of equity accounted affiliate

     —          (38      —    

Foreign currency exchange gain on senior secured bonds

     —          2,360        —    

Unrealized loss on non-designated derivative instruments

     —          (5,154      —    

Interest expense

     (37,691      (44,908      19.2

Write off of deferred financing costs

     (786      —          —    

Write off of call premium and redemption charges on 9.00% unsecured bond

     (3,517      —          —    

Interest income

     519        854        64.5
  

 

 

    

 

 

    

Income before income taxes

   $ 5,707      $ (5,406      (194.7 %) 

Income taxes

     (397      (333      (16.1 %) 
  

 

 

    

 

 

    

Net income

   $ 5,310      $ (5,739      (208.1 %) 
  

 

 

    

 

 

    

Operating Revenue. Operating revenue net of address commission, increased by $11.4 million or 3.8% to $310.0 million for the year ended December 31, 2018, from $298.6 million for the year ended December 31, 2017. This increase was primarily due to:

 

   

an increase in operating revenue of approximately $10.5 million attributable to an increase in the weighted average number of vessels from 36.2 for the year ended December 31, 2017, to 38.0 for the year ended December 31, 2018, and a corresponding increase in vessel ownership days by 642 days, or 4.9%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017;

 

   

a decrease in operating revenue of approximately $8.8 million attributable to a reduction in average monthly time charter equivalent rates, which decreased to an average of approximately $616,965 per vessel per calendar month ($20,284 per day) for the year ended December 31, 2018, compared to an average of approximately $639,318 per vessel per calendar month ($21,018 per day) for the year ended December 31, 2017, This was primarily as a result of a weak LPG market which accounted for a decrease of $9.9 million, offset by the adoption of ASU 2014-09, the new accounting standard that requires revenue for voyage charters to be recognized between load port and discharge port only, rather than the previous method of recognizing revenue between the prior discharge port to the following discharge port, accounting for an increase of $1.1 million;

 

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an increase in operating revenue of approximately $3.7 million attributable to an increase in fleet utilization from 87.6% for the year ended December 31, 2017 to 89.0% for the year ended December 31, 2018, primarily due to a lower number of idle days as a percentage of available days, for the year ended December 31, 2018 compared to the year ended December 31, 2017 and

 

   

an increase in operating revenue of approximately $6.0 million primarily attributable to an increase in pass through voyage costs, compensated by increased operating revenue, as the number and duration of voyage charters during the year ended December 31, 2018 increased, compared to the year ended December 31, 2017.

The following table presents selected operating data for the years ended December 31, 2017 and 2018, which we believe are useful in understanding the basis for movements in operating revenue:

 

     Year Ended
December 31, 2017
    Year Ended
December 31, 2018
 

Fleet Data:

    

Weighted average number of vessels

     36.2       38.0  

Ownership days

     13,228       13,870  

Available days

     13,195       13,767  

Operating days

     11,564       12,247  

Fleet utilization

     87.6     89.0

Average daily time charter equivalent rate (*)

   $ 21,018     $ 20,284  

 

*

Non-GAAP Financial Measure -Time charter equivalent: Time charter equivalent, or “TCE”, rate is a measure of the average daily revenue performance of a vessel. TCE is not calculated in accordance with U.S. GAAP. For all charters, we calculate TCE by dividing total operating revenues, less any voyage expenses, by the number of operating days for the relevant period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses, whereas for voyage charters, also known as spot market charters, we pay all voyage expenses. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment) under which the vessels may be employed between the periods. We include average daily TCE rate, as we believe it provides additional meaningful information in conjunction with net operating revenues, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may not be comparable to that reported by other companies.

Reconciliation of Operating Revenue to TCE rate

The following table represents a reconciliation of operating revenue to TCE rate. Operating revenue is the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented.

 

     Year Ended
December 31, 2017
     Year Ended
December 31, 2018
 

Fleet Data:

     

Operating revenue

     298,595        310,046  

Voyage expenses

     55,542        61,634  
  

 

 

    

 

 

 

Operating revenue less Voyage expenses

     243,053        248,412  

Operating days

     11,564        12,247  

Average daily time charter equivalent rate

   $ 21,018      $ 20,284  

Brokerage Commissions. Brokerage commissions, which typically vary between 1.25% and 5% of revenue, decreased by 4.2% to $5.1 million for the year ended December 31, 2018, from $5.4 million for the year ended

 

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December 31, 2017. This was primarily due to an increase in the amount of time charter hire for the year ended December 31, 2018 from the year ended December 31, 2017 and a decrease in the voyage charter revenue over the same period. Generally, time charter hire commands a lower brokerage commission percentage than voyage charters which predominately carry petrochemicals and command a higher brokerage commission.

Voyage Expenses. Voyage expenses increased by 11.0% to $61.6 million for year ended December 31, 2018, from $55.5 million for the year ended December 31, 2017. This was primarily due to an increase in the number and duration of voyage charters undertaken during the year ended December 31, 2018, compared to the year ended December 31, 2017, with these increased voyage costs being pass through costs, compensated for by increased revenue of the same amount.

Vessel Operating Expenses. Vessel operating expenses increased by 5.7% to $106.7 million for the year ended December 31, 2018, from $101.0 million for the year ended December 31, 2017, as the number of vessels in our fleet increased. Average daily vessel operating expenses increased by $59 per vessel per day, or 0.7%, to $7,694 per vessel per day for the year ended December 31, 2018, compared to $7,635 per vessel per day for the year ended December 31, 2017. During the year ended December 31, 2018, we received amounts from insurance claims on a number of our vessels, relating to costs for auxiliary engine repairs that had been expensed in prior years. These receipts reduced the daily operating expenses by $50 per vessel per day and were credited back to vessel operating expenses in the year ended December 31, 2018.

Depreciation and Amortization. Depreciation and amortization expense increased by 3.5% to $76.1 million for the year ended December 31, 2018, from $73.6 million for the year ended December 31, 2017. This increase was primarily due to an increase in our fleet size. Depreciation and amortization expense included amortization of capitalized drydocking costs of $7.9 million for the year ended December 31, 2018, and $9.2 million for the year ended December 31, 2017.

Other Operating Results

General and Administrative Costs. General and administrative costs increased by $2.5 million or 18.3% to $16.3 million for the year ended December 31, 2018, from $13.8 million for the year ended December 31, 2017. The increase in general and administrative costs was primarily due to an increase in the number of employees during the year ended December 31, 2018, compared to the year ended December 31, 2017, to enable us to provide in-house technical management for an increasing number of our vessels.

Other Corporate Expenses. Other corporate expenses increased by 21.3%, or $0.5 million, to $2.6 million for the year ended December 31, 2018, from $2.1 million for the year ended December 31, 2017. The increase was primarily due to the foreign exchange movement on non-U.S. Dollar bank accounts within the Company as the U.S Dollar has strengthened against those currencies.

Foreign currency exchange gain on senior secured bonds. The primary source of our foreign exchange gains and losses are the movements on our NOK-denominated 2018 Bonds. The foreign currency exchange gain of $2.4 million relates to the translation of our 2018 Bonds which are denominated in Norwegian Kroner and translated as of December 31, 2018, at the prevailing exchange rate. As of December 31, 2017, we did not hold any non-U.S. Dollar denominated financial instruments.

Unrealized loss on non-designated derivative instruments. The unrealized loss on non-designated derivative instruments of $5.2 million relates to the fair value movement in our cross-currency interest rate swap from its inception on November 2, 2018 until December 31, 2018. As of December 31, 2017, we did not hold any non-U.S. Dollar denominated financial instruments.

Interest Expense. Interest expense increased by $7.2 million, or 19.2%, to $44.9 million for the year ended December 31, 2018, from $37.7 million for the year ended December 31, 2017. The increase was primarily due

 

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to an increase in U.S. LIBOR. Interest expense is shown net of interest capitalized. Interest capitalized in the year ended December 31, 2018 of $1.0 million relates to capital expenditures for the investment in the Export Terminal Joint Venture. Interest capitalized on newbuilding installment payments for the year ended December 31, 2017 was $1.7 million, prior to the completion of our newbuilding program in November 2017.

Write off of Deferred Financing Costs. The write off of deferred financing costs of $0.8 million for the year ended December 31, 2017 related to the remaining unamortized deferred financing costs of bonds issued in 2012 (the “2012 Bonds”) that we redeemed prior to their maturity date and a $270.0 million secured term loan facility (the “February 2013 Secured Term Loan Facility”) that was re-financed prior to its maturity date. No loan refinancing occurred in the year ended December 31, 2018.

Write off of Call Premium and Redemption Charges on 9.0% Senior Unsecured Bond. In connection with a call option under the terms of the 2012 Bonds, pursuant to which we redeemed all of the outstanding principal amount thereof in February 2017, we incurred $3.5 million in charges for the year ended December 31, 2018 that were written off, consisting of a redemption charge of $2.5 million and $1.0 million in interest notice penalty on such bonds prior to maturity.

Income Taxes. Income tax relates to taxes on our subsidiaries incorporated in the United Kingdom, Poland and Singapore. Two of our United Kingdom subsidiaries earn management and other fees from affiliates, and our Singaporean subsidiary earns interest from loans to our variable interest entity in Indonesia, the main corporate tax rates are 19%, 19% and 17% in the United Kingdom, Poland and Singapore, respectively. For the year ended December 31, 2018, we incurred taxes of $332,890 as compared to taxes for the year ended December 31, 2017 of $397,381.

 

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Results of Operations for the Year Ended December 31, 2016 Compared to Year Ended December 31, 2017

The following table compares our operating results for the years ended December 31, 2016 and 2017:

 

     Year Ended
December 31,
2016
     Year Ended
December 31,
2017
     Percentage
Change
 
     (in thousands, except percentages)  

Operating revenue

   $ 294,112      $ 298,595        1.5

Operating expenses:

        

Brokerage Commissions

     5,812        5,368        (7.6 %) 

Voyage expenses

     42,201        55,542        31.6

Vessel operating expenses

     90,854        100,968        11.1

Depreciation and amortization

     62,280        73,588        18.2

General and administrative costs

     12,528        13,816        10.3

Other corporate expenses

     1,976        2,131        7.8

Write off of insurance amount receivable

     504        —          —    
  

 

 

    

 

 

    

Total operating expenses

   $ 216,155      $ 251,413        16.3
  

 

 

    

 

 

    

Operating income

   $ 77,957      $ 47,182        (39.5 %) 

Interest expense

     (32,321      (37,691      16.6

Write off of deferred financing costs

     (102      (786      670.6

Write off of call premium and redemption charges on 9.00% unsecured bond

     —          (3,517      —    

Interest income

     281        519        84.7
  

 

 

    

 

 

    

Income before income taxes

   $ 45,815      $ 5,707        (87.5 %) 

Income taxes

     (1,177      (397      (66.3 %) 
  

 

 

    

 

 

    

Net income

   $ 44,638      $ 5,310        (88.1 %) 
  

 

 

    

 

 

    

Operating Revenue. Operating revenue net of address commission, increased by $4.5 million or 1.5 % to $298.6 million for the year ended December 31, 2017, from $294.1 million for the year ended December 31, 2016. This increase was primarily due to:

 

   

an increase in operating revenue of approximately $43.5 million attributable to an increase in the weighted average number of vessels from 31.3 for the year ended December 31, 2016, to 36.2 for the year ended December 31, 2017, and a corresponding increase in vessel ownership days by 1,765 days, or 15.4%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016;

 

   

a decrease in operating revenue of approximately $51.7 million attributable to a reduction in average monthly time charter equivalent rates, which decreased to an average of approximately $639,318 per vessel per calendar month ($21,018 per day) for the year ended December 31, 2017, compared to an average of approximately $774,890 per vessel per calendar month ($25,476 per day) for the year ended December 31, 2016, as a result of the significant decline in the LPG freight market which began during the second quarter of 2016;

 

   

a decrease in operating revenue of approximately $0.6 million attributable to a slight decrease in fleet utilization from 87.9% for the year ended December 31, 2016 to 87.6% for the year ended December 31, 2017, primarily due to an increase in the number of idle days, as a percentage of available days, for the year ended December 31, 2017 compared to the year ended December 31, 2016 and

 

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an increase in operating revenue of approximately $13.3 million primarily attributable to an increase in pass through voyage costs as the number and duration of voyage charters during the year ended December 31, 2017 increased, compared to the year ended December 31, 2016.

The following table presents selected operating data for the years ended December 31, 2016 and 2017, which we believe are useful in understanding our operating revenue:

 

Fleet Data:    Year Ended
December 31, 2016
    Year Ended
December 31, 2017
 

Weighted average number of vessels

     31.3       36.2  

Ownership days

     11,463       13,228  

Available days

     11,255       13,195  

Operating days

     9,888       11,564  

Fleet utilization

     87.9     87.6

Average daily time charter equivalent rate (*)

   $ 25,476     $ 21,018  

 

*

Non-GAAP Financial Measure -Time charter equivalent: Time charter equivalent, or “TCE”, rate is a measure of the average daily revenue performance of a vessel. TCE is not calculated in accordance with U.S. GAAP. For all charters, we calculate TCE by dividing total operating revenues, less any voyage expenses, by the number of operating days for the relevant period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses, whereas for voyage charters, also known as spot market charters, we pay all voyage expenses. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and contracts of affreightment) under which the vessels may be employed between the periods. We include average daily TCE rate, as we believe it provides additional meaningful information in conjunction with net operating revenues, because it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rate may not be comparable to that reported by other companies.

Reconciliation of Operating Revenue to TCE rate

The following table represents a reconciliation of operating revenue to TCE rate. Operating revenue is the most directly comparable financial measure calculated in accordance with U.S. GAAP for the periods presented.

 

Fleet Data:    Year Ended
December 31, 2016
     Year Ended
December 31, 2017
 

Operating revenue

     294,112        298,595  

Voyage expenses

     42,201        55,542  
  

 

 

    

 

 

 

Operating revenue less Voyage expenses

     251,911        243,053  

Operating days

     9,888        11,564  

Average daily time charter equivalent rate

   $ 25,476      $ 21,018  

Brokerage Commissions. Brokerage commissions, which typically vary between 1.25% and 5%, decreased by 7.6% to $5.4 million for the year ended December 31, 2017, from $5.8 million for the year ended December 31, 2016. This was primarily due to a six voyage contract of affreightment undertaken during the year which had no broker commission due on the revenue generated.

Voyage Expenses. Voyage expenses increased by 31.6% to $55.5 million for year ended December 31, 2017, from $42.2 million for the year ended December 31, 2016. This was primarily due to an increase in the number and duration of voyage charters undertaken during the year ended December 31, 2017, compared to the

 

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year ended December 31, 2016, with these increased voyage costs being pass through costs, compensated for by increased revenue of the same amount.

Vessel Operating Expenses. Vessel operating expenses increased by 11.1% to $101.0 million for the year ended December 31, 2017, from $90.9 million for the year ended December 31, 2016, as the number of vessels in our fleet increased. Average daily vessel operating expenses decreased by $290 per vessel per day, or 3.7%, to $7,635 per vessel per day for the year ended December 31, 2017, compared to $7,925 per vessel per day for the year ended December 31, 2016, primarily due to operating costs being lower for the relatively newer vessels joining our fleet, active management of vessel operating costs and higher maintenance expenditure incurred as a result of a number of dry dockings undertaken during the year ended December 31, 2016.

Depreciation and Amortization. Depreciation and amortization expense increased by 18.2% to $73.6 million for the year ended December 31, 2017, from $62.3 million for the year ended December 31, 2016. This increase was primarily due to an increase in our fleet size. Depreciation and amortization expense included amortization of capitalized drydocking costs of $9.2 million for the year ended December 31, 2017, and $8.5 million for the year ended December 31, 2016.

Other Operating Results

General and Administrative Costs. General and administrative costs increased by $1.3 million or 10.3% to $13.8 million for the year ended December 31, 2017, from $12.5 million for the year ended December 31, 2016. The increase in general and administrative costs was primarily due to increased office lease costs and an increase in the number of employees during the year ended December 31, 2017, to enable us to provide in-house technical management for an increasing number of our vessels.

Write off of insurance amount receivable. The write off of insurance amount receivable of $0.5 million for the year ended December 31, 2016 was due to an expected reduction in the total insurance proceeds receivable, as a result of lower than expected total costs incurred for repairing Navigator Aries, following the June 2015 collision.

Interest Expense. Interest expense increased by $5.4 million, or 16.6%, to $37.7 million for the year ended December 31, 2017, from $32.3 million for the year ended December 31, 2016. This was primarily due to interest on the additional $375.8 million borrowed under our loan facilities from the year ended December 31, 2016 until the year ended December 31, 2017 associated with the deliveries of nine newbuilding vessels, partially offset by a $3.1 million saving as a result of refinancing our unsecured bond in February 2017. Interest capitalized on newbuilding installment payments for the year ended December 31, 2017 was $1.7 million, a decrease of $3.4 million from the $5.1 million of interest capitalized from the year ended December 31, 2016 as the remaining vessels in the newbuild program were delivered.

Write off of Deferred Financing Costs. The write off of deferred financing costs of $0.8 million for the year ended December 31, 2017 related to the remaining unamortized deferred financing costs of the 2012 Bonds that we redeemed prior to their maturity date. The write off of deferred financing costs of $0.1 million for the year ended December 31, 2016 related to costs associated with the April 2011 and April 2012 secured term loan facilities that was refinanced in 2016.

Write off of Call Premium and Redemption Charges on 9.0% Senior Unsecured Bond. In connection with a call option under the terms of our then outstanding 2012 Bonds, pursuant to which we redeemed all of the outstanding principal amount thereof in February 2017, we incurred $3.5 million in charges for the year ended December 31, 2017 that were written off, consisting of a redemption premium of $2.5 million and $1.0 million in interest notice penalty on such bonds prior to maturity.

Income Taxes. Income tax relates to taxes on our subsidiaries incorporated in the United Kingdom, Poland and Singapore. Two of our United Kingdom subsidiaries earn management and other fees from affiliates, and our

 

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Singaporean subsidiary earns interest from loans to our variable interest entity in Indonesia, the main corporate tax rates are 19%, 19% and 17% in the United Kingdom, Poland and Singapore, respectively. For the year ended December 31, 2017, we incurred taxes of $397,381 as compared to taxes for the year ended December 31, 2016 of $1,177,525. This reduction is primarily due to a reduction in management fees charged from our UK subsidiary as a result of a fall in revenue after voyage expenses; and a negative tax charge in Poland due to start-up losses.

 

  B.

Liquidity and Capital Resources

Liquidity and Cash Needs

Our primary uses of funds have been capital expenditures for the investment in the Export Terminal Joint Venture, acquisition and construction of vessels, drydocking expenditures, voyage expenses, vessel operating expenses, general and administrative costs, expenditures incurred in connection with ensuring that our vessels comply with international and regulatory standards, financing expenses and repayments of bank loans. In addition to operating expenses, our medium-term and long-term liquidity needs relate to debt repayments, potential future newbuildings or acquisitions and the development of the Marine Export Terminal in our Export Terminal Joint Venture. We are required to maintain certain minimum liquidity amounts in order to comply with our various debt instruments. Please see “—Secured Term Loan Facilities and Revolving Credit Facilities” and “2017 Senior Unsecured Bonds,” and “2018 Senior Secured Bonds” and “Terminal Facility” below.

Our primary sources of funds have been cash from operations, bank borrowings and proceeds from bond issuances. As of December 31, 2018, we had cash and cash equivalents of $71.5 million along with $55.0 million available borrowing capacity under our secured term loan and revolving credit facilities. In compliance with our bank facilities we are required to maintain a cash balance at the greater of $25.0 million or 5% of debt, which as of December 31, 2018 equated to $42.4 million.

As of December 31, 2018, we had contributed $41.0 million of our expected $155.0 million share of the capital cost for the construction of the Marine Export Terminal. In January 2019, February 2019 and March 2019, we paid $18.0 million, $3.5 million and $10.0 million respectively as further capital contributions to our Export Terminal Joint Venture.

We anticipate that the Company’s cash forecasts for the forthcoming 12 months, with particular attention made to the current and future vessel employment profile, will be sufficient to meet our liquidity needs for the foreseeable future.

Ongoing Capital Expenditures

Liquefied gas transportation is a capital-intensive business, requiring significant investment to maintain an efficient fleet and to stay in regulatory compliance.

We currently have no newbuildings on order. However, we may place newbuilding orders or acquire additional vessels as part of our growth strategy.

 

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Cash Flows

The following table summarizes our cash and cash equivalents provided by (used in) operating, financing and investing activities for the periods presented:

 

     Year Ended December 31,  
     2016      2017      2018  
     (in thousands)  

Net cash provided by operating activities

   $ 86,748      $ 75,921      $ 77,517  

Net cash used in investing activities

     (238,153      (183,025      (42,327

Net cash provided by / (used in) financing activities

     120,898        111,941        (25,784

Net (decrease) / increase in cash and cash equivalents

     (30,507      4,837        9,406  

Operating Cash Flows. Net cash provided by operating activities for the year ended December 31, 2018, increased to $77.5 million, from $75.9 million for the year ended December 31, 2017, an increase of 2.0%. This increase was primarily due to changes in working capital movements, reduced by lower net income and payments for dry docking costs.

Net cash provided by operating activities for the year ended December 31, 2017, decreased to $75.9 million, from $86.7 million for the year ended December 31, 2016, a decrease of 12.5%. The $10.8 million decrease in net cash provided by operating activities for the year ended December 31, 2017 compared to the year ended December 31, 2016 was primarily due to the reduction in net income, offset by a reduction in payments for drydocking costs during the year and movements in working capital.

Net cash flow from operating activities depends upon the size of our fleet, charter rates attainable, fleet utilization, fluctuations in working capital balances, repairs and maintenance activity and changes in interest rates and foreign currency rates.

We are required to drydock each vessel once every five years until it reaches 15 years of age, after which we are required to drydock the applicable vessel every two and a half to three years. Drydocking each vessel takes approximately 20-30 days. Drydocking days generally include approximately 5-10 days of travel time to and from the drydocking shipyard and approximately 15-20 days of actual drydocking time. Six of our vessels required a scheduled drydocking during 2018 compared to ten upcoming in 2019 and an expected ten drydockings during 2020.

We spend significant amounts of funds on scheduled drydocking (including the cost of classification society surveys) of each of our vessels. As our vessels age and our fleet expands, our drydocking expenses will increase. We estimate the current cost of the five-year drydocking of one of our vessels is approximately $0.8 million, the ten-year drydocking cost is approximately $1.2 million, and the 15 and 17 year drydocking costs are approximately $1.5 million each. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking, such as the requirement to install ballast water treatment plants, and classification society survey costs, with a balance included as a component of our operating expenses. Please see “Item 3—Key Information—Risk Factors—Risks Related to Our Business—Over the long-term, we will be required to make substantial capital expenditures to preserve the operating capacity of, and to grow, our fleet.”

Investing Cash Flows. Net cash used in investing activities of $42.3 million for the year ended December 31, 2018, primarily represents $41.0 million in capital contributions made to our Export Terminal Joint Venture together with capitalized interest and associated legal costs for the investment of $1.5 million.

Net cash used in investing activities of $183.0 million for the year ended December 31, 2017, primarily represents $170.8 million for payments made to Jiangnan Shipyard (Group) Co. Ltd (“Jiangnan”) and Hyundai Mipo Dockyard Co. Ltd (“HMD”), representing installments on the deliveries of Navigator Nova, Navigator Luga, Navigator Yauza, Navigator Jorf and Navigator Prominence and $13.5 million of other costs including

 

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capitalized interest of $1.7 million associated with newbuildings offset by $1.0 million received from insurances payments and $0.3 million in receipt of a penalty for the delay in delivery of Navigator Nova.

Net cash used in investing activities of $238.2 million for the year ended December 31, 2016, primarily represents $221.5 million for payments made to Jiangnan and Hyundai Mipo shipyards, representing final instalments on the deliveries of Navigator Ceto, Navigator Copernico, Navigator Aurora and Navigator Eclipse, $19.6 million of other costs including capitalized interest of $5.1 million associated with newbuildings and $8.4 million for payments of collision repair costs for Navigator Aries, offset by $9.4 million received from insurances payments related to the collision and $1.9 million in receipt of penalties for the delay in shipyard deliveries.

Financing Cash Flows. Net cash provided by financing activities of $25.8 million for the year ended December 31, 2018, primarily represents $83.4 million in regular quarterly loan repayments and a net repayment of $13.1 million against our secured term revolving credit facility, partially offset by the net proceeds of issuance of senior secured bonds for $70.7 million.

Net cash provided by financing activities of $111.9 million for the year ended December 31, 2017, primarily represents $208.2 million drawn from secured term loan and revolving credit facilities to partially finance the delivery installments of Navigator Nova, Navigator Luga, Navigator Yauza, Navigator Jorf and Navigator Prominence as well as for general corporate purposes and a further $167.0 million drawn for refinancing an existing facility and for general corporate purposes. These inflows were offset partially offset by the repayment of a net $27.5 million in our bonds being the difference between our issuance of $100.0 million in aggregate principal amount of our 2017 Bonds less the repayment of $127.5 million in outstanding principal and redemption premium of our 2012 Bonds. In addition, $143.1 million was used to redeem the February 2013 Secured Term Loan Facility; $88.8 million was repaid in regular quarterly loan repayments and refinancing costs of $3.9 million on our bond and bank loan refinanced during 2017.

Net cash provided by financing activities was $120.9 million for the year ended December 31, 2016, primarily consisting of $167.7 million drawn from secured term loan facilities to partially finance the delivery instalments of Navigator Ceto, Navigator Copernico, Navigator Aurora and Navigator Eclipse; $30.0 million drawn from the 2013 secured term loan facility to finance instalment payments for the two 22,000 cbm HMD newbuildings; and an amount of $130.0 million drawn under the 2016 secured term loan and revolving credit facility to partially refinance the 2011 secured term loan facility and the 2012 secured term loan facility at a redemption of principal value of $136.3 million, as well as $67.8 million in quarterly loan repayments and a payment of $2.7 million in financing costs associated primarily with the October 2016 secured term loan and revolving credit facility.

Secured Term Loan Facilities and Revolving Credit Facilities

General. Navigator Gas L.L.C., our wholly-owned subsidiary, and certain of our vessel-owning subsidiaries have entered into a series of secured term loan facilities and revolving credit facilities beginning in January 2015, or the “January 2015 secured term loan facility,” and in December 2015 or the “December 2015 secured revolving credit facility,” and in October 2016, or the “October 2016 secured term loan and revolving credit facility and in June 2017, or the “June 2017 secured term loan and revolving credit facility”. Collectively, we refer to the debt thereunder as our “secured facilities.” Proceeds of the loans under our secured facilities are used to finance newbuildings, acquisitions and for general corporate purposes. The full commitment amounts have been drawn under the January 2015 secured facility, the December 2015 secured facility and the June 2017 secured facility. The October 2016 secured term and revolving credit facility has fully drawn on the secured term loan for $130.0 million and the newbuild loan of $35.0 million following the delivery of Navigator Jorf in July 2017. The revolving portion of this loan has $55.0 million remaining to be drawn for general corporate purposes. Please read Note 10 (Secured Term Loan Facilities and Revolving Credit Facilities) to the consolidated financial statements.

 

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The table below summarizes our secured term loan and revolving credit facilities as of December 31, 2018:

 

Facility agreement date

   Credit
facility
amount
     Principal
amount
outstanding
     Available amounts
undrawn as of December 31,
2018
     Interest rate      Loan
maturity date
 
     (in millions)                

January 2015

     278.1        200.8        —          US Libor + 270 BPS        Jun 20- Apr 23*  

December 2015

     290.0        246.7        —          US Libor + 210 BPS        Dec-22  

October 2016

     220.0        92.2        55.0        US Libor + 260 BPS        Nov-23  

June 2017

     160.8        136.1        —          US Libor + 230 BPS        Jun-23  
  

 

 

    

 

 

    

 

 

       

Total

   $ 948.9      $ 675.8      $ 55.0        

 

*

The January 2015 secured term loan facility installments mature over a range of dates coinciding with the anniversary of the individual deliveries, from June 2020 to April 2023.

As of December 31, 2018, the Company had approximately $55.0 million in available borrowing capacity under its October 2016 secured term loan and revolving credit facility

Fees and Interest. We paid arrangement and agency fees at the time of the closing of our secured term loan and revolving credit facilities. Agency fees are due annually. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus a bank margin, for interest periods of one, three or six months or longer if agreed by all lenders.

Term and Facility Limits

January 2015 Secured Term Loan Facility. The January 2015 secured term loan facility was entered into to refinance an April 2013 secured term loan facility, as well as to provide financing for nine of our vessels. The January 2015 secured term loan facility has a term of up to seven years from the individual vessel loan drawdown date with a maximum principal amount of up to $278.1 million. The facility is fully drawn. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 270 basis points per annum.

December 2015 Secured Revolving Credit Facility. The December 2015 secured revolving credit facility was entered into to provide financing for six of our vessels and has a term of seven years from the loan arrangement date (and will expire in December 2022) with a maximum principal amount of up to $290.0 million available on a revolving basis. The facility is fully drawn. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 210 basis points per annum.

October 2016 Secured Term Loan and Revolving Credit Facility. The October 2016 secured term loan and revolving credit facility has a term of seven years from the first utilization date (and will expire in November 2023) with a maximum principal amount of up to $220.0 million of which $130.0 million is available as a secured term loan and $55.0 million is available in a revolving credit facility. The revolving credit portion of the facility is fully available for drawdown. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowings under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 260 basis points per annum.

June 2017 Secured Term Loan and Revolving Credit Facility. The June 2017 secured term loan and revolving credit facility has a term of six years from the date of the agreement and expires in June 2023, with a maximum principal amount of $160.8 million and was entered into to re-finance the February 2013 Secured Term Loan Facility and for general corporate purposes. The facility has $100.0 million as a secured term loan and $60.8 million available as a revolving credit facility. The facility is currently fully drawn. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 230 basis points per annum.

 

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March 2019 Secured Term Loan. On March 25, 2019 the Company entered into a secured term loan with Credit Agricole Corporate and Investment Bank, ING Bank, a branch of ING-DIBA AG and Skandinaviska Enskilda Banken AB (Publ.) for a maximum principal amount of $107.0 million (the “March 2019 Secured Term Loan”), to re-finance four of our vessels secured within our January 2015 secured term loan facility that was due to mature from June 2020. The repayment of the loan on the four vessels was $75.6 million, leaving net proceeds of $31.4 million for general corporate purposes. The facility has a term of six years from the date of the agreement and expires in March 2025. Under this agreement, the aggregate fair market value of the collateral vessels must be no less than 130% of the aggregate outstanding borrowing under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 240 basis points per annum.

Prepayments/Repayments. The borrowers may voluntarily prepay indebtedness under our secured term loan facilities at any time, without premium or penalty, in whole or in part upon prior written notice to the facility agent, subject to customary compensation for LIBOR breakage costs. For the January 2015 secured term loan facility referred to above, the borrowers may not re-borrow any amount that has been so prepaid. For the December 2015 revolving credit facility and the revolving elements of both the October 2016 and June 2017 secured term loan and revolving credit facilities, the borrowers may re-borrow and prepay amounts.

The loans are subject to quarterly amortization repayments beginning three months after the initial borrowing date or delivery dates of the newbuildings or delivered ships, as applicable. Any remaining outstanding principal amount must be repaid on the expiration date of the facilities.

The borrowers are also required to deliver semi-annual compliance certificates, which include valuations of the vessels securing the applicable facility from an independent ship broker. Upon delivery of the valuation, if the market value of the collateral vessels is less than 135% of the outstanding indebtedness under the January 2015 facility or 125% of the outstanding indebtedness under the other facilities, the borrowers must either provide additional collateral or repay any amount in excess of 135% or 125% of the market value of the collateral vessels, as applicable. This covenant is measured semi-annually on June 30 and December 31. As of December 31, 2018, we had an aggregate excess of $408.3 million above the levels required by these covenants, in addition to four additional vessels that are unsecured.

On June 29, 2018 the Company obtained approval to amend one of the covenants in each of its secured term loan and revolving credit facilities. The covenant, requiring the ratio of Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) to be at least two and a half times or three times interest has been amended to a requirement of two times interest, up to and including September 30, 2020, before then reverting back to the original requirements of two and a half times or three times interest, dependent upon the facility. In addition, the definition of interest under these facilities now excludes interest due or payable relating to debt financing obtained by the Company in relation to its obligations associated with the construction of the Marine Export Terminal.

Under the terms of these amendments, dividends may not be declared or paid by the Company until on or after December 31, 2020.

Financial Covenants. The secured term loan facilities and revolving credit facilities contain financial covenants requiring the borrowers, among other things, to ensure that:

 

   

the borrowers have liquidity (including undrawn available lines of credit with a maturity exceeding 12 months) of no less than (i) $25.0 or $35.0 million, or (ii) 5% of Net Debt or total debt, as applicable, whichever is greater;

 

   

the ratio of EBITDA to Interest Expense (each as defined in the applicable secured term loan facility and revolving credit facility or as amended), on a trailing four quarter basis, is no less than 2.00 to 1.00, until September 30, 2020 and no less than 2.50 to 1.00 or 3.00 to 1.00 thereafter; and

 

   

the borrower must maintain a minimum ratio of shareholder equity to total assets of 30%;

 

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Restrictive Covenants. The secured facilities provide that the borrowers may not declare or pay dividends to shareholders out of operating revenues generated by the vessels securing the indebtedness until December 31, 2020 or thereafter, if an event of default has occurred or is continuing. The secured term loan facilities and revolving credit facilities also limit the borrowers from, among other things, incurring indebtedness or entering into mergers and divestitures. The secured facilities also contain general covenants that will require the borrowers to maintain adequate insurance coverage and to maintain their vessels. In addition, the secured term loan facilities include customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, representation and warranty, a cross-default to other indebtedness and non-compliance with security documents.

As of December 31, 2017, and 2018, we were in compliance with all covenants under the secured term loan facilities and revolving credit facilities, including with respect to the aggregate fair market value of our collateral vessels.

2017 Senior Unsecured Bonds

General. On February 10, 2017, we issued senior unsecured bonds in an aggregate principal amount of $100.0 million with Nordic Trustee AS as the bond trustee (the “2017 Bonds”). The net proceeds of the issuance of the 2017 Bonds, together with cash on hand, were used to redeem in full all of our outstanding 2012 Bonds. The 2017 Bond Agreement (as defined below) has the option to issue additional bonds up to maximum issue amount of a further $100.0 million, at identical terms as the original bond issue, except that additional bonds may be issued at a different price. The 2017 Bonds are governed by Norwegian law and listed on the Nordic ABM which is operated and organized by Oslo Børs ASA. Please read Note 12 (Senior Unsecured Bond) to the consolidated financial statements.

Interest. Interest on the 2017 Bonds is payable at a fixed rate of 7.75% per annum, calculated on a 360-day year basis. Interest is payable semi-annually on August 10 and February 10 of each year.

Maturity. The 2017 Bonds mature in full on February 10, 2021.

Optional Redemption. We may redeem the 2017 Bonds, in whole or in part, at any time beginning on or after February 11, 2019. Any 2017 Bonds redeemed; from February 11, 2019 up until February 10, 2020, are redeemable at 103.875% of par, from February 11, 2020 to August 10, 2020, are redeemable at 101.9375% of par, and from August 11, 2020 to the maturity date are redeemable at 100% of par, in each case, in cash plus accrued interest.

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the bond agreement governing the 2017 Bonds (the “2017 Bond Agreement”)), the holders of 2017 Bonds have an option to require us to repay such holders’ outstanding principal amount of 2017 Bonds at 101% of par, plus accrued interest.

Financial Covenants. The 2017 Bond Agreement contains financial covenants requiring us, among other things, to ensure that:

 

   

we and our subsidiaries maintain a minimum liquidity of no less than $25.0 million;

 

   

we and our subsidiaries maintain an Interest Coverage Ratio (as defined in the 2017 Bond Agreement) of not less than 2.25 to 1.0; and

 

   

we and our subsidiaries maintain an Equity Ratio (as defined in the 2017 Bond Agreement) of at least 30%.

Our compliance with the covenants listed above is measured as of the end of each fiscal quarter. As of December 31, 2018, we were in compliance with all covenants under the 2017 Bonds.

 

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Restrictive Covenants. The 2017 Bond Agreement provides that we may declare dividends so long as such dividends do not exceed 50% of our cumulative consolidated net profits after taxes since June 30, 2016. The 2017 Bond Agreement also limits us and our subsidiaries from, among other things, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens which would have a material adverse effect. In addition, the 2017 Bond Agreement includes a put option exercisable following a change of control and customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

2018 Senior Secured Bonds

General. On November 2, 2018, we issued senior secured bonds in an aggregate principal amount of 600 million Norwegian Kroner (“NOK”) (approximately $71.7 million) with Nordic Trustee AS, as bond trustee and security agent (the “2018 Bonds”). The net proceeds will be used to partially finance our portion of the capital cost for the construction of the Marine Export Terminal. The 2018 Bonds are governed by Norwegian law and are listed on the Nordic ABM which is operated and organized by Oslo Børs ASA. Please read Note 11 (Senior Secured Bond) to the consolidated financial statements.

Security. The 2018 Bonds are secured by four of the Company’s ethylene vessels.

Interest. Interest on the 2018 Bonds is payable quarterly at a rate equal to the 3-month NIBOR plus 6.0% per annum, calculated on a 360-day year basis. We have entered into a cross-currency interest rate swap agreement whereby interest is payable at a rate equal to the 3-month LIBOR plus 6.608% throughout the life of the bond.

Maturity. The 2018 Bonds will mature in full on November 2, 2023.

Optional Redemption. We may redeem the 2018 Bonds, in whole or in part, at any time beginning on or after November 2, 2021. Any 2018 Bonds redeemed from November 2, 2021 until November 1, 2022, are redeemable at 102.4% of par, from November 2, 2022 until May 1, 2023, are redeemable at 101.5% of par, and from May 2, 2023 to the maturity date are redeemable at 100% of par, in each case, in cash plus accrued interest.

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the bond agreement governing the 2018 Bonds (the “2018 Bond Agreement”)), the holders of 2018 Bonds have an option to require us to repay such holders’ outstanding principal amount of 2018 Bonds at 101% of par, plus accrued interest.

Financial Covenants. The 2018 Bond Agreement contains financial covenants requiring us, among other things, to ensure that:

 

   

we and our subsidiaries maintain a minimum liquidity of no less than $25.0 million; and

 

   

we and our subsidiaries maintain an Equity Ratio of at least 30%.

As of December 31, 2018, we were in compliance with all covenants under the 2018 Bonds.

Restrictive Covenants. The 2018 Bond Agreement provides that we may declare dividends so long as such dividends do not exceed 50% of our cumulative consolidated net profits after taxes since January 1, 2020, payable at the earliest from January 1, 2021. The 2018 Bond Agreement also limits us and our subsidiaries from, among other things, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens which would have a material adverse effect. In addition, the 2018 Bond Agreement includes a put option exercisable following a change of control and customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

 

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Terminal Facility

General. On March 29, 2019, Navigator Ethylene Terminals LLC, our wholly-owned subsidiary (the Marine Terminal Borrower”), entered into a Credit Agreement (the “Terminal Facility”) with ING Capital LLC and SG Americas Securities, LLC for a maximum principal amount of $75.0 million, to be used solely for the payment of project costs relating to our Marine Export Terminal.

Term and Facility Limits; Conditions to Initial Borrowing. The Terminal Facility is comprised of an initial construction loan, followed by a term loan with a final maturity occurring on the earlier of (i) five years from completion of the Marine Export Terminal and (ii) December 31, 2025. Initial borrowing under the Terminal Facility may only occur after the Marine Terminal Borrower has made equity contributions required under the terminal facility to the Export Terminal Joint Venture, which together with available borrowings under the Terminal Facility, will fund its entire portion of the capital cost for the construction of the Marine Export Terminal. In addition, the ability of the Marine Terminal Borrower to borrow under the Terminal Facility is subject to the satisfaction of certain conditions, including the delivery to the lenders thereunder of legal opinions with respect to certain regulatory and environmental matters relating to the Marine Export Terminal. There can be no assurance that all conditions to borrowing will be satisfied.

Interest. The loan is subject to quarterly repayments of principal and interest beginning three months after the completion of the Marine Export Terminal. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 250 to 300 basis points per annum over the term of the facility, for interest periods of three or six months

Prepayments/Repayments. The Marine Terminal Borrower may voluntarily prepay indebtedness at any time, without premium or penalty, in whole or in part upon prior written notice to the facility agent, provided that any partial prepayments prior to the completion of the Marine Export Terminal are subject to confirmation by an independent engineer that, after giving effect to such prepayments, the funds committed to project costs relating to the Marine Export Terminal are sufficient to pay the estimated remaining project costs and achieve the completion of the Marine Export Terminal by December 31, 2020.

The Marine Terminal Borrower must make mandatory prepayments of indebtedness upon specified amounts of excess cash flow, the receipt of performance liquidated damages pursuant to certain material contracts related to the Marine Export Terminal, the receipt of proceeds in connection with an event of loss (as defined in the Terminal Facility), the receipt of proceeds in connection with termination payments (as defined in the Terminal Facility), the receipt of proceeds in connection with certain dispositions by the Marine Terminal Joint Venture, the incurrence of certain specified indebtedness, the inability to meet the conditions for paying a dividend for four or more consecutive quarters, dispositions of the Marine Terminal Borrower’s equity interests in the Marine Terminal Joint Venture, the receipt of indemnity payments in excess of $500,000 and certain amounts of any loans outstanding upon the conversion date.

Financial Covenants. Under the Terminal Facility, the Marine Terminal Borrower must maintain a minimum debt service coverage ratio (as defined in the Terminal Facility) for the prior four calendar fiscal quarters (or shorter period of time if data for the prior four fiscal quarters is not available) of no less than 1.10 to 1.00 from the beginning of the second full fiscal quarter of the term loan.

Restrictive Covenants. Following completion of the Marine Export Terminal, the Marine Terminal Borrower can only pay dividends if the Marine Terminal Borrower satisfies certain customary conditions to paying a dividend, including maintaining a debt service coverage ratio for the immediately preceding four consecutive fiscal quarters and the projected immediately succeeding four consecutive fiscal quarters of not less than 1.20 to 1.00 and no default or event of default has occurred or is continuing. The Terminal Facility also limits the Marine Terminal Borrower from, among other things, incurring indebtedness or entering into mergers and divestitures. The Terminal Facility also contains general covenants that will require the Marine Terminal Borrower to vote its interest in the Marine Terminal Joint Venture to cause the Marine Terminal Joint Venture to maintain adequate insurance coverage, complete the Marine Export Terminal and maintain its property (but only to the extent Navigator Ethylene Terminals LLC has the power under the organizational documents of the Marine Terminal Joint Venture to so cause such actions).

The Terminal Facility includes events of default for the failure to achieve the completion of the Marine Export Terminal by December 31, 2020, the abandonment of all or substantially all activities relating to the

 

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Marine Export Terminal for 90 consecutive days and if certain material contracts relating to the Marine Export Terminal are terminated, as well as customary events of default including those relating to a failure to pay principal or interest, a breach of covenant, representation or warranty, a cross-default to other indebtedness and non-compliance with security documents.

Security. The loans under the Terminal Facility are secured by first priority liens on the rights to the Marine Terminal Borrower’s distributions from the Marine Terminal Joint Venture and the company’s equity interests in the Marine Terminal Borrower.

 

  C.

Research and Development Patents and Licenses etc.

We do not undertake any significant expenditure on research and development and have no significant interests in patents or licenses.

 

  D.

Trend Information

The demand for seaborne transportation of LPG, petrochemical gases and ammonia is expected to continue to grow, particularly ethylene and ethane, due to evolving energy and petrochemical market dynamics, as seaborne transportation is often the only, or the most cost effective way to transport liquefied gases between major exporting and importing markets. Additional natural gas liquids production in America is the predominant driver for new supply which is expected to increase demand for maritime transportation across all segments. Infrastructure projects to accommodate processing, storage and transportation are being developed in parallel with the production levels, including construction of new export terminals and expansion of existing ones.

The arbitrage between oil-based products and LPG is subject to the price of oil, and the dynamic pricing environment for oil will to a certain degree impact the price differential between these liquids and consequently may influence the proportion of freight the trade can accommodate. However, as LPG is a supply driven product, and due to limited storage facilities, companies extracting oil and gas are still expected to produce it as a byproduct and price it accordingly to clear the market.

Petrochemical producers and consumers are increasingly accommodating larger size parcels of propylene, butadiene, ethylene and other petrochemical liquid gases, due to increases with the geographical distance between the producing and consuming regions, thus providing economic advantage compared to transporting smaller quantities. We see European and American exports particularly motivating upsizing of cargo-sizes as the main consuming countries are located East of Suez Canal.

Charter rates and vessel values are influenced by the supply and demand for seaborne gas cargo carrying capacity and are consequently volatile. The supply of gas carrier capacity is primarily a function of the size of the existing world fleet, the number of newbuildings being delivered and the scrapping of older vessels. The world fleet of handysized liquefied gas carriers has increased steadily over the past ten years totaling 110 vessels as of December 31, 2018, with eight vessels on order. The segment has accommodated 31 new vessels during the period between 2015-2018 and we are coming off the newbuilding cycle. Demolition or scrapping is largely a function of vessel age and the state of the freight market, as all ships have finite lives, and there were four older handysize vessels recycled in 2018, the largest number since 2010.

 

  E.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

 

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  F.

Tabular Disclosure of Contractual Obligations

The contractual obligations schedule set forth below summarizes our contractual obligations as of December 31, 2018.

 

    2019     2020     2021     2022     2023     Total  
    (in thousands)  

Marine Export Terminal capital contributions*

    92,500       21,500       —         —         —         114,000  

Secured term loan facilities and revolving credit facilities

    70,600       128,725       60,600       302,461       113,352       675,738  

2017 Bonds

    —         —         100,000       —         —         100,000  

2018 Bonds**

    —         —         —         —         71,697       71,697  

Office operating leases

    1,493       1,280       1,128       109       —         4,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $ 164,593     $ 151,505     $ 161,728     $ 302,570     $ 185,049     $ 965,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

On January 8, February 19, and March 22, 2019, the Company made capital contributions of $18.0 million, $3.5 million and $10.0 million respectively, reducing the remaining contributions required for 2019 from $92.5 million to $61.0 million for our portion of the capital cost for the construction of the Marine Export Terminal.

**

The Company has entered into a cross-currency swap agreement, to swap all interest and principal payments of the 2018 Bonds into U.S. Dollars, with the interest payments at 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million (see Note 18 (Derivative Instruments) to the consolidated financial statements).

As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels. We may choose to pursue such opportunities through internal growth or joint ventures or business acquisitions. We intend to finance any future acquisitions through various sources of capital, including credit facilities, debt borrowings and the issuance of additional shares of common stock.

 

  G.

Safe Harbor

See “Cautionary Statement Regarding Forward Looking Statements” at the beginning of this annual report.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. For a description of our material accounting policies, please read Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements.

Revenue Recognition. We employ our vessels under time charters, voyage charters or COAs. With time charters, we receive a fixed charter rate per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service is provided. In the case of voyage charters, the vessel is contracted for a voyage between two or several ports, and we are paid for the cargo transported. Revenue from COAs is recognized on the same basis as revenue from voyage charters, as they are essentially a series of consecutive voyage charters.

For each year presented up to the year ended December 31, 2017, we recognize revenue on a discharge-to-discharge basis in determining the percentage of completion for all voyage charters, but do not

 

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begin recognizing revenue until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated load port for its next voyage. Following adoption of ASU No. 2014-09, Revenue from Contracts with Customers, our basis for revenue recognition for voyage charters and COA’s has changed in reporting periods beginning after January 1, 2018 to recognize revenue on a load to discharge basis. (See Note 2(a) (Basis of Presentation) within the consolidated financial statements)

Vessels Depreciation. The cost of our vessels (excluding the estimated initial built-in overhaul cost) less their estimated residual value is depreciated on a straight-line basis over the vessels’ estimated useful lives. We estimate the useful life of each of our vessels to be 30 years from the date the vessel was originally delivered from the shipyard. The actual life of a vessel, however, may be different, with a life less than 30 years resulting in an increase in the quarterly depreciation and potentially resulting in an impairment loss. The estimated residual value is based on the steel value of the tonnage for each vessel.

Impairment of Vessels. We review our vessels for impairment when events or circumstances indicate the carrying amount of the vessel may not be recoverable. When such indicators are present, a vessel is tested for recoverability and we recognize an impairment loss if the sum of the expected future cash flows (undiscounted and excluding interest charges that will be recognized as an expense when incurred) expected to be generated by the vessel over its estimated remaining useful life is less than its carrying value. If we determine that a vessel’s undiscounted cash flows are less than its carrying value, we record an impairment loss equal to the amount by which its carrying amount exceeds its fair value. The new lower cost basis would result in a lower annual depreciation than before the impairment.

Considerations in making such an impairment evaluation include comparison of current carrying values to anticipated future operating cash flows, expectations with respect to future operations and other relevant factors. The estimates and assumptions regarding expected cash flows require considerable judgment and are based upon historical experience, financial forecasts and industry trends and conditions.

As of December 31, 2018, the aggregate carrying value of our 38 vessels in operation was $1,670.9 million. We determined the aggregate undiscounted cash flows of those vessels as of December 31, 2018, to be $3,346.2 million. The undiscounted future cash flows used to support vessel values were determined by applying various assumptions regarding future revenues, vessel utilization rates, operating expenses and residual values. These assumptions are based on historical trends as well as future expectations. Specifically, in estimating future charter rates, management took into consideration estimated daily TCE rates for each vessel over the estimated remaining lives of each of the vessels. Management takes into consideration rates currently in effect for existing time charters and the estimated daily TCE rates used for unfixed vessels, which were based on the trailing 10-year historical average one-year time charter rates, an average rate depending on vessel type of between approximately $626,000 and $731,000 per calendar month as of December 31, 2018. Recognizing that rates tend to be cyclical, and subject to some volatility based on factors beyond our control, management believes the use of estimates based on the 10-year historical average rates calculated as of the reporting date to be appropriate. In addition, our vessels operate in a sector that is relatively young and data beyond 10 years is limited, while rates for one and five year periods would not necessarily include the peaks and troughs of a typical shipping cycle. Estimated vessel utilization rates used are also based on the average utilization rates achieved by us on the trailing 10-year historical average. Estimated outflows for operating expenses are based on costs incurred over the past twelve months and are adjusted for assumed inflation. Estimates of a residual value are consistent with scrap rates used in management’s evaluation of scrap value.

Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. A 15% reduction in the estimated vessel TCE rate used in connection with our calculations would result in a $790.4 million decrease in the aggregate undiscounted cash flows of our vessels in operation as of December 31, 2018 which would not result in an impairment. A 10% increase in estimated vessel operating expenses used in connection with our calculations would result in a $324.6 million decrease in the

 

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aggregate undiscounted cash flows of our vessels in operation as of December 31, 2018 which would not result in an impairment.

We obtain shipbroker appraisals of our vessels principally for the purposes of bank covenant compliance. These appraisals are generally performed without examination of the vessel and without an attempt to market a vessel, and no consideration is given to whether a group of vessels could be sold for higher valuation than on an individual basis. In addition, with respect to the class of vessels we own, we believe that relative to the worldwide oceangoing vessel fleet, the market for the sale of our vessels is particularly illiquid, due to the relatively limited number of vessels in the global handysize fleet and the specialized nature of these vessels, difficult to observe and, therefore, speculative, given the extremely limited secondary sales data. Given this lack of secondary sales data available for our specific vessels, these appraisals have been used by us as an approximation of our vessels’ market values. However, because these appraisals are primarily prepared for the purpose of valuing collateral and given the lack of comparable market transactions, shipbroker appraisals are predominantly prepared on a depreciated replacement cost, charter-free basis (i.e. vessel only, without the benefit of a revenue stream), which we believe significantly discounts the value of our vessels. As a result, we believe that the ultimate value that could be obtained from the sale of any one of our vessels to a willing third-party would likely, and in many cases meaningfully, exceed the vessel’s appraised value on this basis. The table below indicates the carrying value of each of our owned vessels as of December 31, 2018.

 

Operating Vessel

   December 31, 2018
Carrying Value
 
     (in millions)  

Navigator Aries

   $ 42.1  

Navigator Atlas

     45.9  

Navigator Aurora

     76.6  

Navigator Capricorn

     37.6  

Navigator Centauri

     42.2  

Navigator Ceres

     42.3  

Navigator Ceto

     42.3  

Navigator Copernico

     42.8  

Navigator Eclipse

     77.0  

Navigator Europa

     45.1  

Navigator Galaxy

     37.3  

Navigator Gemini

     42.7  

Navigator Genesis

     37.5  

Navigator Global

     37.2  

Navigator Glory

     35.7  

Navigator Gusto

     37.9  

Navigator Grace

     35.0  

Navigator Jorf

     50.8  

Navigator Leo

     43.1  

Navigator Libra

     43.4  

Navigator Luga

     51.5  

Navigator Magellan

     20.3  

Navigator Mars

     30.6  

Navigator Neptune

     31.2  

Navigator Nova

     78.2  

Navigator Oberon

     45.5  

Navigator Pegasus

     38.7  

Navigator Phoenix

     38.8  

Navigator Pluto

     31.4  

Navigator Prominence

     82.2  

Navigator Saturn

     31.1  

Navigator Scorpio

     38.5  

Navigator Taurus

     43.6  

Navigator Triton

     46.4  

Navigator Umbrio

     46.9  

 

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Operating Vessel

   December 31, 2018
Carrying Value
 
     (in millions)  

Navigator Venus

     31.0  

Navigator Virgo

     38.9  

Navigator Yauza

     51.6  

We believe that the future undiscounted cash flows expected to be earned by our vessels over their operating lives exceeded the vessels’ carrying amounts as of December 31, 2018. Accordingly, no impairment charge has been recorded as of December 31, 2018 following the requirements of our U.S. GAAP impairment accounting policy. The carrying value of each of our vessels was higher than its shipbroker appraised value as of December 31, 2018. The aggregate carrying value of these vessels exceeded the aggregate shipbroker appraised values by approximately $205.3 million as of December 31, 2018.

Drydocking Costs and Vessel Damage. Each of our vessels is required to be drydocked every five years until it reaches 15 years of age, after which each vessel is required to be drydocked every two and a half to three years for any major repairs and maintenance and for inspection of the underwater parts of the vessel, which cannot be performed while the vessel is operating. We capitalize costs associated with the drydockings as “built in overhauls” in accordance with U.S. GAAP and amortize these costs on a straight-line basis over the period between drydockings.

We expense costs to repair minor vessel damage that occurs during the year.

Amortization of capitalized drydocking expenditures requires us to estimate the period until the next drydocking. While we typically drydock each vessel every two and a half to five years, we may drydock the vessels on a more frequent basis. If we change our estimate of the next drydock date, we will adjust our annual amortization of drydocking expenditures. Amortization of drydockings is included in our depreciation and amortization expense.

Valuation of Derivative Instruments. Our risk management policies permit the use of derivative financial instruments to manage interest rate and foreign currency risk. Changes in the fair value of derivative instruments that are not designated as hedging instruments for accounting purposes are recognized in earnings but do not impact our cash flows.

The fair value of our derivative instruments and the changes in fair value of our derivative instruments result from our cross-currency interest rate swap agreement. The fair value of our derivative instruments is the estimated amount that we would receive to sell or transfer the agreement at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counterparties. The estimated amount is the present value of estimated future cash flows, being equal to the difference between the benchmark interest rate and the rate in the cross-currency interest rate swap agreement, multiplied by the notional principal amount of the cross-currency interest rate swap agreement at each interest reset date.

The fair value of our cross-currency interest rate swap agreement at the end of each period is most significantly affected by the interest rate implied by the benchmark interest yield curve, including its relative steepness, and forward foreign exchange rates. Interest rates and foreign exchange rates have experienced significant volatility in recent years in both the short and long term. While the fair value of our cross-currency interest rate swap agreement is typically more sensitive to changes in short-term rates, significant changes in the long-term benchmark interest and foreign exchange rates also materially impact our cross-currency interest rate swap agreement.

The fair value of our cross-currency interest rate swap agreement is also affected by changes in our specific credit risk included in the discount factor. We discount our swap agreement with reference to the credit default swap spreads of similarly rated global industrial companies and by considering any underlying collateral. The process of determining credit worthiness requires significant judgment in determining which source of credit risk information most closely matches our risk profile.

 

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The benchmark interest rate yield curve and our specific credit risk are expected to vary over the life of the cross-currency interest rate swap agreement.

The larger the notional amount of the cross-currency interest rate swap agreement outstanding and the longer the remaining duration of the cross-currency interest rate swap agreement, the larger the impact of any variability in these factors will be on the fair value of our cross-currency interest rate swap. We economically hedge the interest rate exposure on a significant amount of our long-term debt and for long durations. As such, we have experienced, and we expect to continue to experience, material variations in the period-to-period fair value of our derivative instruments.

Effect if Actual Results Differ from Assumptions. We measure the fair value of our derivative instruments utilizing the inputs and assumptions described above. If we were to terminate the agreement at the reporting date, the amount we would pay or receive to terminate the derivative instruments may differ from our estimate of fair value. If the estimated fair value differs from the actual termination amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for the current period. Such adjustments could be material. See Note 18 (Derivative Instruments) to the consolidated financial statements for the effects on the change in fair value of our derivative instruments on our consolidated statements of income and statements of comprehensive income.

 

Item 6.

Directors, Senior Management and Employees

 

  A.

Directors and Senior Management

Directors

Set forth below are the names, ages and positions of our directors.

 

Name

   Age   

Position

David J. Butters    78    Chairman of the Board of Directors
Dr. Harry Deans    51    Director
Dr. Heiko Fischer    51    Director
David Kenwright    71    Director
Hal Malone    44    Director
Alexander Oetker    43    Director
Florian Weidinger    37    Director

Our board of directors is elected annually. Each director holds office 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. Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected.

Biographical information with respect to each of our directors and our executive officers is set forth below. The business address for our directors and executive officers is 650 Madison Avenue, 25th Floor, New York, New York 10022.

David J. Butters. David J. Butters has served as president, chief executive officer and Chairman of the Board since September 2008. Prior to September 2008, Mr. Butters served as a managing director of Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings Inc., where he had been employed for more than 37 years.

Dr. Harry Deans. Dr. Harry Deans has been a member of the Board since November 2018. Dr. Deans has been Chief EH&S and Operations Officer of Johnson Matthey plc London, since December 3, 2018. Dr. Deans served as the Executive Vice President and President of the nitrogen division of Nutrien Ltd. (“Nutrien”), a

 

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fertilizer producer and distributor, from January 2018 to May 2018. From August 2015 to December 2017, Dr. Deans was the Senior Vice President of Agrium Inc., a fertilizer producer and distributor, prior to its merger with Potash Corporation of Saskatchewan to form Nutrien. From August 2015 to December 2017, he served as a member of the board of directors of Canpotex Potash Export Company. From 2006 to 2014, Dr. Deans held a series of positions as the chief executive officer of multiple affiliates and directly owned subsidiaries of INEOS Group Holdings S.A., a chemical company. Dr. Deans holds a Ph.D and M.Phil. in chemistry from Strathclyde University as well as a B.Sc. in chemistry from Glasgow University.

Dr. Heiko Fischer. Dr. Heiko Fischer has been a member of the Board since December 2011. Dr. Fischer has been Chief Executive Officer and Chairman of the Executive Board of VTG Aktiengesellschaft, a German railroad freightcar lessor and logistics company traded on the Frankfurt Stock Exchange, since May 1, 2004. He was a member of the Supervisory Board of Hapag-Lloyd AG, a German container shipping company. He is the Chairman of the Advisory Board of TRANSWAGGON-Gruppe and a member of the Advisory Boards of Brueckenhaus Grundstueckgesellschaft m.b.h. and Kommanditgesellschaft Brueckenhaus Grundstuecksgesellschaft m.b.H. & Co. as well as a member of the Administrative Boards of TRANSWAGGON AG, Waggon Holding AG, AAE Holding AG, AAE Capital AG and VTG Cargo AG. Dr. Fischer graduated from the University at Albany (SUNY) with an MBA in 1992, and from Julius-Maximilian University in Wuerzburg, Germany with a PhD in Economic Sciences in 1996.

David Kenwright. David Kenwright has been a member of the Board since March 2007. Mr. Kenwright is a managing director of Achater Offshore Ltd., the Aberdeen Business Centre, and Chairman of the U.K. Emergency Response and Rescue Vessel Association Ltd., is also a non-executive director of Oxford Electromagnetic Systems Limited and was previously a managing director of Gulf Offshore N.S. Ltd. for seven years. Mr. Kenwright is a Chartered Engineer and a Fellow of the Institute of Marine Engineering, Science and Technology.

Hal Malone. Harold L. (Hal) Malone has been a member of the Board since July 2017. Mr. Malone is the Head of Transportation at Invesco Private Capital, Inc., a private investing division of Invesco Ltd. Mr. Malone is currently a director of Nautical Bulk Holdings Ltd, a dry bulk shipping company. Prior to Invesco, Mr. Malone served as the chief strategic officer of the Navig8 Group, a fully integrated provider of shipping management services. Before joining Navig8, Mr. Malone spent over 18 years in investment banking, most recently as a managing director in the maritime group at Jefferies LLC. Mr. Malone earned a B.S. in economics from the Wharton School of Business at the University of Pennsylvania.

Alexander Oetker. Alexander Oetker has been a member of the Board since September 2006. Mr. Oetker is a Shareholder of the Oetker Group with interests in food, beer, hotels, banking and chemical companies. In addition, Mr. Oetker is the Founder and Chief Executive Officer of A. O. Schifffahrt GmbH, a bulk shipping company based in Hamburg, Germany. Before founding A. O. Schifffahrt in 2003, Mr. Oetker was employed as chartering manager of Hamburg Sued and by Hutchison Port Holdings in Hong Kong.

Florian Weidinger. Florian Weidinger has been a member of the Board since March 2007. Mr. Weidinger previously worked as a vice president at Lehman Brothers’ principal investment division, Global Trading Strategies in London prior to becoming chief executive officer of Hansabay, a Singapore based fund management business. Mr. Weidinger holds a BSc from Cass Business School, City University, London, an MBA from the Stanford Graduate School of Business and an MS in Environment and Resources from Stanford University.

The WLR Group has the right to designate two individuals to be nominated to our Board. Mr. Malone and Dr. Fischer are the designees of the WLR Group. See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions—Investor Rights Agreement.”

Executive Officers

The following table provides information about our executive officers. NGT Services (UK) Limited, our wholly-owned subsidiary and commercial manager, provides us with certain of our officers, including our chief financial officer and our

 

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chief commercial officer. All references in this annual report to “our officers” refer to our president and chief executive officer and those officers of NGT Services (UK) Limited who perform executive officer functions for our benefit.

 

Name

   Age   

Position

David J. Butters    78    President and Chief Executive Officer
Niall Nolan    55    Chief Financial Officer
Oeyvind Lindeman    39    Chief Commercial Officer
Paul Flaherty    54    Director of Fleet & Technical Operations
Demetris Makaritis    35    Director of Commercial Operations

David J. Butters. David J. Butters was appointed president and chief executive officer of Navigator Holdings Ltd. in September 2008.

Niall Nolan. Niall Nolan was appointed Chief Financial Officer of NGT Services (UK) Limited in August 2006. Mr. Nolan was appointed to the Members’ Representative Committee of Britannia Steam Ship Insurance Association Limited in November 2017 and became a member on its board in May 2018. Prior to his appointment as Chief Financial Officer, Mr. Nolan worked for Navigator Holdings Ltd. as representative of the creditors committee during Navigator Holdings’ bankruptcy proceedings. Prior to that, Mr. Nolan was group finance director of Simon Group PLC, a U.K. public company. Mr. Nolan is a fellow of the Association of Chartered Certified Accountants.

Oeyvind Lindeman. Oeyvind Lindeman was appointed Chartering Manager of the Company in November 2007, before being appointed chief commercial officer in January 2014. Prior to this, Mr. Lindeman was employed for five years at A.P. Møller Maersk, a gas transport company as charterer. Mr. Lindeman holds a BA with honors from the University of Strathclyde and an Executive MBA with distinction from Cass Business School.

Paul Flaherty. Paul Flaherty was appointed Director of Fleet and Technical Operations in December 2014. Prior to this, he was employed by JP Morgan Global Maritime as VP, Asset Management. Previously, he spent 17 years with BP Shipping Ltd as a Fleet and Technical Manager for both Oil and Gas vessels. Mr. Flaherty is a Chartered Engineer and a Fellow of the Institute of Marine Engineers & Science Technicians (IMarEST).

Demetris Makaritis. Demetris Makaritis was appointed Director of Commercial Operations in April 2016 having been an Operations & Vetting Manager as well as a Technical Superintendent for the Company since joining in 2010. Prior to joining the Company, Demetris worked as an operations supervisor for Zodiac Maritime Ltd. and as a naval architect for SeaTec (V.Ships Group) in Glasgow, Scotland. Demetris holds a BEng (Hons) in Naval Architecture from Newcastle upon Tyne University, an MSc in Shipping, Trade & Finance from Cass Business School, London and is a Chartered Engineer.

 

  B.

Compensation

Compensation of Management

Our officers receive compensation for the services they provide to us. Four of our five officers (Messrs. Nolan, Lindeman, Flaherty, and Makaritis) are remunerated in pounds sterling, while Mr. Butters is remunerated in U.S. dollars. For purposes of this annual report, all forms of compensation paid to our officers have been converted to U.S. dollars. For the year ended December 31, 2018, the aggregate cash compensation paid to all officers as a group was approximately $3,408,297. The cash compensation for each officer is comprised of base salary and bonus. Our officers are eligible to receive a discretionary annual cash bonus based on certain performance criteria determined by the compensation committee of our Board, or the “Compensation Committee,” and approved by our Board. Regardless of performance, the annual cash bonuses are paid at the sole discretion of the Compensation Committee, subject to approval by our Board.

For the year ended December 31, 2018, we granted a total of 86,094 shares of restricted stock to officers of the company under the Navigator Holdings Ltd. 2013 Long-Term Incentive Plan, or the “LTIP” (as described in

 

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further detail below under “—2013 Long-Term Incentive Plan”), which such awards vest and become free of restrictions on the third anniversary of the grant date.

Messrs. Nolan, Lindeman, Flaherty and Makaritis are eligible to participate in certain welfare benefit programs we offer, including life insurance, permanent health insurance, and private medical insurance. For the year ended December 31, 2018, the aggregate cost of the benefits described in the preceding sentence provided to each of Messrs. Nolan, Lindeman, Flaherty and Makaritis was approximately $20,208. While Mr. Butters is not eligible to participate in the same welfare benefit programs as our other officers, he is entitled to reimbursement by us for the Medicare portion of the FICA tax withheld from his compensation. For the year ended December 31, 2018, we paid Mr. Butters an amount of $44,890 towards his Medicare costs. Messrs. Nolan, Lindeman, Flaherty and Makaritis are also eligible to participate in a defined contribution personal pension plan, described below under “—Benefit Plans and Programs.”

Compensation of Directors

Officers who also serve as members of our Board do not receive additional compensation for their services as directors. Each non-employee director who serves as a member of our Board receives an annual fee of $120,000, of which $60,000 is paid in cash and $60,000 in shares of restricted stock granted under the LTIP which vest on the first anniversary of the grant date. In addition, the Audit Committee chair and Compensation Committee chair each receive an additional amount of $5,000 per annum while members of each committee receive a meeting fee of $1,500 for each committee meeting attended.

For the year ended December 31, 2018, we granted a total of 34,898 shares of restricted stock pursuant to awards under the LTIP to non-employee directors of the company as part of their compensation, which such awards vest and become free of restrictions on the first anniversary of the grant date.

Each director will be fully indemnified by us for actions associated with being a director to the extent permitted under Marshall Islands law.

Equity Compensation Plans

2013 Long-Term Incentive Plan

In connection with our initial public offering, we adopted the Navigator Holdings Ltd. 2013 Long-Term Incentive Plan, or the “LTIP,” for our and our affiliates’ employees and directors as well as consultants who perform services for us. The LTIP provides for the award of restricted stock, stock options, performance awards, annual incentive awards, restricted stock units, bonus stock awards, stock appreciation rights, dividend equivalents, and other share-based awards.

Administration. The LTIP is administered by the Compensation Committee, or the “Plan Administrator,” with certain decisions subject to approval of our Board. The Plan Administrator will have the authority to, among other things, designate participants under the LTIP, determine the type or types of awards to be granted to a participant, determine the number of shares of our common stock to be covered by awards, determine the terms and conditions applicable to awards and interpret and administer the LTIP. The Plan Administrator may terminate or amend the LTIP at any time with respect to any shares of our common stock for which a grant has not yet been made. The Plan Administrator also has the right to alter or amend the LTIP or any part of the plan from time to time, including increasing the number of shares of our common stock that may be granted, subject to shareholder approval as required by the exchange upon which our common stock is listed at that time. However, no change in any outstanding grant may be made that would materially reduce the benefits of the participant without the consent of the participant.

Number of Shares. Subject to adjustment in the event of any distribution, recapitalization, split, merger, consolidation or similar corporate event, the number of shares available for delivery pursuant to awards granted

 

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under the LTIP is 3,000,000 shares. There is no limit on the number of awards that may be granted and paid in cash. Shares subject to an award under the LTIP that are canceled, forfeited, exchanged, settled in cash or otherwise terminated, including withheld to satisfy exercise prices or tax withholding obligations, are available for delivery pursuant to other awards. The shares of our common stock to be delivered under the LTIP will be made available from authorized but unissued shares, shares held in treasury, or previously issued shares reacquired by us, including by purchase on the open market.

Restricted Shares. A restricted share grant is an award of common stock that vests over a period of time and that during such time is subject to forfeiture. The Plan Administrator may determine to make grants of restricted shares under the plan to participants containing such terms as the Plan Administrator shall determine. The Plan Administrator will determine the period over which restricted shares granted to participants will vest. The Plan Administrator, in its discretion, may base its determination upon the achievement of specified financial objectives. Dividends made on restricted shares may or may not be subjected to the same vesting provisions as the restricted shares.

Share Options. A share option is a right to purchase shares at a specified price during specified time periods. The LTIP permits the grant of options covering our common stock. The Plan Administrator may make grants under the plan to participants containing such terms as the Plan Administrator shall determine. Share options will have an exercise price that may not be less than the fair market value of our common stock on the date of grant. Share options granted under the LTIP can be either incentive share options (within the meaning of section 422 of the Code), which have certain tax advantages for recipients, or non-qualified share options. Share options granted will become exercisable over a period determined by the Plan Administrator. No share option will have a term that exceeds ten years. The availability of share options is intended to furnish additional compensation to plan participants and to align their economic interests with those of common shareholders.

Performance Award. A performance award is a right to receive all or part of an award granted under the LTIP based upon performance criteria specified by the Plan Administrator. The Plan Administrator will determine the period over which certain specified company or individual goals or objectives must be met. The performance award may be paid in cash, shares of our common stock or other awards or property, in the discretion of the Plan Administrator.

Annual Incentive Award. An annual incentive award is a conditional right to receive a cash payment, shares or other award unless otherwise determined by the Plan Administrator, after the end of a specified year. The amount potentially payable will be based upon the achievement of performance goals established by the Plan Administrator.

Restricted Share Unit. A restricted share unit is a notional share that entitles the grantee to receive a share of common stock upon the vesting of the restricted share unit or, in the discretion of the Plan Administrator, cash equivalent to the value of a share of common stock. The Plan Administrator may determine to make grants of restricted share units under the plan to participants containing such terms as the Plan Administrator shall determine. The Plan Administrator will determine the period over which restricted share units granted to participants will vest.

The Plan Administrator, in its discretion, may grant tandem dividend equivalent rights with respect to restricted share units that entitle the holder to receive cash equal to any cash dividends made on our common stock while the restricted share units are outstanding.

Bonus Shares. The Plan Administrator, in its discretion, may also grant to participants shares of common stock that are not subject to forfeiture. The Plan Administrator can grant bonus shares without requiring that the recipient pay any remuneration for the shares.

Share Appreciation Rights. The LTIP permits the grant of share appreciation rights. A share appreciation right is an award that, upon exercise, entitles participants to receive the excess of the fair market value of our common

 

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stock on the exercise date over the grant price established for the share appreciation right on the date of grant. Such excess will be paid in cash or common stock. The Plan Administrator may determine to make grants of share appreciation rights under the plan to participants containing such terms as the Plan Administrator shall determine. Share appreciation rights will have a grant price that may not be less than the fair market value of our common stock on the date of grant. In general, share appreciation rights granted will become exercisable over a period determined by the Plan Administrator.

Other Share-Based Awards. The Plan Administrator, in its discretion, may also grant to participants an award denominated or payable in, referenced to, or otherwise based on or related to the value of our common stock.

Tax Withholding. At our discretion, and subject to conditions that the Plan Administrator may impose, a participant’s minimum statutory tax withholding with respect to an award may be satisfied by withholding from any payment related to an award or by the withholding of shares issuable pursuant to the award based on the fair market value of the shares.

Anti-Dilution Adjustments. If any “equity restructuring” event occurs that could result in an additional compensation expense under Financial Accounting Standards Board Accounting Standards Codification Topic 718, or “FASB ASC Topic 718,” if adjustments to awards with respect to such event were discretionary, the Plan Administrator will equitably adjust the number and type of shares covered by each outstanding award and the terms and conditions of such award to equitably reflect the restructuring event, and the Plan Administrator will adjust the number and type of shares with respect to which future awards may be granted. With respect to a similar event that would not result in a FASB ASC Topic 718 accounting charge if adjustment to awards were discretionary, the Plan Administrator shall have complete discretion to adjust awards in the manner it deems appropriate. In the event the Plan Administrator makes any adjustment in accordance with the foregoing provisions, a corresponding and proportionate adjustment shall be made with respect to the maximum number of shares available under the LTIP and the kind of shares or other securities available for grant under the LTIP. Furthermore, in the case of (i) a subdivision or consolidation of the common stock (by reclassification, split or reverse split or otherwise), (ii) a recapitalization, reclassification, or other change in our capital structure or (iii) any other reorganization, merger, combination, exchange or other relevant change in capitalization of our equity, then a corresponding and proportionate adjustment shall be made in accordance with the terms of the LTIP, as appropriate, with respect to the maximum number of shares available under the LTIP, the number of shares that may be acquired with respect to an award, and, if applicable, the exercise price of an award, in order to prevent dilution or enlargement of awards as a result of such events.

Change in Control. Upon a “change of control” (as defined in the LTIP), the Plan Administrator may, in its discretion, (i) remove any forfeiture restrictions applicable to an award, (ii) accelerate the time of exercisability or vesting of an award, (iii) require awards to be surrendered in exchange for a cash payment, (iv) cancel unvested awards without payment or (v) make adjustments to awards as the Plan Administrator deems appropriate to reflect the change of control.

Termination of Employment or Service. The consequences of the termination of a grantee’s employment, consulting arrangement, or membership on the board of directors will be determined by the Plan Administrator in the terms of the relevant award agreement.

As described above under “—Compensation of Management” and “—Compensation of Directors,” during the year ended December 31, 2018, we granted a total of (i) 22,366 shares of restricted stock under the LTIP to our officers and (ii) 34,898 shares of restricted stock under the LTIP to our non-employee directors. The restricted stock awards granted to our officers vest and become free of restrictions on the third anniversary of the date of grant while the restricted stock awards granted to our non-employee directors vest and become free of restrictions on the first anniversary of the date of grant.

 

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Benefit Plans and Programs

We sponsor a money purchase defined contribution plan, which we refer to as a personal pension plan, for all employees located in the U.K., including Messrs. Nolan, Lindeman, Flaherty and Makaritis. Each employee is eligible to contribute up to 100% of his annual salary to their personal pension plan and we will match any such contribution up to 10% of the employee’s annual salary. For the year ended December 31, 2018, we paid an aggregate of approximately $50,033 in matching contributions to the personal pension plan for Messrs. Nolan, Lindeman, Flaherty and Makaritis.

 

  C.

Board Practices

While we are not subject to a number of the NYSE’s corporate governance standards as a foreign private issuer, we intend to comply voluntarily with a number of those rules. For example, we have a board of directors that is comprised of a majority of independent directors.

Committees of the Board of Directors

We have an audit committee, a compensation committee and a nomination committee comprised entirely of independent directors. In addition, our board of directors may, from time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors.

Audit Committee

Our audit committee consists of Messrs. Weidinger, Kenwright and Oetker, with Mr. Weidinger as chair. Our board of directors has determined that Messrs. Weidinger, Kenwright and Oetker satisfy the independence standards established by the NYSE and that each qualifies as an “audit committee financial expert,” as such term is defined in Regulation S-K promulgated by the SEC. The audit committee is responsible for, among other things, the hiring or termination of independent auditors; approving any non-audit work performed by such auditor; and assisting the board in monitoring the integrity of our financial statements, the independent auditor’s qualifications and independence, the performance of the independent auditor and our compliance with legal and regulatory requirements.

Compensation Committee

Our compensation committee consists of Messrs. Kenwright, Fischer, Oetker and Weidinger, with Mr. Kenwright as chair. The compensation committee is responsible for, among other things, developing and recommending to the board of directors compensation for board members; and overseeing compliance with any applicable compensation reporting requirements of the SEC and the NYSE.

Nominations Committee

Our nominations committee consists of Messrs. Kenwright, Deans and Malone, with Mr. Kenwright as chair. The nominations committee is responsible for, among other things, the selection and recommendation to the board of prospective directors and committee member candidates.

 

  D.

Employees

We had 76 employees as of December 31, 2018 compared to 60 employees as of December 31, 2017 and 46 as of December 31, 2016. We consider our employee relations to be good. Our crewing and technical managers provide crews for our vessels under separate crew management agreements.

 

  E.

Share Ownership

See “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders.”

 

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Item 7.

Major Shareholders and Related Party Transactions

 

  A.

Major Shareholders

The following table sets forth certain information regarding the beneficial ownership of our common stock as of April 1, 2019:

 

   

each person known by us to be a beneficial owner of more than 5.0% of our common stock;

 

   

each of our directors;

 

   

each of our named executive officers; and

 

   

all directors and executive officers as a group.

The data set forth below is based on information filed with the SEC and information provided to us prior to April 1, 2019. Except as otherwise indicated, the person or entities listed below have sole voting and investment power with respect to all of our shares of common stock beneficially owned by them, subject to community property laws where applicable.

 

     Common Stock
Beneficially Owned
 

Name of Beneficial Owner

   Shares(1)      Percent  

WLR Group(2)

     21,863,874        39.3

David J. Butters(3)

     2,100,666        3.8

Dr. Harry Deans

     5,000        *  

Dr. Heiko Fischer(4)

     53,346        *  

David Kenwright

     34,746        *  

Hal Malone(5)

     4,983        *  

Alexander Oetker

     4,983        *  

Florian Weidinger

     31,246        *  

Paul Flaherty

     12,277        *  

Oeyvind Lindeman

     11,379        *  

Demetris Makaritis

     6,876        *  

Niall Nolan

     117,839        *  

All executive officers and directors as a group (11 persons)

     2,383,341        4.3

 

*

Less than 1%.

(1)

Unless otherwise indicated, all shares of common stock are owned directly by the named holder and such holder has sole power to vote and dispose of such shares. Unless otherwise noted, the address for each beneficial owner named above is: 650 Madison Avenue, 25th Floor, New York, New York 10022.

(2)

Represents 13,058,516 shares of common stock held directly by WLR Recovery Fund IV DSS AIV, L.P., 4,422,528 shares of common stock held directly by WLR Recovery Fund V DSS AIV, L.P., 4,288,484 shares of common stock held directly by WLR Select Co-Investment, L.P., 52,727 shares of common stock held directly by WLR IV Parallel ESC, L.P. and 41,619 shares of common stock held directly by WLR V Parallel ESC, L.P. (collectively, the “WLR Investors”). Invesco Private Capital, Inc. is the managing member of Invesco WLR IV Associates LLC, which in turn is the general partner of WLR IV Parallel ESC, L.P. Invesco Private Capital, Inc. is also the managing member of Invesco WLR V Associates LLC, which in turn is the general partner of WLR V Parallel ESC, L.P. WLR Select Associates DSS GP, Ltd. is the general partner of WLR Select Associates DSS, L.P. WL Ross & Co. LLC, is the managing member of WLR Select Associates LLC, which in turn is the general partner of WLR Select Co-Investment, L.P. WLR Recovery Associates IV DSS AIV GP, Ltd. is the general partner of WLR Recovery Associates IV DSS AIV, L.P., which in turn is the general partner of WLR Recovery Fund IV DSS AIV, L.P. WLR Recovery Associates V DSS AIV GP, Ltd. is the general partner of WLR Recovery Associates V DSS AIV, L.P., which in turn is the general partner of WLR Recovery Fund V DSS AIV, L.P. The address of each of the

 

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  entities and persons identified in this note is c/o WL Ross & Co. LLC, 1166 Avenue of the Americas, New York, NY 10036.
(3)

Includes 150,000 shares of common stock that are owned by the spouse of Mr. Butters, for which he disclaims beneficial ownership.

(4)

Represents shares of common stock held directly by Dr. Fischer. Dr. Fischer is a Board designee of WLR. Dr. Fischer disclaims beneficial ownership over the shares held or controlled by the WLR Group.

(5)

Represents shares of common stock held directly by Mr. Malone. Mr. Malone is a Board designee of WLR. Mr. Malone disclaims beneficial ownership over the shares held or controlled by the WLR Group.

 

  B.

Related Party Transactions

From time to time we have entered into agreements and have consummated transactions with certain related parties. We may enter into related party transactions from time to time in the future. In connection with our initial public offering, we established an audit committee upon the closing of our initial public offering in order to, among other things, conduct an appropriate review of all related party transactions for potential conflict of interest situations on an ongoing basis and to approve all such transactions. See “Item 6—Directors, Senior Management and Employees—Board Practices—Committees of the Board of Directors.”

Investment Agreements

On November 10, 2011, we entered into a certain investment agreement with the WLR Group. Under the investment agreement, we agreed to issue and sell up to 7,500,000 shares of common stock in the aggregate at $8.33 per share (on a post-split basis). Pursuant to the investment agreement, on December 12, 2011, the WLR Group purchased 1,875,000 shares of common stock (on a post-split basis) and, on March 30, 2012, the WLR Group purchased 5,625,000 shares of common stock (on a post-split basis).

On February 15, 2013, we entered into a certain investment agreement with, among others, the WLR Group and David J. Butters. Under the investment agreement, we agreed to issue and sell up to 7,500,000 shares of common stock in the aggregate at $10.00 per share (on a post-split basis). Pursuant to the investment agreement, on February 25, 2013, the WLR Group, Mr. Butters and an unrelated third-party purchased 6,499,998, 500,001 and 500,001 shares of our common stock, respectively (on a post-split basis).

Investor Rights Agreement

On November 5, 2013, we amended and restated our existing investor rights agreement with the WLR Group. Under the investor rights agreement, subject to certain exceptions, the WLR Group has the right to designate two individuals to be nominated to our Board. If the WLR Group collectively owns less than 3,750,000 shares of common stock (on a post-split basis), the WLR Group will be entitled to designate only one individual, and if the WLR Group collectively owns less than 937,500 shares of common stock (on a post-split basis), the right to designate an individual to be nominated to our Board will terminate. Mr. Malone and Dr. Fischer are the designees of the WLR Group.

 

  C.

Interests of Experts and Counsel

Not applicable.

 

Item 8.

Financial Information

 

  A.

Consolidated Statements and Other Financial Information

Please see Item “18—Financial Statements” below for additional information required to be disclosed under this item.

 

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Legal Proceedings

We expect that in the future we will be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on the consolidated financial statements.

Dividend Policy

We do not anticipate declaring or paying any cash dividends to holders of our common stock in the near term. We currently intend to retain future earnings, if any, to finance the growth of our business. We may, however, adopt in the future a policy to make cash dividends. Our future dividend policy is within the discretion of our board of directors. Any determination to pay or not pay cash dividends will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, statutory and contractual restrictions on our ability to pay dividends and other factors our board of directors may deem relevant.

 

  B.

Significant Changes

Not applicable.

 

Item 9.

The Offer and Listing

 

  A.

Offer and Listing Details

Our common stock is traded on the New York Stock Exchange “NYSE” under the symbol “NVGS”.

 

  B.

Plan of distribution

Not applicable.

 

  C.

Markets

Our common stock started trading on the NYSE on November 21, 2013.

 

Item 10.

Additional Information

 

  A.

Share Capital

Not applicable.

 

  B.

Memorandum and Articles of Association

The information required to be disclosed under this item is incorporated by reference to our Registration Statement on Form 8-A filed with the SEC on November 15, 2013.

 

  C.

Material Contracts

The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, for the two years immediately preceding the date of this annual report, each of which is included in the list of exhibits in “Item 19—Exhibits”:

 

  (1)

Investor Rights Agreement, dated November 5, 2013, among Navigator Holdings Ltd., WL Ross & Co. LLC and certain of its affiliates named therein. See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions—Investor Rights Agreement”.

 

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  (2)

Joint Venture Agreement, dated August 4, 2010, among PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited and PT Navigator Khatulistiwa. On August 4, 2010, PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited and PT Navigator Khatulistiwa, an Indonesian limited liability company, or “PTNK,” entered into a Joint Venture Agreement, or the “JV Agreement.” Our operations in Indonesia are subject, among other things, to the Indonesian Shipping Act. That law generally provides that in order for certain vessels involved in Indonesian cabotage to obtain the requested licenses, the owners must either be wholly Indonesian owned or have a majority Indonesian shareholding. Navigator Pluto and Navigator Aries, which are chartered to Pertamina, the Indonesian state-owned producer of hydrocarbons, are owned by PTNK. PTNK is a joint venture of which 49% of the voting and dividend rights are owned by a subsidiary though ultimately controlled at the shareholder level by a subsidiary of Navigator Holdings, and 51% of such rights are owned by Indonesian limited liability companies. The JV Agreement for PTNK provides that certain actions relating to the joint venture or the vessels require the prior written approval of Navigator Holdings’ subsidiary, which may be withheld only on reasonable grounds and in good faith. Pursuant to the JV Agreement, PTNK is managed by its board of directors under the supervision, in accordance with Indonesian law, of the board of commissioners. The board of directors is comprised of one director nominee from the Indonesian limited liability companies which collectively own 51% of the share capital of PTNK. The board of commissioners is comprised of one nominee from the Indonesian entities and one nominee from Navigator Gas Invest Limited, a subsidiary of Navigator Holdings.

 

  (3)

$270 million Secured term loan facility by and among Navigator Gas L.L.C., Navigator Holdings Ltd., Nordea Bank Finland Plc, Skandinaviska Enskilda Banken AB, DVB Bank Se Nordic Branch, ABN Amro Bank N.V. and HSH Nordbank AG, as mandated lead arrangers, dated as of February 12, 2013. See Item 5 “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities—Term and Facility Limits—February 2013 Secured Term Loan Facility.”

 

  (4)

Supplemental Deed, dated February 13, 2014, among PT Navigator Khatulistiwa, PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited, Falcon Funding Ptd. Ltd. and Navigator Gas L.L.C. On February 13, 2014, PTNK, PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited, Falcon Funding Pte. Ltd and Navigator Gas L.L.C. entered into a Supplemental Deed under which the JV Agreement was amended to include Navigator Global, which is currently chartered to Pertamina, along with Navigator Pluto and Navigator Aries.

 

  (5)

$120.0 million Supplemental Agreement, dated June 30, 2014, between Navigator Holdings Ltd. and Nordea. This is a Supplemental Agreement to our February 2013 $270.0 million secured term loan facility, which, among other things, (i) allows the us to prepay $120.0 million outstanding under such term loan facility, (ii) revises the terms of the such term loan facility to include a quasi-revolving facility where funds can be drawn over the course of the facility period in four tranches of $30.0 million each and (iii) provides that such term loan facility be amended and restated to reflect the foregoing. See Item 5 “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities—Term and Facility Limits—February 2013 Secured Term Loan Facility.”

 

  (6)

$278.1 million Facility Agreement, by and among Navigator Atlas L.L.C, Navigator Europa L.L.C., Navigator Oberon L.L.C., Navigator Triton L.L.C., Navigator Umbrio L.L.C., Navigator Centauri L.L.C., Navigator Ceres L.L.C., Navigator Ceto L.L.C. and Navigator Copernico L.L.C, Navigator Holdings Ltd. and Navigator Gas L.L.C., Credit Agricole Corporate and Investment Bank, HSH Nordbank Ag and NIBC Bank N.V. as the arrangers and Credit Agricole as agent, and a group of financial institutions as lenders, dated as of January 27, 2015. See Item 5 “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities and Facility Limits—January 2015 Secured Term Loan Facility.”

 

  (7)

$290.0 million Facility Agreement, by and among Navigator Gas L.L.C., Nordea Bank AB, ABN Amro Bank N.V., Danmarks Skibskredit A/S, National Australia Bank Limited, ING Bank N.V. and

 

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  Credit Agricole Corporate and Investment Bank as the arrangers and Nordea Bank AB and ABN Amro Bank N.V as agent and a group of financial institutions as lenders, dated as of December 21, 2015. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities and Facility Limits—December 2015 Revolving Credit Facility.”

 

  (8)

Bond Agreement between Navigator Holdings Ltd. and Nordic Trustee AS on behalf of the Bondholders in the bond issue of 7.75% Navigator Holdings Ltd. Senior Unsecured Callable Bonds dated February 10, 2017. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities and Facility Limits—2017 Senior Unsecured Bonds.”

 

  (9)

$220.0 million Secured Facility Agreement, dated October 28, 2016, by and among Navigator Gas L.L.C. as borrower, Navigator Holdings Ltd., as guarantor, and the lenders named therein. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities and Facility Limits—October 2016 Secured Term Loan Facility.”

 

  (10)

$160.8 million Secured Facility Agreement dated June 30, 2017, by and among Navigator Gas L.L.C. as borrower, Navigator Holdings Ltd., as guarantor, and the lenders named therein. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities and Facility Limits—June 2017 Secured Term Loan Facility.”

 

  (11)

Bond Terms between Navigator Holdings Ltd., as issuer, and Nordic Trustee AS, as bond trustee and security agent, in the bond issue of NIBOR+6.0% Navigator Holdings Ltd. Senior Secured Callable NOK Bonds dated November 1, 2018. See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Secured Term Loan Facilities and Revolving Credit Facilities and Facility Limits—2018 Senior Secured Bonds.”

 

  (12)

$107.0 million Secured Facility Agreement, dated March 25, 2019, by and among Navigator Atlas L.L.C., Navigator Europa L.L.C., Navigator Oberon L.L.C. and Navigator Triton L.L.C. as borrowers, Navigator Gas L.L.C. and Navigator Holdings Ltd. as guarantors, Credit Agricole Corporate and Investment Bank, ING Bank, a branch of ING - DIBA AG and Skandinaviska Enskilda Banken AB (Publ), as arrangers and Credit Agricole Corporate and Investment Bank, as agent.

 

  (13)

$75.0 million Credit Agreement dated March 29, 2019, between Navigator Ethylene Terminals L.L.C. as borrower, and ING Capital L.L.C. and SG Americas Securities L.L.C. as arrangers.

 

  D.

Exchange Controls

We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in the Republic of the Marshall Islands that restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.

We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws of the Republic of the Marshall Islands or our operating agreement.

 

  E.

Taxation

Material U.S. Federal Income Tax Consequences

The following is a discussion of the material U.S. federal income tax considerations that may be relevant to our shareholders. This discussion is based upon provisions of the Code, Treasury Regulations, and administrative rulings and court decisions, all as in effect as of the date hereof and all of which are subject to change, possibly

 

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with retroactive effect. Changes in these authorities may cause the tax consequences of holding our common stock to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to “we,” “our” or “us” are references to Navigator Holdings Ltd.

The following discussion applies only to beneficial owners of our common stock that own shares of common stock as “capital assets” within the meaning of Section 1221 of the Code (i.e., generally for investment purposes) and is not intended to be applicable to all categories of investors, such as shareholders subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, tax-exempt organizations, retirement plans or individual retirement accounts, or former citizens or long-term residents of the United States), to persons that hold the shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes, to partnerships or their partners, or to persons that have a functional currency other than the U.S. Dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. If a partnership or other entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of its partners generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common stock, we encourage you to consult your own tax advisor regarding the tax consequences to you of the partnership’s ownership of our common stock.

No ruling has been or will be requested from the IRS regarding any matter affecting us or our shareholders. The statements made herein may be challenged by the IRS and, if so challenged, may not be sustained upon review in a court.

This discussion does not contain information regarding any U.S. state or local, estate, gift or alternative minimum tax considerations concerning the ownership or disposition of our common stock. This discussion does not comment on all aspects of U.S. federal income taxation that may be important to particular shareholders in light of their individual circumstances, and each prospective shareholder is urged to consult its own tax advisor regarding the U.S. federal, state, local, and other tax consequences of the ownership or disposition of our common stock.

Election to be Treated as a Corporation

We are treated as a corporation for U.S. federal income tax purposes. As a result, U.S. Holders (as defined below) will not be directly subject to U.S. federal income tax on our income, but rather will be subject to U.S. federal income tax on distributions received from us and dispositions of shares as described below.

U.S. Federal Income Taxation of U.S. Holders

As used herein, the term “U.S. Holder” means a beneficial owner of our common stock that owns (actually or constructively) less than 10.0% of our equity and that is:

 

   

an individual U.S. citizen or resident (as determined for U.S. federal income tax purposes);

 

   

a corporation (or other entity that is classified as a corporation for U.S. federal income tax purposes) organized under the laws of the United States or its political subdivisions;

 

   

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if (i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.

Distributions

Subject to the discussion below of the rules applicable to PFICs, any distributions to a U.S. Holder made by us with respect to our common stock generally will constitute dividends to the extent of our current or accumulated

 

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earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in its common stock and thereafter as capital gain. U.S. Holders that are corporations generally will not be entitled to claim a dividend received deduction with respect to distributions they receive from us. Dividends received with respect to our common stock generally will be treated as “passive category income” for purposes of computing allowable foreign tax credits for U.S. federal income tax purposes.

Dividends received with respect to our common stock by a U.S. Holder that is an individual, trust or estate, or a “U.S. Individual Holder,” generally will be treated as “qualified dividend income,” which is taxable to such U.S. Individual Holder at preferential tax rates provided that: (i) our common stock is readily tradable on an established securities market in the United States (such as the New York Stock Exchange on which our common stock is listed); (ii) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be, as discussed below under “PFIC Status and Significant Tax Consequences”); (iii) the U.S. Individual Holder has owned the common stock for more than 60 days during the 121-day period beginning 60 days before the date on which the common stock become ex-dividend (and has not entered into certain risk limiting transactions with respect to such common stock); and (iv) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. Because of the uncertainty of these matters, including whether we are or will be a PFIC, there is no assurance that any dividends paid on our common stock will be eligible for these preferential rates in the hands of a U.S. Individual Holder, and any dividends paid on our common stock that are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.

Special rules may apply to any amounts received in respect of our common stock that are treated as “extraordinary dividends.” In general, an extraordinary dividend is a dividend with respect to a share of our common stock that is equal to or in excess of 10.0% of a shareholder’s adjusted tax basis (or fair market value upon the shareholder’s election) in such share. In addition, extraordinary dividends include dividends received within a one-year period that, in the aggregate, equal or exceed 20.0% of a shareholder’s adjusted tax basis (or fair market value). If we pay an “extraordinary dividend” on shares of our common stock that is treated as “qualified dividend income,” then any loss recognized by a U.S. Individual Holder from the sale or exchange of such shares will be treated as long-term capital loss to the extent of the amount of such dividend.

Sale, Exchange or other Disposition of Common Stock

Subject to the discussion of PFICs below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of shares of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s adjusted tax basis in such shares. The U.S. Holder’s initial tax basis in its common stock generally will be the U.S. Holder’s purchase price for the shares of common stock and that tax basis will be reduced (but not below zero) by the amount of any distributions on the shares that are treated as non-taxable returns of capital (as discussed above under “—Distributions”). Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Certain U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. A U.S. Holder’s ability to deduct capital losses is subject to limitations. Such capital gain or loss generally will be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit purposes.

PFIC Status and Significant Tax Consequences

Adverse U.S. federal income tax rules apply to a U.S. Holder that owns an equity interest in a non-U.S. corporation that is classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which the holder held our common stock, either:

 

   

at least 75.0% of our gross income (including the gross income of our vessel-owning subsidiaries) for such taxable year consists of passive income (e.g., dividends, interest, capital gains from the sale or

 

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exchange of investment property and rents derived other than in the active conduct of a rental business), or

 

   

at least 50.0% of the average value of the assets held by us (including the assets of our vessel-owning subsidiaries) during such taxable year produce, or are held for the production of, passive income.

Income earned or treated as earned (for U.S. federal income tax purposes) by us in connection with the performance of services should not constitute passive income for PFIC purposes. By contrast, rental income generally would constitute passive income unless we were treated as deriving our rental income in the active conduct of a trade or business under the applicable rules.

Based on our current and projected method of operation we believe that we were not a PFIC for any taxable year, and we expect that we will not be treated as a PFIC for the current or any future taxable year. We believe that more than 25.0% of our gross income for each taxable year was or will be non-passive income, and more than 50.0% of the average value of our assets for each such year was or will be held for the production of such non-passive income. This belief is based on certain valuations and projections regarding our assets, income and charters, and its validity is conditioned on the accuracy of such valuations and projections. While we believe such valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that our assumptions and conclusions will continue to be accurate at any time in the future.

Moreover, there are legal uncertainties involved in determining whether the income derived from our time-chartering activities constitutes rental income or income derived from the performance of services. In Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), the Fifth Circuit held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a provision of the Code relating to foreign sales corporations. In that case, the Fifth Circuit did not address the definition of passive income or the PFIC rules; however, the reasoning of the case could have implications as to how the income from a time charter would be classified under such rules. If the reasoning of the case were extended to the PFIC context, the gross income we derive from our time-chartering activities may be treated as rental income, and we would likely be treated as a PFIC. In published guidance, the IRS stated that it disagreed with the holding in Tidewater and specified that time charters similar to those at issue in this case should be treated as service contracts.

Distinguishing between arrangements treated as generating rental income and those treated as generating services income involves weighing and balancing competing factual considerations, and there is no legal authority under the PFIC rules addressing our specific method of operation. Conclusions in this area therefore remain matters of interpretation. We are not seeking a ruling from the IRS on the treatment of income generated by our time-chartering operations. It is possible that the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure shareholders that the nature of our operations will not change in the future, notwithstanding our present expectations, and that we will not become a PFIC in any future taxable year.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year (and regardless of whether we remain a PFIC for subsequent taxable years), a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a “Qualified Electing Fund,” which we refer to as a “QEF election.” As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our common stock, as discussed below. In addition, if a U.S. Holder owns our common stock during any taxable year that we are a PFIC, such holder must file an annual report with the IRS.

Taxation of U.S. Holders Making a Timely QEF Election

A U.S. Holder that makes a timely QEF election, or an “Electing Holder,” must report for U.S. federal income tax purposes his pro rata share of our ordinary earnings and net capital gain, if any, for our taxable years that end

 

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with or within his taxable year, regardless of whether or not the Electing Holder received distributions from us in that year. The Electing Holder’s adjusted tax basis in its shares of our common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that were previously taxed will result in a corresponding reduction in the Electing Holder’s adjusted tax basis in its shares of common stock and will not be taxed again once distributed. An Electing Holder generally will recognize capital gain or loss on the sale, exchange or other disposition of our common stock. A U.S. Holder makes a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with his U.S. federal income tax return. If, contrary to our expectations, we determine that we are treated as a PFIC for any taxable year, we will provide each U.S. Holder with the information necessary to make the QEF election described above. Although the QEF election is available with respect to subsidiaries, in the event we acquire or own a subsidiary in the future that is treated as a PFIC, no assurances can be made that we will be able to provide U.S. Holders with the necessary information to make the QEF election with respect to such subsidiary.

Taxation of U.S. Holders Making a “Mark-to-Market” Election

If we were to be treated as a PFIC for any taxable year and, as we anticipate, our common stock was treated as “marketable stock,” then, as an alternative to making a QEF election, a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our common stock, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the U.S. Holder’s shares of common stock at the end of the taxable year over the holder’s adjusted tax basis in its shares of common stock. The U.S. Holder also would be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in its shares over the fair market value thereof 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 U.S. Holder’s tax basis in its shares of common stock would be adjusted to reflect any such income or loss recognized. Gain recognized on the sale, exchange or other disposition of our common stock would be treated as ordinary income, and any loss recognized on the sale, exchange or other disposition of the common stock would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. Because the mark-to-market election only applies to marketable stock, however, it would not apply to a U.S. Holder’s indirect interest in any of our subsidiaries that were determined to be PFICs.

Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election

If we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market” election for that year, or a “Non-Electing Holder,” would be subject to special rules resulting in increased liability with respect to (i) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common stock in a taxable year in excess of 125.0% 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 shares), and (ii) any gain realized on the sale, exchange or other disposition of the 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 stock;

 

   

the amount allocated to the current taxable year and any taxable year prior to the taxable year we were first treated as a PFIC with respect to the Non-Electing Holder would be taxed as ordinary 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 taxpayers 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 year.

These penalties would not apply to a qualified pension, profit sharing or other retirement trust or other tax-exempt organization that did not borrow money or otherwise utilize leverage in connection with its

 

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acquisition of our common stock. If we were treated as a PFIC for any taxable year and a Non-Electing Holder who is an individual, dies while owning our common stock, such holder’s successor generally would not receive a step-up in tax basis with respect to the common stock.

Medicare Tax on Net Investment Income

Certain U.S. Holders, including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax on, among other things, dividends and capital gains from the sale or other disposition of equity interests. For individuals, the additional Medicare tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by deductions that are allocable to such income. Shareholders should consult their tax advisors regarding the implications of the additional Medicare tax resulting from their ownership and disposition of our common stock.

U.S. Federal Income Taxation of Non-U.S. Holders

A beneficial owner of our common stock (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder is referred to as a Non-U.S. Holder. If you are a partner in a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holding our common stock, you should consult your own tax advisor regarding the tax consequences to you of the partnership’s ownership of our common stock.

Distributions

Distributions we pay to a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax if the Non-U.S. Holder is not engaged in a U.S. trade or business. If the Non-U.S. Holder is engaged in a U.S. trade or business, our distributions will be subject to U.S. federal income tax to the extent they constitute income effectively connected with the Non-U.S. Holder’s U.S. trade or business. However, distributions paid to a Non-U.S. Holder that is engaged in a U.S. trade or business may be exempt from taxation under an income tax treaty if the income arising from the distribution is not attributable to a U.S. permanent establishment or fixed base maintained by the Non-U.S. Holder.

Disposition of Shares

In general, a Non-U.S. Holder is not subject to U.S. federal income tax or withholding tax on any gain resulting from the disposition of our common stock provided the Non-U.S. Holder is not engaged in a U.S. trade or business. A Non-U.S. Holder that is engaged in a U.S. trade or business will be subject to U.S. federal income tax in the event the gain from the disposition of shares is effectively connected with the conduct of such U.S. trade or business (provided, in the case of a Non-U.S. Holder entitled to the benefits of an income tax treaty with the United States, such gain also is attributable to a U.S. permanent establishment or fixed base maintained by the Non-U.S. Holder). However, even if not engaged in a U.S. trade or business, individual Non-U.S. Holders may be subject to tax on gain resulting from the disposition of our common stock if they are present in the United States for 183 days or more during the taxable year in which those shares are disposed and meet certain other requirements.

Backup Withholding and Information Reporting

In general, payments to a non-corporate U.S. Holder of distributions or the proceeds of a disposition of common stock will be subject to information reporting. These payments to a non-corporate U.S. Holder also may be subject to backup withholding if the non-corporate U.S. Holder:

 

   

fails to provide an accurate taxpayer identification number;

 

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is notified by the IRS that he has failed to report all interest or corporate distributions required to be reported on his U.S. federal income tax returns; or

 

   

in certain circumstances, fails to comply with applicable certification requirements.

Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on IRS Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP or W-8IMY, as applicable.

Backup withholding is not an additional tax. Rather, a shareholder generally may obtain a credit for any amount withheld against its liability for U.S. federal income tax (and obtain a refund of any amounts withheld in excess of such liability) by timely filing a U.S. federal income tax return with the IRS.

In addition, individual citizens or residents of the United States holding certain “foreign financial assets” (which generally includes stock and other securities issued by a foreign person unless held in an account maintained by certain financial institutions) that exceed certain thresholds (the lowest being holding foreign financial assets with an aggregate value in excess of: (1) $50,000 on the last day of the tax year or (2) $75,000 at any time during the tax year) are required to report information relating to such assets. Significant penalties may apply for failure to satisfy the reporting obligations described above. Our shareholders should consult their tax advisors regarding their reporting obligations, if any, that would result from their purchase, ownership or disposition of our common stock.

Non-U.S. Tax Considerations

Republic of the Marshall Islands Tax Consequences

The following is applicable to persons who do not reside in, maintain offices in or engage in business in the Republic of the Marshall Islands.

Because we and our subsidiaries do not and do not expect to conduct business or operations in the Republic of the Marshall Islands, under current Republic of the Marshall Islands law you will not be subject to Republic of the Marshall Islands taxation or withholding on distributions we make to you as a shareholder. In addition, you will not be subject to Republic of the Marshall Islands stamp, capital gains or other taxes on the purchase, ownership or disposition of common stock, and you will not be required by the Republic of the Marshall Islands to file a tax return relating to your ownership of common stock.

EACH SHAREHOLDER IS URGED TO CONSULT HIS OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO THE LEGAL AND TAX CONSEQUENCES OF SHARE OWNERSHIP IN HIS PARTICULAR CIRCUMSTANCES. FURTHER, IT IS THE RESPONSIBILITY OF EACH SHAREHOLDER TO FILE ALL STATE, LOCAL AND NON-U.S., AS WELL AS U.S. FEDERAL INCOME TAX RETURNS, WHICH THE SHAREHOLDER IS REQUIRED TO FILE.

 

  F.

Dividends and Paying Agents

Not applicable.

 

  G.

Statements by Experts

Not applicable.

 

  H.

Documents on Display

Documents concerning us that are referred to herein may be inspected at our principal executive offices at 10 Bressenden Place, London, SW1E 5DH, United Kingdom, and may also be obtained from our website on the

 

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Internet at www.navigatorgas.com. Those documents electronically filed via the SEC’s Electronic Data Gathering, Analysis, and Retrieval (or EDGAR) system may be obtained from the SEC’s website on the Internet at www.sec.gov.

 

  I.

Subsidiary Information

Not applicable.

 

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates and foreign currency fluctuations, as well as inflation. We use interest rate swaps to manage interest rate risks but will not use these financial instruments for trading or speculative purposes.

Interest Rate Risk

Historically, we have been subject to limited market risks relating to changes in interest rates because we did not have significant amounts of floating rate debt outstanding. Navigator Gas L.L.C., our wholly-owned subsidiary, and certain of our vessel-owning subsidiaries are parties to secured term loan and revolving credit facilities that bear interest at an interest rate of US LIBOR plus 210 to 270 basis points. A variation in LIBOR of 100 basis points would result in a variation of $6.8 million in annual interest paid on our indebtedness outstanding as of December 31, 2018, under the secured term loan and revolving credit facilities.

We invest our surplus funds with reputable financial institutions, with original maturities of no more than six months, in order to provide the Company with flexibility to meet all requirements for working capital and for capital investments.

On November 2, 2018, we issued senior secured bonds in an aggregate amount of NOK 600 million. We have entered into a cross currency interest rate swap to mitigate the risk of certain interest rate movements during the five-year tenor of these bonds which mature on November 2, 2023. Please read Note 11 (Senior Secured Bonds) and Note 18 (Derivative Instruments) to the consolidated financial statements.

Foreign Currency 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 are in U.S. Dollars. Our expenses, however, are in the currency invoiced by each supplier, and we remit funds in the various currencies invoiced. We incur some vessel operating expenses and general and administrative costs in foreign currencies. During the fiscal years ended December 31, 2017 and 2018, approximately $16.9 million, or 13.4%, and $18.3 million, or 17.3%, respectively, of vessel operating costs and general and administrative costs were denominated in non-U.S. Dollar currency, principally the British Pound Sterling and the Euro. A hypothetical 10% decrease in the value of the U.S. Dollar relative to the values of the British Pound Sterling; the Euro and the Polish Zloty realized during the year ended December 31, 2017, would have increased our vessel operating costs during the fiscal year ended December 31, 2018, by approximately $0.4 million, and our general and administrative costs by $1.3 million.

On November 2, 2018, we issued senior secured bonds in an aggregate amount of NOK 600 million. Please read “2018 Senior Secured Bonds”. We have entered into a cross currency interest rate swap to mitigate the risk of currency movements for both interest payments during the five-year tenor of these bonds and for principal repayments at maturity in November 2023. Please read Note 18 (Derivative Instruments) to the consolidated financial statements.

 

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Inflation

Certain of our operating expenses, including crewing, insurance and drydocking costs, are subject to fluctuations as a result of market forces. Increases in bunker costs could have a material effect on our future operations if the number and duration of our voyage charters or COA’s increases. In the case of the 38 vessels owned as of December 31, 2018, 23 were employed on time charter and as such it is the charterers who pay for the fuel on those vessels. If our vessels are employed under voyage charters or COA’s, freight rates are generally sensitive to the price of fuel. However, a sharp rise in bunker prices may have a temporary negative effect on our results since freight rates generally adjust only after prices settle at a higher level.

 

Item 12.

Description of Securities Other than Equity Securities

Not applicable.

 

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PART II

 

Item 13.

Defaults, Dividend Arrearages and Delinquencies

Neither Navigator Holdings nor any of its subsidiaries have been subject to a material default in the payment of principal, interest, a sinking fund or purchase fund installment or any other material delinquency that was not cured within 30 days.

 

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

 

Item 15.

Controls and Procedures

Disclosure Controls and Procedures

Our Principal Executive Officer and our Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2018, have concluded that, as of such date, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

In accordance with Rule 13a-15(f) of the Securities Exchange Act of 1934, our management, including our principal executive officer and principal financial officer, is responsible for the establishment and maintenance of adequate internal controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management has performed an assessment of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2018 based on the provisions of Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon that evaluation, our management, with the participation of our principal executive officer and principal financial officer, concluded that our internal controls over financial reporting are effective as of December 31, 2018.

The Company’s internal control over financial reporting, as of December 31, 2018, has been audited by KPMG LLP (“KPMG”), an independent registered public accounting firm, who also audited the Company’s consolidated financial statements for that year. Their audit report on the effectiveness of internal control over financial reporting is presented in “Item 18 Financial Statements”.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Item 16A.

Audit Committee Financial Expert

Our board of directors has determined that Messrs. Weidinger, Kenwright and Oetker satisfy the independence standards established by the NYSE and that each qualifies as an “audit committee financial expert,” as such term is defined in Regulation S-K promulgated by the SEC.

 

Item 16B.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all entities controlled by the Company and its employees, directors, officers and agents of the Company. We will provide any person, free of charge, a copy of our Code of Business Conduct and Ethics upon written request to our registered office.

 

Item 16C.

Principal Accountant Fees and Services

Our principal accountant for 2017 and 2018 was KPMG.

Audit Fees

Audit fees incurred include $451,672 in 2018 and $428,767 in 2017 relating to aggregate fees billed for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and quarterly reviews.

Audit-Related Fees

There were no audit related fees incurred in 2017 and 2018.

Tax Fees

Tax fees incurred include $41,767 in 2018 and $25,099 in 2017 relating to general compliance services provided by the principal accountant in connection with our tax.

All Other Fees

There were no fees incurred by the Company for KPMG’s services relating to other fees in 2017 and 2018.

The audit committee has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved by the audit committee or entered into pursuant to detailed pre-approval policies and procedures established by the audit committee, as long as the audit committee is informed on a timely basis of any engagement entered into on that basis. The audit committee separately pre-approved all engagements and fees paid to our principal accountant for all periods in 2017 and 2018.

 

Item 16D.

Exemptions from the Listing Standards for Audit Committees

Not applicable.

 

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

 

Item 16F.

Change in Registrant’s Certifying Accountant

On December 6, 2018, the Audit Committee of Navigator Holdings Ltd. approved engaging Ernst & Young LLP as its independent registered public accounting firm for the fiscal year ending December 31, 2019, and will

 

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dismiss KPMG LLP, which is currently serving as the Company’s independent auditors, upon completion of their audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2018 and the effectiveness of internal control over financial reporting as of December 31, 2018, and the issuance of their reports thereon.

During the two fiscal years ended December 31, 2017 and December 31, 2018, and the subsequent period through April 1, 2019, there were: (1) no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, and (2) no reportable events as defined under Item 16F(a)(1)(v).

The audit reports of KPMG on the consolidated financial statements of Navigator Holdings Ltd. and subsidiaries as of and for the years ended December 31, 2018 and 2017, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except as follows:

KPMG LLP’s report on the consolidated financial statements of Navigator Holdings Ltd. and subsidiaries as of and for the year ended December 31, 2018 contained a separate paragraph stating that “As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of ASC Topic 606 – Revenue From Contracts With Customers.”

The Company has requested that KPMG LLP furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated April 1, 2019, is filed as Exhibit 15.2 to this annual report.

 

Item 16G.

Corporate Governance

Overview

While we are not subject to a number of the NYSE’s corporate governance standards as a foreign private issuer, we intend to comply voluntarily with a number of those rules. For example, we have a board of directors that is comprised of a majority of independent directors. However, pursuant to Section 303.A.11 of the NYSE Listed Company Manual, we are required to state any significant differences between our corporate governance practices and the practices required by the NYSE for U.S. companies. The significant differences between our corporate governance practices and the NYSE standards applicable to listed U.S. companies are set forth below.

Nominating/Corporate Governance Committee

The NYSE requires that a listed U.S. company have a nominating/corporate governance committee composed entirely of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. While we are not required under Marshall Islands law and our bylaws to have a nominating/corporate governance committee, we have a nominations committee. However, we do not make our nominations committee charter on our website, as is required under the NYSE standards applicable to listed U.S. companies, nor do we have a corporate governance committee.

Corporate Governance Guidelines

The NYSE requires U.S. 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.

We believe that our established corporate governance practices satisfy the NYSE listing standards.

 

Item 16H.

Mine Safety Disclosure

Not applicable.

 

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PART III

 

Item 17.

Financial Statements

See “Item 18-Financial Statements.”.

 

Item 18.

Financial Statements

The following financial statements listed below and set forth on pages F-4 through F-24, together with the related report of KPMG LLP, Independent Registered Public Accounting Firm thereon, are filed as part of this annual report:

 

Consolidated Balance Sheets as of December 31, 2017 and 2018

     F-5  

Consolidated Statements of Income for the years ended December  31, 2016, 2017 and 2018

     F-6  

Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2017 and 2018

     F-7  

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2017 and 2018

     F-8  

Consolidated Statements of Cash Flows for the years ended December  31, 2016, 2017 and 2018

     F-9  

Notes to Consolidated Financial Statements

     F-10  

 

Item 19.

Exhibits

The following exhibits are filed as part of this annual report:

 

Exhibit

Number

  

Description

    1.1    Amended and Restated Articles of Incorporation of Navigator Holdings Ltd. (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 6, 2013).
    1.2    Second Amended and Restated Bylaws of Navigator Holdings Ltd. (incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
    2.1    Investment Agreement, dated November 10, 2011, among Navigator Holdings Ltd., WL Ross  & Co. LLC and certain of its affiliates named therein (incorporated by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form F-1 (File No.  333-191784), filed on November 4, 2013).
    2.2    Investment Agreement, dated February 15, 2013, among Navigator Holdings Ltd., WL Ross  & Co. LLC and certain of its affiliates and unrelated third-party investors named therein (incorporated by reference to Exhibit 4.2 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
    2.3    Investor Rights Agreement, dated November 5, 2013, among Navigator Holdings Ltd., WL Ross  & Co. LLC and certain of its affiliates named therein (incorporated by reference to Exhibit 4.3 to the registrant’s Registration Statement on Form F-1 (File No.  333-191784), filed on November 6, 2013).
    2.5    Form of Common Stock Certificate (incorporated by reference to Exhibit 4.5 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 15, 2013).
    4.1    Navigator Holdings Ltd. 2013 Long-Term Incentive Plan, effective as of October  22, 2013 (incorporated by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November  6, 2013).
    4.2    Navigator Holdings Ltd. 2008 Restricted Stock Plan, effective as of September  16, 2008 (incorporated by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on October  17, 2013).

 

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Exhibit

Number

  

Description

    4.5    $270.0  million Secured term loan facility by and among Navigator Gas L.L.C., Navigator Holdings Ltd., Nordea Bank Finland Plc, Skandinaviska Enskilda Banken AB, DVB Bank Se Nordic Branch, ABN Amro Bank N.V. and HSH Nordbank AG, as mandated lead arrangers, dated as of February 12, 2013 (incorporated by reference to Exhibit 10.5 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on October 17, 2013).
    4.6    $278.1 million Secured Facility Agreement, dated January  27, 2015, by and among Navigator Atlas L.L.C., Navigator Europa L.L.C., Navigator Oberon L.L.C., Navigator Triton L.L.C., Navigator Umbrio L.L.C., Navigator Centauri L.L.C., Navigator Ceres L.L.C., Navigator Ceto L.L.C. and Navigator Copernico L.L.C., as borrowers, Navigator Holdings Ltd., Navigator Gas L.L.C and Credit Agricole Corporate and Investment Bank, HSH Nordbank AG and NIBC Bank N.V., as arrangers and Credit Agricole Corporate and Investment Bank, as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K (File No. 001-36202), filed on February 4, 2015).
    4.7    $290.0 million Secured Facility Agreement, dated December  21, 2015, by and among Navigator Gas L.L.C., as borrower, Nordea Bank AB, ABN Amro Bank N.V., Danmarks Skibskredit A/S, National Australia Bank Limited, ING Bank N.V. and Credit Agricole Corporate and Investment Bank as arrangers and Nordea Bank AB and ABN Amro Bank N.V as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K (File No. 001-36202), filed on December 23, 2015).
    4.8    $220.0 million Secured Facility Agreement, dated October  28, 2016, by and among Navigator Gas L.L.C. as borrower, Navigator Holdings Ltd., as guarantor, and the lenders named therein (incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K (File No. 001-36202), filed on October 31, 2016).
    4.9    Joint Venture Agreement, dated August  4, 2010, among PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited and PT Navigator Khatulistiwa (incorporated by reference to Exhibit 10.8 to the registrant’s Registration Statement on Form F-1 (File No. 333-191784), filed on November 4, 2013).
    4.10    Supplemental Deed, dated February  13, 2014, among PT Navigator Khatulistiwa, PT Persona Sentra Utama, PT Mahameru Kencana Abadi, Navigator Gas Invest Limited, Falcon Funding Ptd. Ltd. and Navigator Gas L.L.C. (incorporated by reference to Exhibit 4.9 to the registrant’s Annual Report on Form 20-F (File No. 001-36202), filed on March 17, 2014).
    4.11    Supplemental Agreement, dated June  30, 2014, relating to the $270.0 Secured term loan facility by and among Navigator Gas L.L.C., Navigator Holdings Ltd., Nordea Bank Finland Plc, Skandinaviska Enskilda Banken AB, DVB Bank Se Nordic Branch, ABN Amro Bank N.V. and HSH Nordbank AG, as mandated lead arrangers, dated as of February 12, 2013 (incorporated by reference to Exhibit 10.1 to the registrant’s Report on Form 6-K (File No. 001-36202), filed on July 9, 2014).
    4.12    Bond agreement between Navigator Holdings Ltd. and Nordic Trustee AS on behalf of the Bondholders in the bond issue of 7.75% Navigator Holdings Ltd. Senior Unsecured Callable Bonds dated February 10, 2017 (incorporated by reference to Exhibit 4.13 to the registrant’s Annual Report on Form 20-F (File No. 001-36202), filed on March 5, 2018).
    4.13    Bond Terms between Navigator Holdings Ltd., as issuer, and Nordic Trustee AS, as bond trustee and security agent, in the bond issue of NIBOR+6.0% Navigator Holdings Ltd. Senior Secured Callable NOK Bonds dated November 1, 2018 (incorporated by reference to Exhibit 4.1 to the registrant’s Report on Form 6-K (File No. 001-36202), filed on November 13, 2018).

 

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Exhibit

Number

  

Description

    4.14*    $107.0 million Secured Facility Agreement, dated March  25, 2019, by and among Navigator Atlas L.L.C., Navigator Europa L.L.C., Navigator Oberon L.L.C. and Navigator Triton L.L.C. as borrowers, Navigator Gas L.L.C. and Navigator Holdings Ltd. as guarantors, Credit Agricole Corporate and Investment Bank, ING Bank, a branch of ING - DIBA AG, and Skandinaviska Enskilda Banken AB (Publ), as arrangers and Credit Agricole Corporate and Investment Bank, as agent.
    4.15*    $75.0 million Credit Agreement dated March 29, 2019, between Navigator Ethylene Terminals L.L.C. as borrower, and ING Capital L.L.C. and SG Americas Securities L.L.C. as arrangers.
    8.1*    List of Subsidiaries of Navigator Holdings Ltd.
  12.1*    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
  12.2*    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
  13.1*    Certification under Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer.
  13.2*    Certification under Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer.
  15.1*    Consent of Independent Registered Public Accounting Firm, KPMG LLP
  15.2*    Notification of auditor change on issuance of auditor’s report
101. INS*    XBRL Instance Document
101. SCH*    XBRL Taxonomy Extension Schema
101. CAL*    XBRL Taxonomy Extension Schema Calculation Linkbase
101. DEF*    XBRL Taxonomy Extension Schema Definition Linkbase
101. LAB*    XBRL Taxonomy Extension Schema Label Linkbase
101. PRE*    XBRL Taxonomy Extension Schema Presentation Linkbase

 

*

Filed herewith.

 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

    NAVIGATOR HOLDINGS LTD.
Date: April 1, 2019     By:   /s/ Niall Nolan
    Name:   Niall Nolan
    Title:   Chief Financial Officer (Principal Financial Officer)

 

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INDEX TO FINANCIAL STATEMENTS

 

NAVIGATOR HOLDINGS LTD.

  

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

  

Reports of Independent Registered Public Accounting Firm

     F-2, F-3  

Consolidated Balance Sheets as of December 31, 2017 and 2018

     F-5  

Consolidated Statements of Income for the years ended December  31, 2016, 2017 and 2018

     F-6  

Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2017 and 2018

     F-7  

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2017 and 2018

     F-8  

Consolidated Statements of Cash Flows for the years ended December  31, 2016, 2017 and 2018

     F-9  

Notes to Consolidated Financial Statements

     F-10  

 

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Navigator Holdings Ltd.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Navigator Holdings Ltd. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 1, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of ASC Topic 606 – Revenue From Contracts With Customers.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2012.

London, United Kingdom

April 1, 2019

 

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Navigator Holdings Ltd.:

Opinion on Internal Control Over Financial Reporting

We have audited Navigator Holdings Ltd. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated April 1, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

London, United Kingdom

April 1, 2019

 

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Navigator Holdings Ltd.

Consolidated Balance Sheets

 

     December 31, 2017     December 31, 2018  
     (in thousands, except share data)  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 62,109     $ 71,515  

Accounts receivable, net

     14,889       17,033  

Accrued income

     15,791       4,731  

Prepaid expenses and other current assets

     11,340       16,057  

Bunkers and lubricant oils

     8,008       8,789  
  

 

 

   

 

 

 

Total current assets

     112,137       118,125  

Non-current assets

    

Vessels in operation, net

     1,740,139       1,670,865  

Property, plant and equipment, net

     1,611       1,299  

Investment in equity accounted joint venture

     —         42,462  
  

 

 

   

 

 

 

Total non-current assets

     1,741,750       1,714,626  
  

 

 

   

 

 

 

Total assets

   $ 1,853,887     $ 1,832,751  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities

    

Current portion of secured term loan facilities, net of deferred financing costs

   $ 81,559     $ 68,857  

Accounts payable

     8,071       10,784  

Accrued expenses and other liabilities

     12,478       12,798  

Accrued interest

     3,500       4,613  

Deferred income

     4,824       8,342  
  

 

 

   

 

 

 

Total current liabilities

     110,432       105,394  
  

 

 

   

 

 

 

Non-current Liabilities

    

Secured term loan facilities and revolving credit facilities, net of current portion and deferred financing costs

     681,658       599,676  

Senior secured bond, net of deferred financing costs

     —         68,378  

Senior unsecured bond, net of deferred financing costs

     98,584       99,039  

Derivative liabilities

     —         5,154  
  

 

 

   

 

 

 

Total non-current liabilities

     780,242       772,247  
  

 

 

   

 

 

 

Total Liabilities

     890,674       877,641  

Commitments and contingencies (see note 15)

    

Stockholders’ equity

    

Common stock—$.01 par value per share; 400,000,000 shares authorized; 55,657,631 shares issued and outstanding, (2017: 55,529,762)

     555       557  

Additional paid-in capital

     589,436       590,508  

Accumulated other comprehensive loss

     (277     (363

Retained earnings

     373,499       364,408  
  

 

 

   

 

 

 

Total stockholders’ equity

     963,213       955,110  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,853,887     $ 1,832,751  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Navigator Holdings Ltd.

Consolidated Statements of Income

 

     Year ended
December 31,
2016
    Year ended
December 31,
2017
    Year ended
December 31,
2018
 
     (in thousands, except per share data)  

Revenues

      

Operating revenue

   $ 294,112     $ 298,595     $ 310,046  
  

 

 

   

 

 

   

 

 

 
     294,112       298,595       310,046  

Expenses

      

Brokerage commissions

     5,812       5,368       5,142  

Voyage expenses

     42,201       55,542       61,634  

Vessel operating expenses

     90,854       100,968       106,719  

Depreciation and amortization

     62,280       73,588       76,140  

General and administrative costs

     12,528       13,816       16,346  

Other corporate expenses

     1,976       2,131       2,585  

Insurance recoverable from vessel repairs

     504       —         —    
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     216,155       251,413       268,566  
  

 

 

   

 

 

   

 

 

 

Operating income

     77,957       47,182       41,480  

Other income/(expense)

      

Share of result of equity accounted joint venture

     —         —         (38

Foreign currency exchange gain on senior secured bonds

     —         —         2,360  

Unrealized loss on non-designated derivative instruments

     —         —         (5,154

Interest expense

     (32,321     (37,691     (44,908

Write off of deferred finance costs

     (102     (786     —    

Write off of call premium and redemption charges of 9.00% unsecured bond

     —         (3,517     —    

Interest income

     281       519       854  
  

 

 

   

 

 

   

 

 

 

Income/(loss) before income taxes

     45,815       5,707       (5,406

Income taxes

     (1,177     (397     (333
  

 

 

   

 

 

   

 

 

 

Net income/(loss)

     44,638       5,310       (5,739
  

 

 

   

 

 

   

 

 

 

Earnings/(loss) per share:

      

Basic:

   $ 0.81     $ 0.10     $ (0.10

Diluted:

   $ 0.80     $ 0.10     $ (0.10
  

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding:

      

Basic:

     55,418,626       55,508,974       55,629,023  

Diluted:

     55,794,481       55,881,454       55,629,023  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Navigator Holdings Ltd.

Consolidated Statements of Comprehensive Income

 

     Year ended
December 31,
2016
(in thousands)
     Year ended
December 31,
2017
(in thousands)
     Year ended
December 31,
2018
(in thousands)
 

Net income

   $ 44,638      $ 5,310      $ (5,739

Other comprehensive income / (loss):

        

Foreign currency translation gain / (loss)

     178        10        (86
  

 

 

    

 

 

    

 

 

 

Total comprehensive income / loss

   $ 44,816      $ 5,320      $ (5,825
  

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

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Navigator Holdings Ltd.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

 

     Common stock                            
     Number of
shares
(Note 13)
    Amount 0.01
par value
(Note 13)
     Additional
Paid-in Capital
(Note 13)
     Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Total  

January 1, 2016

     55,363,467     $ 554      $ 586,451      $ (465   $ 323,551     $ 910,091  

Restricted shares issued March 29, 2016

     72,620       —          —          —         —         —    

Net income

     —         —          —          —         44,638       44,638  

Foreign currency translation

     —         —          —          178       —         178  

Share-based compensation plan

     —         —          1,573        —         —         1,573  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

December 31, 2016

     55,436,087     $ 554      $ 588,024      $ (287   $ 368,189     $ 956,480  

Restricted shares issued March 23, 2017

     93,675       1        —          —         —         1  

Net income

     —         —          —          —         5,310       5,310  

Foreign currency translation

     —         —          —          10       —         10  

Share-based compensation plan

     —         —          1,412        —         —         1,412  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

December 31, 2017

     55,529,762     $ 555      $ 589,436      $ (277   $ 373,499     $ 963,213  

Adjustment to equity for the adoption of the new revenue standard

     —         —          —          —         (3,352     (3,352

Forfeited shares-2013 long-term equity incentive plan

     (3,673     —          —          —         —         —    

Restricted shares issued March 20, 2018

     131,542       2        —          —         —         2  

Net income

     —         —          —          —         (5,739     (5,739

Foreign currency translation

     —         —          —          (86     —         (86)  

Share-based compensation plan

     —         —          1,072        —         —         1,072  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

December 31, 2018

     55,657,631     $ 557      $ 590,508      $ (363   $ 364,408     $ 955,110  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Navigator Holdings Ltd.

Consolidated Statements of Cash Flows

 

     Year ended
December 31,
2016
(in thousands)
    Year ended
December 31,
2017
(in thousands)
    Year ended
December 31,
2018
(in thousands)
 

Cash flows from operating activities

      

Net income/(loss)

   $ 44,638     $ 5,310     $ (5,739

Adjustments to reconcile net income to net cash provided by operating activities

      

Unrealized loss on non-designated derivative instruments

     —         —         5,154  

Depreciation and amortization

     62,280       73,588       76,140  

Payment of drydocking costs

     (9,902     (268     (5,796

Amortization of share-based compensation

     1,573       1,412       1,074  

Amortization of deferred financing costs

     3,091       3,217       2,292  

Share of result of equity accounted affiliates

     —         —         38  

Call option premium on redemption of 9.00% unsecured bond

     —         2,500       —    

Prior year expenses recovered from insurance claim

     —         (504     —    

Insurance claim debtor

     60       (7     (642

Unrealized foreign exchange gain on senior secured bonds

     —         —         (2,360

Other unrealized foreign exchange gain/(loss)

     208       3       (12

Changes in operating assets and liabilities

      

Accounts receivable

     1,991       (7,831     (2,144

Bunkers and lubricant oils

     (3,457     (1,074     (781

Prepaid expenses and other current assets

     (7,694     (5,079     2,629  

Accounts payable, accrued interest and accrued expenses and other liabilities

     (6,040     4,654       7,664  
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     86,748       75,921       77,517  
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Payment to acquire vessels

     (1,733     (1,940     (648

Investment in equity accounted joint venture

     —         —         (42,500

Payment for vessels under construction

     (239,179     (180,629     —    

Purchase of other property, plant and equipment

     (75     (1,726     (182

Receipt of shipyard penalty payments

     1,901       280       —    

Placement of short term investment

     —         (25,000     —    

Release of short term investment

     —         25,000       —    

Insurance recoveries

     9,374       990       1,003  

Capitalized costs for the repair of Navigator Aries

     (8,441     —         —    
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (238,153     (183,025     (42,327
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Proceeds from secured term loan facilities and revolving credit facilities

     327,670       395,170       21,900  

Issuance of senior secured bonds

     —         —         71,697  

Issuance of 7.75% senior unsecured bonds

     —         100,000       —    

Repayment of 9.00% senior unsecured bonds

     —         (127,500     —    

Issuance cost of senior secured bonds

     —         —         (991

Issuance cost of 7.75% senior unsecured bonds

     —         (1,819     —    

Direct financing cost of secured term loan and revolving credit facilities

     (2,680     (2,058     (38

Repayment of secured term loan facilities and revolving credit facilities

     (204,092     (251,852     (118,352
  

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) financing activities

     120,898       111,941       (25,784
  

 

 

   

 

 

   

 

 

 

Net (decrease)/increase in cash, cash equivalents and restricted cash

     (30,507     4,837       9,406  

Cash, cash equivalents and restricted cash at beginning of year

     87,779       57,272       62,109  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

   $ 57,272     $ 62,109     $ 71,515  
  

 

 

   

 

 

   

 

 

 

Supplemental Information

      

Total interest paid during the year, net of amounts capitalized

   $ 29,815     $ 35,890     $ 41,465  
  

 

 

   

 

 

   

 

 

 

Total tax paid during the year

   $ 601     $ 515     $ 176  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Navigator Holdings Ltd.

Notes to the Consolidated Financial Statements

December 31, 2016, 2017 and 2018

1. Description of Business

Navigator Holdings Ltd. (the “Company”), the ultimate parent company of the Navigator Group of companies, is registered in the Republic of the Marshall Islands. The Company has a core business of owning and operating a fleet of gas carriers. As of December 31, 2018, the Company owned and operated 38 gas carriers (the “Vessels”) each having a cargo capacity of between 20,600 cbm and 38,000 cbm, of which 31 were semi-refrigerated, and seven were fully-refrigerated vessels. The Company has an investment in a joint venture to construct a Marine Export Terminal at Morgan’s Point in Texas to export approximately one million tons of ethylene per year. Unless the context otherwise requires, all references in the consolidated financial statements to “our”, ”we” and “us” refer to the Company

2. Summary of Significant Accounting Policies

(a) Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries (See Note 9 (Group Subsidiaries) to the consolidated financial statements) and a Variable Interest Entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.

On January 31, 2018, the Company announced the execution of definitive agreements creating a 50/50 joint venture with Enterprise Products Partners L.P. (the “Export Terminal Joint Venture”) to construct and operate an ethylene export marine terminal at Morgan’s Point, Texas on the Houston Ship Channel (the “Marine Export Terminal”). Enterprise Products Partners, L.P. is the sole managing member of the Export Terminal Joint Venture and it is also the operator of the Marine Export Terminal. Interests in joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs and capitalized interest. Subsequent to initial recognition, the consolidated financial statements will include the Company’s share of the profit or loss and other comprehensive income (“OCI”) of equity-accounted investees, until the date on which significant influence or joint control ceases.

The joint venture, Enterprise Navigator Ethylene Terminals L.L.C. “Export Terminal Joint Venture” is organized as a limited liability company and maintains separate ownership accounts, consequently we account for our investment using the equity method as our ownership interest is between 20% and 50% and we exercise significant influence over the investee’s operating and financial policies. In consolidation, we disclose our proportionate share of profits and losses from equity method unconsolidated affiliates in the income statement and adjust the carrying amount of our equity method investments accordingly.

As of December 31, 2018, the Company has consolidated 100% of PT Navigator Khatulistiwa, a VIE for which the Company is deemed to be the primary beneficiary, i.e. it has a controlling financial interest in this entity. The Company owns 49% of the VIE’s common stock, all of its secured debt and has voting control. All economic interests in the residual net assets reside with the Company. A VIE is an entity that in general does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is present when a company has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the right to residual gains or the obligation to absorb losses that could potentially be significant to the VIE.

On January 1, 2018 the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company has adopted the standard using the modified retrospective

 

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method to incorporate the cumulative effect on all contracts at the date of initial application for reporting periods presented beginning January 1, 2018. By using the modified retrospective method approach we have made an adjustment to the consolidated statement of shareholders’ equity of $3.4 million which represents the amount of net revenue that would not have been recognized in retained earnings for the year ended December 31, 2017 under ASU 2014-09.

The Company receives its revenue streams from three different sources; vessels on time charters; voyage charters; and contracts of affreightment (“COA”). With time charters, the Company receives a fixed charter hire per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as the performance obligation is satisfied. In the case of voyage charters or COA’s, the vessel is contracted for a voyage, or a series of voyages, between two or more ports and the Company is paid for the cargo transported. Revenue under these performance obligations is recognized on a load port to discharge port basis and determines percentage of completion for all voyage charters and COA’s on a time elapsed basis. This approach differs from previous generally accepted accounting principles (“U.S. GAAP”) whereby under a voyage charter or a COA the revenue was recognized from the later of the charter party date and the date of completion of the previous discharge port until the following discharge port. This had the effect of recognizing the revenue over a shorter period of time as the performance obligation commences from the loading of the cargo rather than from the inception of the contract. The Company believes that the performance obligation towards the customer starts to become satisfied once the cargo is loaded and the obligation becomes completely satisfied once the cargo has been discharged at the discharge port. Time charter revenue is payable monthly in advance whilst revenue from voyage charters and COAs is due upon discharge of the cargo at the discharge port.

Under the new revenue recognition standard, the Company has identified certain costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences. These directly related costs are generally fuel or any canal or port costs incurred to get the vessel from its position at inception of the contract to the load port to commence loading of the cargo. These costs are deferred and amortized over the duration of the performance obligation on a time basis.

Operating revenue

The following table compares our operating revenue by the source of revenue stream for the years ended December 31, 2017 and 2018:

 

     Year ended
December 31,
(in thousands)
 
     2017      2018  

Operating revenue:

     

Time charters

   $ 144,521      $ 168,500  

Voyage charters (*)

     154,074        141,546  
  

 

 

    

 

 

 

Total operating revenue

   $ 298,595      $ 310,046  

 

*

Voyage Charter revenues: Voyage charter revenues, which include revenues from contracts of affreightment, are shown net of address commissions.

We have adopted the new accounting standard ASU 2014-09 for revenue recognition using the modified retrospective method, which incorporates the cumulative effect of prior years in January 1, 2018. Consequently, the revenues for the year ended December 31, 2017 have not been adjusted.

 

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Impact on the financial statements

The Company applied Topic 606 using the cumulative effect method – i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity as of January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The details of the significant changes and quantitative impact of the changes are set out below.

Consolidated Balance Sheet:

 

     As reported at
December 31, 2018
(in thousands)
     Adjustments
(in thousands)
    Balances without
adoption of Topic 606
(in thousands)
 

Accrued income

   $ 4,731      $ 3,854     $ 8,585  

Prepaid expenses and other current assets

     16,057        (1,462     14,595  

Other

     1,811,963        —         1,811,963  
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Accrued expenses and other liabilities

   $ 12,798      $ 103     $ 12,901  

Other

     864,843        —         864,843  
  

 

 

    

 

 

   

 

 

 

Total Liabilities

     877,641        103       877,744  
  

 

 

    

 

 

   

 

 

 

Retained earnings

     364,408        2,289       366,697  

Other

     590,702        —         590,702  
  

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     955,110        2,289       957,399  
  

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Consolidated statements of Income:

 

     As reported for
the year ended
December 31,
2018
    Adjustments     Balances without
Adoption of
Topic 606
 
     (in thousands, except per share data)  

Revenues

      

Operating revenue

   $ 310,046     $ (1,243   $ 308,803  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Broker commissions

     5,142       60       5,202  

Voyage expenses

     61,634       (240     61,394  

Other

     201,790       —         201,790  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     268,566       (180     268,386  
  

 

 

   

 

 

   

 

 

 

Operating income

     41,480       (1,063     40,417  

Other expense

     (46,886     —         (46,886
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (5,406     (1,063     (6,469

Income taxes

     (333     —         (333
  

 

 

   

 

 

   

 

 

 

Net loss

     (5,739     (1,063     (6,802
  

 

 

   

 

 

   

 

 

 

Loss per share:

      

Basic:

   $ (0.10   $ (0.02   $ (0.12

Diluted:

   $ (0.10   $ (0.02   $ (0.12
  

 

 

   

 

 

   

 

 

 

 

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     As reported at
December 31,
2018
(in thousands)
    Adjustments
(in thousands)
    Balances without
adoption of Topic
606
(in thousands)
 

Net loss

   $ (5,739   $ (1,063   $ (6,802

Adjustments to reconcile net income to net cash provided by operating activities

      

Others

     75,826       —         75,826  

Changes in operating assets and liabilities

      

Prepaid expenses and other current assets

     2,629       1,063       3,692  

Other

     4,801       —         4,801  
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     77,517       —         77,517  
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (42,327     —         (42,327
  

 

 

   

 

 

   

 

 

 

Net cash provided used in financing activities

     (25,784     —         (25,784
  

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     9,406       —         9,406  

Cash, cash equivalents and restricted cash at beginning of year

     62,109       —         62,109  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

   $ 71,515     $ —       $ 71,515  
  

 

 

   

 

 

   

 

 

 

Remaining Performance Obligations

The following table presents future committed revenue from contracts with customers, arising from remaining performance obligations as of December 31, 2018.

 

     Less than 1 year      1 – 2 years      2 – 5 years      More than 5 years      Total  
     (in thousands)  

Total committed revenue

   $ 133,743      $ 77,370      $ 143,603      $ 69,810      $ 424,526  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, including ongoing time charters, as of December 31, 2018. ASU 2014-09 requires disclosure based on time bands that would be the most appropriate for the duration of the remaining performance obligations. The company uses one year time bands for contracts with up to two years in remaining duration, then up to and more than five years thereafter.

As of December 31, 2018, the amount allocated to costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences is $1.5 million and is reflected on the company’s consolidated balance sheet within prepaid expenses and other current assets. This will be recognized over the duration of the performance obligation on a time basis, which is expected to occur within one year.

In presenting the information above, the company has applied the transition practical expedient in paragraph 606-10-65-1(f)(3) and has not disclosed as of December 31, 2017 the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the company is expected to satisfy those future performance obligations.

On January 1, 2018, the Company adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses eight classification issues related to the statement of cash flows:

 

   

Debt prepayment or debt extinguishment costs;

 

   

Settlement of zero-coupon bonds;

 

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Contingent consideration payments made after a business combination;

 

   

Proceeds from the settlement of insurance claims;

 

   

Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;

 

   

Distributions received from equity method investees;

 

   

Beneficial interests in securitization transactions; and

 

   

Separately identifiable cash flows and application of the predominance principle.

The impact of adopting this ASU is immaterial to the financial statements.

On January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. The impact of adopting this ASU is immaterial to the financial statements.

(b) Vessels in Operation

The cost of the vessels (excluding the estimated initial drydocking cost) less their estimated residual value is depreciated on a straight-line basis over the vessel’s estimated economic life. Management estimates the useful life of each of the Company’s vessels to be 30 years from the date of its original construction.

(c) Vessels Under Construction

Vessels under construction are stated at cost, which includes the cost of construction, capitalized interest and other direct costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use.

(d) Impairment of Vessels

Our vessels are reviewed for impairment when events or circumstances indicate the carrying amount of the vessel may not be recoverable. When such indicators are present, a vessel is tested for recoverability and we recognize an impairment loss if the sum of the future cash flows (undiscounted and excluding interest charges that will be recognized as an expense when incurred) expected to be generated by the vessel over its estimated remaining useful life are less than its carrying value. If we determine that a vessel’s undiscounted cash flows are less than its carrying value, we record an impairment loss equal to the amount by which its carrying amount exceeds its fair value. The new lower cost basis would result in a lower annual depreciation than before the impairment.

Considerations in making such an impairment evaluation include comparison of current carrying values to anticipated future operating cash flows, expectations with respect to future operations and other relevant factors. The estimates and assumptions regarding expected cash flows require considerable judgment and are based upon historical experience, financial forecasts and industry trends and conditions.

(e) Drydocking Costs

Each vessel is required to be dry-docked every 30 to 60 months for classification society surveys and inspections of, among other things, the underwater parts of the vessel. These works include, but are not limited to hull coatings, seawater valves, steelworks and piping works, propeller servicing and anchor chain winch calibrations, all of which cannot be performed while the vessels are operating. The Company capitalizes costs associated with the dry-dockings in accordance with ASC Topic 360 “Property, Plant and Equipment” and amortizes these costs

 

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on a straight-line basis over the period to the next expected dry-docking. Amortization of dry-docking costs is included in depreciation and amortization in the Consolidated Statements of Income. Costs incurred during the dry-docking period which relate to routine repairs and maintenance are expensed. Where a vessel is newly acquired, or constructed, a proportion of the cost of the vessel is allocated to the components expected to be replaced at the next drydocking based on the expected costs relating to the next drydocking, which is based on experience and past history of similar vessels. Drydocking costs are included within operating activities on the cashflow statement.

(f) Cash, Cash Equivalents and Restricted Cash

The Company considers highly liquid investments, such as time deposits and certificates of deposit, with an original maturity of three months or less when purchased, to be cash equivalents. The Company has cash in a U.S. financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $0.3 million. As of December 31, 2018, and 2017 and for the years then ended, the Company had balances in this financial institution in excess of the insured amount. The Company also maintains cash balances in foreign financial institutions which are not covered by the FDIC.

Amounts included in restricted cash represent those required to be set aside by a contractual agreement with a banking institution for the payment of the forecast future liability on the cross-currency interest rate swap agreement, payable on maturity of our 2018 issued senior secured bonds (“2018 Bonds”). If the Norwegian Kroner depreciates relative to the U.S. Dollar beyond a certain threshold, we are required to place cash collateral with our swap providers. As of December 31, 2018, the collateral amount held with the swap provider was $0.16 million.

(g) Financial Instruments – Debt Securities

The 2017 issued senior unsecured bonds (“2017 Bonds”) and 2018 Bonds are recognized at the net amount of the proceeds received. Subsequent measurement is at amortized cost, net of deferred finance costs. Interest accrued on the 2017 Bonds and the 2018 Bonds is calculated on a 360-day year basis and is included within accrued interest as a current liability. Deferred finance costs are amortized using the effective interest method over the lifetime of the 2017 Bonds and the 2018 Bonds.

(h) Short-Term Investments

Short-term investments represent funds deposited in money market funds with an original maturity of more than three months when purchased. The Company records its short-term investments at fair value. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s short-term investments are classified within Level 1 of the fair value hierarchy.

(i) Accounts Receivable, net

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. As of December 31, 2017, and 2018, the Company evaluated its accounts receivable and established an allowance for doubtful accounts, based on a history of past write-offs, collections and current credit conditions. The Company does not generally charge interest on past-due accounts (unless the accounts are subject to legal action), and accounts are written off as uncollectible when all reasonable collection efforts have failed. Accounts are deemed past-due based on contractual terms.

 

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(j) Bunkers and lubricant oils

Bunkers and lubricant oils include bunkers (fuel), for those vessels under voyage charter, and lubricants. Under a time charter, the cost of bunkers is borne by and remains the property of the charterer. Bunkers and lubricant oils are accounted for on a first in, first out basis and are valued at cost.

(k) Deferred Finance Costs

Costs incurred in connection with obtaining secured term loan facilities, revolving credit facilities and bonds are recorded as deferred financing costs and are amortized to interest expense over the estimated duration of the related debt. Such costs include fees paid to the lenders or on the lenders’ behalf and associated legal and other professional fees. Under the Accounting Standards Update (ASU) 2015- 03, Interest—Imputation of Interest the Company has adopted the accounting standard (Subtopic 835-30)—simplifying the presentation of debt issuance cost to present the unamortized debt issuance costs, excluding up front commitment fees, as a direct reduction of the carrying value of the debt.

(l) Deferred Income

Deferred income is the balance of cash received in excess of revenue earned under a time charter or voyage charter arrangement as of the balance sheet date.

(m) Revenue Recognition

The Company employs its vessels on time charters, voyage charters or COA’s. With time charters, the Company receives a fixed charter hire per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service is provided. In the case of voyage charters or COA’s, the vessel is contracted for a voyage, or a series of voyages, between two or more ports and the Company is paid for the cargo transported. Revenue for these voyages is recognized on a load to discharge basis in determining percentage of completion for all voyage charters.

(n) Other Comprehensive Income / (Loss)

The Company follows the provisions of ASC Topic 220 “Comprehensive Income,” which requires separate presentation of certain transactions, which are recorded directly as components of stockholders’ equity. Comprehensive income is comprised of net income and foreign currency translation gains and losses.

(o) Voyage Expenses and Vessel Operating Expenses

When the Company employs its vessels on time charter, it is responsible for all the operating expenses of the vessels, such as crew costs, stores, insurance, repairs and maintenance. In the case of voyage charters, the vessel is contracted only for a voyage between two or more ports, and the Company pays for all voyage expenses in addition to the vessel operating expenses. Voyage expenses consist mainly of in port expenses and bunker (fuel) consumption and are recognized as incurred during the performance obligation (the period of time from load to discharge) of the vessel. The Company has identified certain voyage costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences. These directly related costs are generally fuel or any canal or port costs to get the vessel from its position at inception of the contract to the load port to commence loading of the cargo. These costs are deferred and amortized over the duration of the performance obligation on a time basis.

(p) Repairs and Maintenance

All expenditures relating to routine maintenance and repairs are expensed when incurred.

 

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(q) Insurance

The Company maintains hull and machinery insurance, war risk insurance, protection and indemnity insurance coverage, increased value insurance, demurrage and defense insurance coverage in amounts considered prudent to cover normal risks in the ordinary course of its operations. Premiums paid in advance to insurance companies are recognized as prepaid expenses and recorded as a vessel operating expense over the period covered by the insurance contract. In addition, the Company maintains Directors and Officers insurance.

(r) Share-Based Compensation

The Company records as an expense in its financial statements the fair value of all equity-settled stock-based compensation awards. The terms and vesting schedules for share-based awards vary by type of grant. Generally, the awards vest subject to time-based (immediate to three years) service conditions. Compensation expense is recognized ratably over the service period.

(s) Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

(t) Foreign Currency Transactions

Substantially all of the Company’s cash receipts are in U.S. Dollars. The Company’s disbursements, however, are in the currency invoiced by the supplier. The Company remits funds in the various currencies invoiced. The non U.S. Dollar invoices received, and their subsequent payments, are converted into U.S. Dollars when the transactions occur. The movement in exchange rates between these two dates is transferred to an exchange difference account and is expensed each month. The exchange risk resulting from these transactions is not material.

The primary source of our foreign exchange gains and losses are the movements on our Norwegian Kroner denominated 2018 Bonds. The 2018 Bonds are translated into U.S. Dollars at each reporting date at the prevailing exchange rate at the end of the period. The movement in the foreign exchange rates between each reporting date will result in a foreign exchange gain or loss on the 2018 Bonds, which is shown as a single line on the face of the income statement. As of December 31, 2018, the foreign currency exchange gain on the 2018 Bonds was $2.4 million, compared to December 31, 2017 when we did not hold any non-U.S. Dollar denominated financial instruments.

The aggregate amount of all foreign exchange movements recorded in net income for the year ended December 31, 2018, was a $1.7 million gain compared to a $0.1 million loss for the year ended December 31, 2017. The movement was primarily as a result of the foreign currency translation of the 2018 Bonds mentioned in the previous paragraph.

(u) Derivative instruments

Derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying balance sheet and subsequently remeasured to fair value at each reporting date, regardless of the purpose or intent for holding the derivative. The resulting derivative assets or liabilities are shown as a single line and are not net off against one another on the face of the balance sheet. The method of recognizing the resulting gain or loss is dependent on whether the derivative contract qualifies for hedge accounting and has been designated as a hedging instrument. For derivative instruments that are not designated or that do not qualify as hedging instruments under the Financial Accounting Standards Board (‘FASB’) Accounting Standards Codification (‘ASC’) 815, Derivatives and Hedging, the liability has been recognized as ‘Derivative liabilities’ on the balance

 

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sheet and changes in the fair value of the derivative financial instruments are recognized in earnings. Gains and losses from the Company’s non-designated cross-currency interest rate swap agreement are recorded in realized and unrealized loss on non-designated derivative instruments in the Company’s consolidated statements of income but do not impact our cash flows.

(v) Income Taxes

Navigator Holdings Ltd. and its Marshall Islands subsidiaries are currently not required to pay income taxes in the Marshall Islands on ordinary income or capital gains as they qualify as exempt companies.

The Company has four subsidiaries incorporated in the United Kingdom where the base tax rate is 19%. One UK subsidiary earns management and other fees from fellow subsidiary companies. The second UK subsidiary holds an investment in our VIE and has a loan to our group subsidiary in Poland. The third subsidiary earns management fees from fellow subsidiary companies. The fourth subsidiary is a holding company.

The Company has a subsidiary in Poland where the base tax rate is 19%. The subsidiary earns management fees from fellow subsidiary companies.

The Company has a subsidiary incorporated in Singapore where the base tax rate is 17%. The subsidiary earns management and other fees and receives interest from its VIE, PT Navigator Khatulistiwa.

The Company considered the income tax disclosure requirements of ASC Topic 740 “Income Taxes,” with regard to disclosing material unrecognized tax benefits; none were identified. The Company’s policy is to recognize accrued interest and penalties for unrecognized tax benefits as a component of tax expense. As of December 31, 2017, and 2018, there were no accrued interest and penalties for unrecognized tax benefits.

(w) Earnings Per Share

Basic earnings per common share (“Basic EPS”) is computed by dividing the net income available to common stockholders by the weighted-average number of shares outstanding. Diluted earnings per common share (“Diluted EPS”) are computed by dividing the net income available to common stockholders by the weighted average number of common shares and dilutive common share equivalents then outstanding.

Shares granted pursuant to the 2013 Restricted Stock Plan are the only dilutive shares, and these shares have been considered as outstanding since their respective grant dates for purposes of computing diluted earnings per share.

(x) Segment Reporting

Although separate vessel financial information is available, management internally evaluates the performance of the enterprise as a whole and not on the basis of separate business units or different types of charters. As a result, the Company has determined that it operates as one reportable segment. Since the Company’s vessels regularly move between countries in international waters over many trade routes, it is impractical to assign revenues or earnings from the transportation of international LPG and petrochemical products by geographic area. As disclosed in Note 2(a) Basis of Presentation – there are two different revenue streams due to the nature of the contracts that we operate. The Company believes that all of these contracts are part of the same operating segment of seaborne transportation.

(y) Recent Accounting Pronouncements

The following accounting standards issued as of December 31, 2018, may affect the future financial reporting by Navigator Holdings Ltd:

In February 2016, the Financial accounting Standards Board, or “FASB” issued ASU 2016-02, Leases, (‘Topic 842’), which, requires lessees to recognize most leases on-balance sheet and disclose key information about

 

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leasing arrangements. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842 Leases; and ASU 2018-11, Target Improvements, which clarifies and corrects errors in ASC 842. The effective date and transition requirements in ASU 2018-10 are the same as the effective date and transition requirements of ASU 2016-02.

The new standard established a right-of use (“ROU”) model that requires a lessee to recognize a ROU asset, representing the right to use the asset for a specified period of time and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases for lessees will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard also requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease in effect, transfers control of the underlying assets to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third-party, the lease is a direct financing lease. All lessor leases that are not sales-type or direct financing leases are operating leases.

The effective date for ASU 2016-02 is for annual and interim periods in fiscal years beginning after December 15, 2018. The Company will adopt the standard using the modified retrospective transition method for reporting periods presented beginning January 1, 2019 and elect all of the standard’s practical expedients in ASC 842-10-65-1(f) as a package on adoption. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We do not expect a significant change in our leasing activity between now and adoption. We adopted the new standard with effect from January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided, for dates and periods before January 1, 2019.

For the Company as a lessee, we expect that this standard will have a material effect in the way our leases are recorded, presented and disclosed in our consolidated financial statements. We believe that the most significant changes relate to the recognition of new ROU assets and liabilities on our balance sheet for our operating leases, expected to relate to long-term commitments for our offices in London, New York and Gdynia. Consequently, on adoption, we expect to recognize additional operating liabilities, less unamortized lease incentives, of $7.6 million, with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

The new standard also provides practical expedients for any entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for leases that qualify, meaning that we will not recognize ROU assets or lease liabilities for these leases. This includes not recognizing ROU assets or lease liabilities for existing short-term leases at the transition date.

For the Company as a lessor, in applying ASU 2016-02, we believe that our vessels contracted under voyage charters or contracts of affreightment do not qualify as leases, as the charterer does not have the right to operate the asset and we maintain the right to direct the use of the asset during the period of charter hire. Vessels on time charters will continue to qualify as operating leases, when the charterer has the right to obtain substantially all of the benefits and can direct how and for what purposes the vessel will be used, and the Company has no substantive substitution rights. Time charters do not qualify as direct finance leases under ASU 2016-02 as the present value of the sum of the lease payments does not exceed the fair value of the underlying vessel.

The Company has elected, as a package, the practical expedients available in ASC 842-10-65-1(f) to not re-assess whether any existing or expired contracts are, or contain leases, for voyages in progress at the adoption

 

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date of ASU 2016-02. We will assess new charter contracts after the adoption date for whether they are, or contain, leases and should be recognized under ASU 2016-02. Any future charter contracts that do not contain a lease will be accounted for under Topic 606. Please read Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements. We do not anticipate a change to the classification of time charters, voyage charters or contracts of affreightment, the period over which we recognize revenue and we expect no significant impact on our consolidated financial statements or cash flows as a result of adopting this standard.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which contains an amendment to ASU 2016-02 that would allow lessors to elect, as a practical expedient, by class of underlying asset, not to separate lease and non-lease components of a contract from lease components. The amendment allows these components to be accounted for as a single lease component if both (i) the timing and pattern of the revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company has elected the package of practical expedients, as mentioned above, and it is expected that revenue from vessels under time charters will be presented as a single lease component. This ASU has the same effective date as ASU 2016-02 for entities that have not early adopted ASU 2016-02, or for entities that have early adopted ASU 2016-02, upon issuance.

ASU 2018-11 also created a new, optional, transition method for implementing ASU 2016-02, which can only be adopted by entities either at (1) the beginning of the company’s first reporting period after issuance or (2) the entity’s mandatory ASU 2016-02 effective date. The Company will apply this optional transitional method at the effective date of adoption of ASU 2016-02. Under this transition method, a cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of adoption for the reporting entity, and the presentation of the consolidated financial statements for comparative periods will remain unchanged. This choice of method affects only the timing of when an entity applies the transition provisions. The impact of adopting this transition method will not have a material impact on our consolidated financial statements as we expect to recognize an adjustment to the opening balance of retained earnings for an expense of $0.08 million on adoption.

In June 2016, the FASB issued ASU 2016–13, Financial Instruments – Credit Losses, which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity debt securities, among others. ASU 2016–13 is required to be adopted for public business entities using the modified retrospective method by January 1, 2020, with early adoption permitted for fiscal periods beginning after December 15, 2018. We plan to adopt ASU 2016-13 on January 1, 2020 and we do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which more closely aligns the accounting for employee and nonemployee share-based payments. This ASU is effective for Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We adopted the new standard with effect from January 1, 2019, and the adoption of this standard will not have a material impact on our consolidated financial statements and related disclosures.

3. Fair Value of Derivative Instruments

The Company held no derivatives designated as hedges as of December 31, 2017 and 2018.

The fair value of the cross-currency interest rate swap agreement is the estimated amount that we would receive to sell or transfer the swap at the reporting date, taking into account current interest rates, foreign exchange rates and the current credit worthiness of the swap counterparties. The estimated amount is the present value of future cash flows. The Company transacts all of these derivative instruments through investment-grade rated financial institutions at the time of the transaction. It is possible that the amount recorded as a derivative asset or liability could vary by a material amount in the near term if there is volatility in the credit markets.

 

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The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring basis.

 

     December 31, 2017      December 31, 2018  

Fair Value Hierarchy Level

   Fair
Value
Hierarchy
Level
     Carrying
Amount
Asset
(Liability)
     Fair Value
Asset
(Liability)
     Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
 
            (in thousands)        

Cross-currency interest rate swap agreement

     Level 2        —          —          (5,154     (5,154

4. Fair Value of Financial Instruments Not Accounted For at Fair Value

The principal financial assets of the Company as of December 31, 2017 and 2018 consist of cash, cash equivalents and accounts receivable. The principal financial liabilities of the Company consist of accounts payable, accrued expenses and other liabilities, secured term loan facilities, revolving credit facilities, the 2017 Bonds and the 2018 Bonds.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are reasonable estimates of their fair value due to the short-term nature or liquidity of these financial instruments.

Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. The fair value accounting standard establishes a three tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs which are supported by little or no market activity.

The 2017 Bonds and the 2018 Bonds are classified as a level two liability and the fair values have been calculated based on the most recent trades of the bond on the Oslo Børs prior to December 31, 2018. The 2018 Bonds are denominated in Norwegian Kroner (“NOK”) and the fair value has been translated to the functional currency of the Company using the exchange rate as of December 31, 2018.

The fair value of secured term loan facilities and revolving credit facilities is estimated based on the average of the current rates offered to the Company for all debt facilities. The carrying value approximates the fair market value for the floating rate loans and revolving credit facilities due to their variable interest rate, being three month U.S. LIBOR. This has been categorized at level three on the fair value measurement hierarchy.

 

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The following table includes the estimated fair value and carrying value of those assets and liabilities. The table excludes accounts receivable, accounts payable, accrued expenses and other liabilities because the fair value approximates carrying value.

 

     December 31, 2017     December 31, 2018  

Fair Value Hierarchy Level

   Fair
Value
Hierarchy
Level
     Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
    Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
 
            (in thousands)        

Cash and cash equivalents

     Level 1        62,109       62,109       71,515       71,515  

2018 Bonds (note 11)

     Level 2        —         —         (69,337     (66,004

2017 Bonds (note 12)

     Level 2        (100,000     (96,775     (100,000     (96,481

Secured term loan facilities and revolving credit facilities (note 10)

     Level 3        (772,190     (636,220     (675,738     (588,713

5. Accounts Receivable, Net

It is a condition of time charter parties that payments of hire are received monthly in advance. Voyage charter contracts require payment upon completion of each discharge, with subsequent demurrage claims payable on submission of invoices. As of December 31, 2018, management has provided a provision for doubtful accounts of $0.3 million relating to outstanding demurrage claims (2017: $0.3 million).

 

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6. Vessels in Operation, net

 

     Vessel
(in thousands)
     Drydocking
(in thousands)
     Total
(in thousands)
 

Cost

        

December 31, 2016

     1,727,491        33,949        1,761,440  

Additions

     1,940        268        2,208  

Transfer in from vessels under construction

     327,571        3,550        331,121  

Disposals

     —          (1,492      (1,492

Reduction in contract cost of newbuild vessels

     (280      —          (280
  

 

 

    

 

 

    

 

 

 

December 31, 2017

     2,056,722        36,275        2,092,997  

Additions

     648        5,796        6,444  

Transfer in from vessels under construction

     —          —          —    

Disposals

     —          (10,163      (10,163
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     2,057,370        31,908        2,089,278  
  

 

 

    

 

 

    

 

 

 

Accumulated Depreciation

        

December 31, 2016

     268,677        12,404        281,081  

Charge for the period

     64,031        9,238        73,269  

Disposals for the period

     —          (1,492      (1,492
  

 

 

    

 

 

    

 

 

 

December 31, 2017

     332,708        20,150        352,858  

Charge for the period

     67,809        7,909        75,718  

Disposals for the period

     —          (10,163      (10,163
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     400,517        17,896        418,413  
  

 

 

    

 

 

    

 

 

 

Net Book Value

        

December 31, 2016

   $ 1,458,814      $ 21,545      $ 1,480,359  
  

 

 

    

 

 

    

 

 

 

December 31, 2017

   $ 1,724,014      $ 16,125      $ 1,740,139  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

   $ 1,656,853      $ 14,012      $ 1,670,865  
  

 

 

    

 

 

    

 

 

 

During 2017 the Company took delivery of two semi-refrigerated midsize liquefied gas carriers from Jiangnan shipyard for a combined contract price of $156.8 million and two semi-refrigerated handysize and one fully refrigerated liquefied gas carriers from HMD shipyard for a combined contract price of $152.5 million.

The cost and net book value of vessels that were contracted under time charter agreements (please read Note 16 to the consolidated financial statements) was $1,337 million and $1,084 million respectively as of December 31, 2018.

The net book value of vessels that serve as collateral for the Company’s secured bond, secured term loan and revolving credit facilities (Note 10 and Note 11 to the consolidated financial statements) was $1,509 million as of December 31, 2018.

 

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7.

Investment in Equity Accounted Joint Venture

 

     (in thousands)  

Investment in equity accounted joint venture as of December 31, 2017

   $ —    

Equity contributions to joint venture entity

     41,000  

Share of results

     (38

Capitalized interest

     1,024  

Legal costs

     476  
  

 

 

 

Investment in equity accounted joint venture as of December 31, 2018

   $ 42,462  
  

 

 

 

On January 31, 2018, the Company entered into an agreement to construct the Marine Export Terminal, pursuant to which the Company has a 50% economic interest in building and operating the Marine Export Terminal.

8. Vessels Under Construction

 

     2017
(in thousands)
     2018
(in thousands)
 

Vessels under construction as of January 1

   $ 150,492      $ —  

Payments to shipyard

     174,131        —    

Other payments including initial stores and site costs

     4,783        —    

Capitalized interest

     1,715        —    

Transfer to vessels in operation

     (331,121      —    
  

 

 

    

 

 

 

Vessels under construction as of December 31

   $ —        $ —    
  

 

 

    

 

 

 

 

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9. Group Subsidiaries

As of December 31, 2017, and 2018, the company had the following significant subsidiaries:

 

Corporation Name

   Percentage Ownership
as of December 31,
    Country of
Incorporation
  Subsidiary of Limited
Liability Company
     2017     2018          

- Navigator Gas US L.L.C.

     100     100   Delaware (USA)   Service company

- Navigator Gas L.L.C.

     100     100   Marshall Islands   Holding company

~ Navigator Aries L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Atlas L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Aurora L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Centauri L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceres L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Copernico L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Capricorn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Eclipse L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Europa L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Galaxy L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gemini L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Genesis L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Glory L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Grace L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gusto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Jorf L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Leo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Libra L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Luga L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Magellan L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Mars L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Neptune L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Nova L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Oberon L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Pegasus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Phoenix L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Prominence L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Saturn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Scorpio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Taurus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Triton L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Umbrio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Venus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Virgo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Yauza L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ NGT Services (UK) Ltd

     100     100   England   Service company

~ NGT Services (Poland) Sp. z.o.o.

     100     100   Poland   Service company

~ Navigator Gas Ship Management Ltd.

     100     100   England   Service company

~ Falcon Funding PTE Ltd

     100     100   Singapore   Service company

~ Navigator Gas Invest Ltd

     100     100   England   Investment company

- PT Navigator Khatulistiwa

     49     49   Indonesia   Vessel-owning company

~ Navigator Terminals L.L.C.

     100     100   Marshall Islands   Investment company

~ Navigator Terminal Invest Ltd

     100     100   England   Investment company

- Navigator Ethylene Terminals L.L.C.

     100     100   Delaware (USA)   Investment company

- Enterprise Navigator Ethylene Terminal L.L.C.

     50     50   Texas (USA)   Terminal operator

 

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The VIE, PT Navigator Khatulistiwa, had total assets and liabilities, as of December 31, 2018, of $125.3 million (2017: $132.2 million) and $36.6 million (2017: $54.4 million) respectively.

10. Secured Term Loan Facilities and Revolving Credit Facilities

The table below represents the annual principal payments to be made under our term loans and revolving credit facilities after December 31, 2018:

 

     December 31,
2017
(in thousands)
     December 31,
2018
(in thousands)
 

Due within one year

   $ 83,352      $ 70,600  

Due in two years

     70,600        128,725  

Due in three years

     128,725        60,600  

Due in four years

     60,600        302,461  

Due in five years

     302,461        113,352  

Due in more than five years

     126,452        —    
  

 

 

    

 

 

 

Total secured term loan facilities and revolving credit facility

   $ 772,190      $ 675,738  

Less: current portion

     83,352        70,600  
  

 

 

    

 

 

 

Secured term loan facilities and revolving credit facility, non-current portion

   $ 688,838      $ 605,138  
  

 

 

    

 

 

 

On June 29, 2018 the Company obtained approval to amend one of the covenants in each of its secured term loan and revolving credit facilities. The covenant, requiring the ratio of Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) to be at least two and a half times or three times interest has been amended to a requirement of two times interest, up to and including September 30, 2020, before then reverting back to the original requirements of two and a half times or three times interest, dependent upon the facility.

January 2015 Secured Term Loan Facility. On January 27, 2015 the Company entered into a secured term loan facility with Credit Agricole Corporate and Investment Bank as agent as well as HSH Nordbank AG and NIBC Bank N.V. to refinance the April 2013 $120.0 million secured term loan facility, as well as to provide financing for an additional five existing newbuildings. The January 2015 secured term loan facility has a term of up to seven years from the loan drawdown date with a maximum principal amount of up to $278.1 million. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowing under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 270 basis points per annum. The deferred finance costs associated with the extinguishment of the previous $120.0 million facility were written off in full. The facility is fully drawn and as of December 31, 2018 the amount still outstanding was $200.8 million which is repayable for each vessel tranche in quarterly installments of between $0.5 million and $0.7 million for seven years from the date of each vessel drawdown followed by a final payment of between $15.6 million and $18.3 after each seven year term ends.

This loan facility is secured by first priority mortgages on each of; Navigator Atlas, Navigator Europa, Navigator Oberon, Navigator Triton, Navigator Umbrio, Navigator Centauri, Navigator Ceres, Navigator Ceto and Navigator Copernico as well as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5% of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

December 2015 Secured Revolving Credit Facility. On December 21, 2015 the company entered into a secured revolving credit facility with Nordea Bank AB and ABN Amro Bank N.V as agents, to provide financing

 

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for six vessels. The December 2015 secured revolving credit facility has a term of seven years from the loan arrangement date (expiring in December 2022) with a maximum principal amount of up to $290.0 million. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 210 basis points per annum. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility. As of December 31, 2018, the facility was fully drawn with an amount still outstanding of $246.7 million which is repayable over 15 combined quarterly installments of $4.1 million with the final combined repayment of $185.1 million on December 21, 2022.

This loan facility is secured by first priority mortgages on each of; Navigator Aurora, Navigator Eclipse, Navigator Nova, Navigator Prominence, Navigator Luga and Navigator Yauza as well as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also paid a commitment fee of 0.74% per annum based on any undrawn portion of the facility. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

October 2016 Secured Term Loan and Revolving Credit Facility. On October 28, 2016 the company entered into a secured term loan and revolving credit facility with ABN Amro Bank N.V as agents as well as Nordea Bank AB, London Branch; DVB Bank SE and Skandinaviska Enskilda Banken AB to provide $130.0 million to refinance and extinguish the remaining debt under the 2011 secured term loan facility and the 2012 secured term loan facility; to provide $35 million as a newbuilding term loan to part finance Navigator Jorf, which was delivered in July 2017, and to provide a revolving credit facility of $55.0 million for general corporate purposes. The facility has a term of seven years from the first utilization date (expiring in December 2023) with a maximum principal amount of up to $220.0 million. As of December 31, 2018, the outstanding balance drawn on the secured term loan and newbuilding loan was $92.2 million which is repayable in 17 quarterly amounts of $4.1 million, followed by payments of $1.0 million, $0.5 million final repayment of $21.0 million. As of December 31, 2018, the Company had $55.0 million in available borrowing capacity under its October 2016 Secured Term Loan and Revolving Credit Facility

Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 260 basis points per annum. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility.

This facility is secured by first priority mortgages on each of: Navigator Gemini, Navigator Leo, Navigator Libra, Navigator Pegasus, Navigator Phoenix, Navigator Taurus and Navigator Jorf as well as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also pays a commitment fee of 0.91% per annum based on any undrawn portion of the facility. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

June 2017 Secured Term Loan and Revolving Credit Facility. On June, 2017 the company entered into a secured term loan and revolving credit facility with Nordea Bank AB (Publ.), Filial I Norge, BNP Paribas, DVB Bank America N.V., ING Bank N.V. London Branch and Skandinaviska Enskilda Banken AB (Publ.) for a maximum principal amount of $160.8 million (the “June 2017 Secured Term Loan and Revolving Credit Facility”), to re-finance our $270.0 million February 2013 secured term loan facility that was due to mature in February 2018 and for general corporate purposes. The facility has $100.0 million as a secured term loan and $60.8 million available in a revolving credit facility with a term of six years from the date of the agreement

 

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(expiring in June 2023) with a maximum principal amount of up to $160.8 million. As of December 31, 2018, the outstanding balance drawn on the loan was $136.1 million which is repayable in 17 quarterly amounts of $4.1 million followed by a final repayment of $66.4 million. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 230 basis points per annum. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility.

The facility is secured by first priority mortgages on each of Navigator Galaxy, Navigator Genesis, Navigator Grace, Navigator Gusto, Navigator Glory, Navigator Capricorn, Navigator Scorpio and Navigator Virgo, as well as assignment of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 2.5:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also pays a commitment fee of 0.91% per annum based on any undrawn portion of the facility. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

The following table shows the breakdown of secured term loan facilities and total deferred financing costs split between current and non-current liabilities as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Current Liability

     

Current portion of secured term loan facilities

   $ (83,352    $ (70,600

Less: current portion of deferred financing costs

     1,793        1,743  
  

 

 

    

 

 

 

Current portion of secured term loan facilities, net of deferred financing costs

   $ (81,559    $ (68,857
  

 

 

    

 

 

 

Non-Current Liability

     

Secured term loan facilities and revolving credit facilities net of current portion

   $ (688,838    $ (605,138

Less: non-current portion of deferred financing costs

     7,180        5,462  
  

 

 

    

 

 

 

Non-current secured term loan facilities and revolving credit facilities, net of current portion and non-current deferred financing costs

   $ (681,658    $ (599,676
  

 

 

    

 

 

 

11. Senior Secured Bond

On November 2, 2018, the Company issued senior secured bonds in an aggregate principal amount of NOK 600 million with Nordic Trustee AS as the bond trustee (the “2018 Bonds”). The net proceeds are being used to part finance the Export Terminal Joint Venture. The 2018 Bonds are governed by Norwegian law and are listed on the Nordic ABM which is operated and organized by Oslo Børs ASA. The 2018 Bonds bear interest at a rate of 3-month NIBOR plus 6.0% per annum, calculated on a 360-day year basis and mature on November 2, 2023. Interest is payable quarterly in arrears on February 2, May 2, August 2 and November 2.

On the same date, the company entered into a cross-currency interest rate swap agreement with Nordea Bank Abp (“Nordea”), with a termination date of November 2, 2023, to run concurrently with the 2018 Bonds. The interest rate payable by the Company under this cross-currency interest rate swap agreement will be 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million Please read Note 18 (Note 18 (Derivative Instruments) to the consolidated financial statements. For a description of our accounting policy in relation to the cross-currency interest rate swap, please read Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements.

 

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Table of Contents

The Company may redeem the 2018 Bonds, in whole or in part, at any time beginning on or after November 2, 2021. Any 2018 Bonds redeemed from November 2, 2021 until November 1, 2022, are redeemable at 102.4% of par, from November 2, 2022 until May 1, 2023, are redeemable at 101.5% of par, and from May 2, 2023 to the maturity date are redeemable at 100% of par, in each case, in cash plus accrued interest.

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the 2018 Bond Agreement), the holders of 2018 Bonds have an option to require us to repay such holders’ outstanding principal amount of 2018 Bonds at 101% of par, plus accrued interest.

The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the Company and its subsidiaries”) maintains a minimum liquidity of no less than $25.0 million and (b) maintain a Group equity ratio of minimum 30% (as defined in the bond agreement). As of December 31, 2018, the Company was in compliance with all covenants for the 2018 Bonds.

The 2018 Bond Agreement provides that we may declare dividends from January 1, 2020, payable at the earliest from January 1, 2021 so long as such dividends do not exceed 50% of our cumulative consolidated net profits after taxes from January 1, 2020. The 2018 Bond Agreement also limits us and our subsidiaries from, among other things, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens which would have a material adverse effect. In addition, the 2018 Bond Agreement includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

The following table shows the breakdown of our senior secured bond and total deferred financing costs as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Senior Secured Bond

     

Total Bond

   $ —        $ (69,337

Less deferred financing costs

     —          959  
  

 

 

    

 

 

 

Total Bond, net of deferred financing costs

   $ —        $ (68,378
  

 

 

    

 

 

 

12. Senior Unsecured Bond

On February 10, 2017, the Company issued senior unsecured bonds in an aggregate principal amount of $100.0 million with Nordic Trustee AS as the bond trustee (the “2017 Bonds”). The net proceeds of the issuance of the 2017 Bonds, together with cash on hand, were used to redeem in full all of the Company’s outstanding 9.0% senior unsecured bonds. The 2017 Bonds are governed by Norwegian law and listed on the Nordic ABM which is operated and organized by Oslo Børs ASA. The 2017 Bonds bear interest at a rate of 7.75% per annum and mature on February 10, 2021. Interest is payable semi-annually in arrears on February 10 and August 10. The Company may redeem the 2017 Bonds, in whole or in part, at any time beginning on or after February 11, 2019. Any 2017 Bonds redeemed from February 11, 2019 up until February 10, 2020, are redeemable at 103.875% of par, from February 11, 2020 to August 10, 2020, are redeemable at 101.9375% of par, and from August 11, 2020 to the maturity date are redeemable at 100% of par, in each case, plus accrued interest.

The 2017 Bond Agreement contains an option to issue additional bonds up to a maximum issue amount of a further $100.0 million, at identical terms as the original bond issue, except that additional bonds may be issued at a different price.

 

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Table of Contents

The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the Company and its subsidiaries”) maintains a minimum liquidity of the greater of no less than $25.0 million; (b) to maintain an interest coverage ratio (as defined in the bond agreement) of not less than 2.25:1; and (c) maintain a Group equity ratio of minimum 30% (as defined in the bond agreement). As of December 31, 2018, the Company was in compliance with all covenants for the 2017 Bonds.

The 2017 Bond Agreement provides that we may declare dividends so long as such dividends do not exceed 50% of our cumulative consolidated net profits after taxes since June 30, 2016. The 2017 Bond Agreement also limits us and our subsidiaries from, among other things, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens which would have a material adverse effect. In addition, the 2017 Bond Agreement includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

The following table shows the breakdown of our senior unsecured bond and total deferred financing costs as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Senior Unsecured Bond

     

Total Bond

   $ (100,000    $ (100,000

Less deferred financing costs

     1,416        961  
  

 

 

    

 

 

 

Total Bond, net of deferred financing costs

   $ (98,584    $ (99,039
  

 

 

    

 

 

 

13. Earnings per Share

Basic and diluted earnings per share is calculated by dividing the net income available to common stockholders by the average number of common shares outstanding during the periods. Diluted earnings per share is calculated by adjusting the net income available to common stockholders and the weighted average number of common shares used for calculating basic earnings per share for the effects of all potentially dilutive shares.

The calculation of both basic and diluted number of weighted average outstanding shares of:

 

    December 31,
2016
    December 31,
2017
    December 31,
2018
 

Net income/(loss) available to common stockholders (in thousands)

    44,638       5,310       (5,739

Basic weighted average number of shares

    55,418,626       55,508,974       55,629,023  

Effect of dilutive potential share options:

    375,855       372,480       —    
 

 

 

   

 

 

   

 

 

 

Diluted weighted average number of shares

    55,794,481       55,881,454       55,629,023  

 

*

Due to a loss for the year ended December 31, 2018, no incremental shares are included because the effect would be antidilutive.

14. Share-Based Compensation

During 2008, the Company’s Board adopted the 2008 Restricted Stock Plan (the “2008 Plan”), which entitled officers, employees, consultants and directors of the Company to receive grants of restricted stock of the Company’s common stock. This 2008 Plan is administered by the Board or a committee of the Board. A holder of restricted stock, awarded under the Plan, shall have the same voting and dividend rights as the Company’s other common stockholders in relation to those shares.

 

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Table of Contents

Prior to closing of the Company’s initial public offering in November 2013, this 2008 Plan was frozen such that new awards will no longer be issued thereunder. However, any outstanding awards issued prior to the 2008 Plan being frozen shall continue to remain outstanding and extend beyond the date the 2008 Plan was frozen. Any future equity incentive awards will be granted under the new 2013 Long-Term Incentive Plan (the “2013 Plan”) entered into prior to the closing of the Company’s initial public offering.

The 2013 Plan is administered by the Compensation Committee with certain decisions subject to approval of our Board. The maximum aggregate number of common shares that may be delivered pursuant to options or restricted stock awards granted under the 2013 Plan is 3,000,000 shares of common stock. A holder of restricted stock, awarded under the 2013 Plan, shall have the same voting and dividend rights as the Company’s other common stockholders in relation to those shares.

Share awards

On March 20, 2018, the Company granted 29,898 restricted shares under the 2013 Plan to non-employee directors with a weighted average value of $12.04 per share. On November 28, 2018 the Company granted a further 5,000 shares to a newly appointed non-employee director with a weighted average value of $12.30. These restricted shares vest on the first anniversary of the grant date. On March 20, 2018 the Company granted 63,728 restricted shares to the Chief Executive Officer of the Company and a further 32,916 restricted shares were granted to officers and employees of the Company with a weighted average value of $12.04 per share. All these restricted shares vest on the third anniversary of the grant date.

During the year ended December 31, 2018, 28,194 shares that were previously granted under the 2013 Plan to non-employee directors with a weighted average grant value of $12.77 per share vested at a fair value of $325,641.

On March 23, 2017, the Company granted 28,194 restricted shares under the 2013 Plan to non-employee directors with a weighted average value of $12.77 per share. These restricted shares vest on the first anniversary of the grant date. On the same date the Company granted 42,023 restricted shares to the Chief Executive Officer of the Company and a further 23,458 restricted shares were granted to officers and employees of the Company with a weighted average value of $12.77 per share. All these restricted shares vest on the third anniversary of the grant date.

During the year ended December 31, 2017, 22,782 shares that were previously granted under the 2008 Plan at a weighted average grant value of $15.80 vested at a fair value of $305,279. During the year ended December 31, 2017, 2,500 shares that were previously granted under the 2013 Plan to an officer of the Company with an average grant value of $19.59 vested at a fair value of $24,888.

Restricted share grant activity for the year ended December 31, 2017 and 2018 was as follows:

 

     Number of non-
vested
restricted
shares
     Weighted
average grant
date fair value
     Weighted
average
remaining
contractual
term
     Aggregate
intrinsic value
 

Balance as of January 1, 2017

     75,120      $ 15.93        1.59 years      $ 698,616  

Granted

     93,675        12.77        

Vested

     (25,282      16.17        
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2017

     143,513        13.82        1.49 years      $ 1,413,603  

Granted

     131,542        12.04        

Vested

     (28,194      12.77        

Forfeit

     (3,673      14.16        
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2018

     243,188        12.98        1.30 years      $ 2,285,967  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Using the straight-line method of expensing the restricted stock grants, the weighted average estimated value of the shares calculated at the date of grant is recognized as compensation cost in the Statement of Income over the period to the vesting date. During the year ended December 31, 2018, the Company recognized $1,173,580 in share-based compensation costs relating to share grants (year ended December 31, 2017: $859,061). As of December 31, 2018, there was a total of $1,387,104 unrecognized compensation costs relating to the expected future vesting of share-based awards (December 31, 2017: $1,027,683) which are expected to be recognized over a weighted average period of 1.30 years (December 31, 2017: 1.49 years).

Share options

Share options issued under the 2013 Plan are not exercisable until the third anniversary of the grant date and can be exercised up to the tenth anniversary of the date of grant. The fair value of each option is calculated on the date of grant based on the Black-Scholes valuation model using the assumptions listed in the table below. Expected volatilities are based on the historic volatility of the Company’s stock price and other factors. The Company does not currently pay dividends and it is assumed this will not change. The expected term of the options granted is anticipated to occur in the range between 4 and 6.5 years. The risk-free rate is the rate adopted from the U.S. Government Zero Coupon Bond.

The movements in the existing share options during the years ended December 31, 2017 and 2018 were as follows:

 

Options    Number of non-
vested
options
     Weighted
average exercise
price per share
     Weighted
average
remaining
contractual
term years
     Aggregate
intrinsic value
 

Balance as of January 1, 2017

     373,740      $ 21.54        7.70        —    

Vested

     (214,055      24.19        —          —    

Forfeited during the period

     (5,000      23.85        —          —    
  

 

 

    

 

 

    

 

 

    

Balance as of December 31, 2017

     154,685        17.80        6.70      $ —    

Vested

     (148,387      23.85        —          —    

Forfeited during the period

     (6,298      —          —          —    
  

 

 

    

 

 

    

 

 

    

Balance as of December 31, 2018

     —          —          —        $ —    
  

 

 

    

 

 

    

 

 

    

On March 17, 2018, 153,185 share options granted on March 17, 2015 at an option price of $17.80 became exercisable. None of the options were exercised as of December 31, 2018. During the year ended December 31, 2018 and following the vesting of share options on March 17, 2018 a further 23,304 share options were forfeit.

On April 14, 2017, 194,055 share options granted previously at an option price of $24.29 became exercisable and on October 14, 2017, 20,000 share options became exercisable at an option price of $23.18.

During the year ended December 31, 2018, 18,506 of the share options that had previously vested as of December 31, 2017 were forfeited at a weighted average option price of $24.17. As of December 31, 2018, there were 343,936 share options vested and still outstanding.

During the year ended December 31, 2018, the Company recognized a credit of $99,902 in share-based compensation costs relating to the forfeiture of options granted under the 2013 Plan, which was recognized in general and administrative costs (year ended December 31, 2017: expense of $553,894). As of December 31, 2018, there was no unrecognized compensation costs (year ended December 31, 2017 $85,898) related to non-vested options under the 2013 Plan.

 

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Table of Contents

15. Commitments and Contingencies

The contractual obligations schedule set forth below summarizes our contractual obligations as of December 31, 2018.

 

    2019     2020     2021     2022     2023     Total  
    (in thousands)  

Ethylene terminal capital contributions *

    92,500       21,500       —         —         —         114,000  

Secured term loan facilities and revolving credit facilities

    70,600       128,725       60,600       302,461       113,352       675,738  

2017 Bonds

    —         —         100,000       —         —         100,000  

2018 Bonds **

    —         —         —         —         71,697       71,697  

Office operating leases

    1,493       1,280       1,128       109       —         4,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $ 164,593     $ 151,505     $ 161,728     $ 302,570     $ 185,049     $ 965,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

On January 8, February 19, and March 22, 2019, the Company made capital contributions of $18.0 million, $3.5 million and $10.0 million respectively, reducing the remaining contributions required for 2019 from $92.5 million to $61.0 million for the Company’s portion of the capital cost for the construction of the Marine Export Terminal.

**

The Company has NOK 600 million of 2018 Bonds that mature in 2023 issued in the Norwegian Bond market (see Note 11 (Senior Secured Bond) to the consolidated financial statements). The Company has entered into a cross-currency interest rate swap agreement, to swap all interest and principal payments of the 2018 Bonds into U.S. Dollars, with the interest payments at 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million (see Note 18 (Derivative Instruments) to the consolidated financial statements).

The Company occupies office space in London with a lease that commenced in January 2017 for a period of 10 years with a mutual break option in January 2022, which is the fifth anniversary from the lease commencement date. The gross rent per year is approximately $1.1 million.

The Company entered into a lease for office space in New York that commenced June 1, 2017 and expires on May 31, 2020. The annual gross rent under this lease is approximately $0.4 million, subject to certain adjustments.

The lease term for our representative office in Gdynia, Poland is for a period of five years commencing from April 2017. The gross rent per year is approximately $60,000.

16. Concentration of Credit Risks

The Company’s vessels are chartered under either a time charter arrangement or voyage charter arrangement. Under a time charter arrangement, no security is provided for the payment of charter hire. However, payment is usually required monthly in advance. Under a voyage charter arrangement, a lien may sometimes be placed on the cargo to secure the payment of the accounts receivable, as permitted by the prevailing charter party agreement.

 

F-33


Table of Contents

As of December 31, 2018, 23 of the Company’s 38 operated vessels, were subject to time charters, 15 of which will expire within one year, two which will expire within three years, and six which will expire within nine years. The committed time charter income for financial years ending December 31, 2018, is as follows:

 

     (in thousands)  

2019:

   $ 114,098  

2020:

   $ 77,370  

2021:

   $ 60,974  

2022:

   $ 43,961  

2023:

   $ 38,667  

2024 onwards:

   $ 69,810  

During 2018, four charterers contributed 55.1% of the operating revenue, comprising 16.5%, 15.4%, 13.5%, and 9.7% (2017: four charterers contributed 55.1% of the operating revenue, comprising 16.5%, 16.3%, 11.9% and10.4%).

As of December 31, 2017, and 2018, all of the Company’s cash and cash equivalents and short-term investments were held by large financial institutions, highly rated by a recognized rating agency.

17. Income Taxes

Navigator Holdings Ltd and its vessel owning subsidiaries are incorporated in the Marshall Islands and under the laws of the Marshall Islands are not subject to tax on income or capital gains and no Marshall Islands withholding tax will be imposed on dividends paid by the Company to its stockholders. However, the Company’s UK, Polish and Singaporean subsidiaries are subject to local taxes.

 

     2016
(in thousands)
     2017
(in thousands)
     2018
(in thousands)
 

Net Income/(loss)

   $ 44,638      $ 5,310      $ (5,739

Tax expense at statutory rate

   $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

 

Total statutory tax charge

   $ —        $ —        $ —    

Tax charge in UK subsidiaries

   $ 669      $ 221      $ 254  

Tax credit in Polish subsidiary

   $ —        $ (130    $ (147

Tax charge in Singapore subsidiary

   $ 508      $ 306      $ 226  
  

 

 

    

 

 

    

 

 

 

Total Tax charge

   $ 1,177      $ 397      $ 333  
  

 

 

    

 

 

    

 

 

 

18. Derivative Instruments

The Company uses derivative instruments in accordance with its overall risk management policy to mitigate our risk to the effects of unfavorable fluctuations in foreign exchange movements.

The Company entered into a cross-currency interest rate swap agreement concurrently with the issuance of its NOK-denominated Senior secured bonds (see Note 11 (Senior Secured Bond) to the consolidated financial statements) and pursuant to this swap, the Company receives the principal amount of NOK 600 million in exchange for a payment of a fixed amount of $71.7 million on the maturity date of the swap.

In addition, at each quarterly interest payment date, the cross-currency interest rate swap exchanges a receipt of floating interest of 6.0% plus 3-month NIBOR on NOK 600 million for a U.S. Dollar payment of floating interest of 6.608% plus 3-month U.S. LIBOR on the $71.7 million principal amount. The purpose of the cross-currency interest rate swap is to economically hedge the foreign currency exposure on the payments of interest and principal of the Company’s NOK-denominated 2018 Bonds due in 2023.

 

F-34


Table of Contents

The cross-currency interest rate swap is remeasured to fair value at each reporting date. The fair value of this non-designated derivative instrument is presented in the Company’s consolidated balance sheet and the change in fair value is presented in the consolidated statement of income. As of December 31, 2018, the cross-currency interest rate swap had a fair value liability of $5.2 million and an unrealized loss of $5.2 million. There is no impact on the cash flows.

Foreign Exchange risk

Under U.S. GAAP, all foreign currency-denominated monetary assets and liabilities are revalued and are reported in the Company’s functional currency based on the prevailing exchange rate at the end of the period. These foreign currency transactions fluctuate based on the strength of the U.S. Dollar relative to the NOK and are included in our results of operations. The primary source of our foreign exchange gains and losses are the movements on our NOK-denominated 2018 Bonds, which we have mitigated through the cross-currency interest rate swap. The translation of all foreign currency-denominated monetary assets and liabilities at each reporting date results in unrealized foreign currency exchange differences but do not impact our cash flows.

Credit risk

The Company is exposed to credit loss in the event of non-performance by the counterparty to the cross-currency interest rate swap agreement. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are reputable financial institutions, highly rated by a recognized rating agency.

19. Subsequent Events

In January 2019, February 2019 and March 2019, we contributed a further $18.0 million, $3.5 million and $10.0 million, respectively, to the Export Terminal Joint Venture, in addition to the $41.0 million contributed up to December 31, 2018, of our expected share of our expected $155.0 million share of the capital cost of the Marine Export Terminal from the company’s available cash resources and the proceeds of the 2018 Bonds.

On March 25, 2019 the Company entered into a secured term loan with Credit Agricole Corporate and Investment Bank, ING Bank N.V. London Branch and Skandinaviska Enskilda Banken AB (Publ.) for a maximum principal amount of $107.0 million (the “March 2019 Secured Term Loan”), to re-finance four of our vessels secured within our January 2015 secured term loan facility that was due to mature in June 2020. The repayment of the loan on the four vessels was $75.6 million, leaving net proceeds of $31.4 million for general corporate purposes. The facility has a term of six years from the date of the agreement and expires in March 2025. Under this agreement, liquidity must be no less (i) $35.0 million, or (ii) 5% of net debt or total debt, as applicable, whichever is greater; and the aggregate fair market value of the collateral vessels must be no less than 130% of the aggregate outstanding borrowing under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 240 basis points per annum.

On March 29, 2019, Navigator Ethylene Terminals LLC, a wholly-owned subsidiary of the Company (the “Marine Terminal Borrower”), entered into a Credit Agreement (the “Terminal Facility”) with ING Capital LLC and SG Americas Securities, LLC for a maximum principal amount of $75.0 million, to be used solely for the payment of project costs relating to our Marine Export Terminal. The Terminal Facility is comprised of an initial construction loan, followed by a term loan with a final maturity occurring on the earlier of (i) five years from completion of the Marine Export Terminal and (ii) December 31, 2025. The loans are subject to quarterly repayments of principal and interest beginning three months after the completion of the Marine Export Terminal. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 250 to 300 basis points per annum over the term of the facility, for interest periods of three or six months as selected by the Marine Terminal Borrower. The Terminal Facility includes events of default for the failure to achieve the completion of the Marine Export Terminal by December 31, 2020, the abandonment of all or substantially all activities relating to the Marine

 

F-35


Table of Contents

Export Terminal for 90 consecutive days and if certain material contracts relating to the Marine Export Terminal are terminated, as well as customary events of default including those relating to a failure to pay principal or interest, a breach of covenant, representation or warranty, a cross-default to other indebtedness and non-compliance with security documents. The loans under the Terminal Facility are secured by first priority liens on the rights to the Marine Terminal Borrower’s distributions from the Marine Terminal Joint Venture, the Marine Terminal Borrower’s assets and properties and the company’s equity interests in the Marine Terminal Borrower.

 

F-36

EX-4.14

Exhibit 4.14

Confidential

Dated March 25, 2019

 

 

NAVIGATOR ATLAS L.L.C., NAVIGATOR EUROPA L.L.C.,

NAVIGATOR OBERON L.L.C., NAVIGATOR TRITON L.L.C.

as Borrowers

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK

ING BANK, A BRANCH OF ING-DIBA AG

SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)

as Mandated Lead Arrangers

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK

as Agent

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK

as Security Agent

and

THE BANKS AND FINANCIAL INSTITUTIONS NAMED HEREIN

AS ORIGINAL LENDERS

guaranteed by

NAVIGATOR HOLDINGS LTD AND NAVIGATOR GAS L.L.C.

FACILITY AGREEMENT

for a term loan facility of up to $107,000,000


Contents

 

Clause    Page  

SECTION 1 - INTERPRETATION

     1  

1

   Definitions and interpretation      1  

SECTION 2 - THE FACILITY

     24  

2

   The Facility      24  

3

   Purpose      28  

4

   Conditions of Utilisation      28  

SECTION 3 - UTILISATION

     30  

5

   Utilisation      30  

SECTION 4 - REPAYMENT, PREPAYMENT AND CANCELLATION

     31  

6

   Repayment and reduction      31  

7

   Illegality, prepayment and cancellation      31  

SECTION 5 - COSTS OF UTILISATION

     35  

8

   Interest      35  

9

   Interest Periods      35  

10

   Changes to the calculation of interest      36  

11

   Fees      37  

SECTION 6 - ADDITIONAL PAYMENT OBLIGATIONS

     38  

12

   Tax gross-up and indemnities      38  

13

   Increased Costs      42  

14

   Other indemnities      43  

15

   Mitigation by the Lenders      46  

16

   Costs and expenses      46  

SECTION 7 - GUARANTEE

     48  

17

   Guarantee and indemnity      48  

SECTION 8 - REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT

     51  

18

   Representations      51  

19

   Information undertakings      58  

20

   Financial covenants      62  

21

   General undertakings      63  

22

   Dealings with Ship      67  

23

   Condition and operation of Ship      69  

24

   Insurance      73  

25

   Minimum security value      77  

26

   Chartering undertakings      80  

27

   Bank accounts      81  

28

   Business restrictions      82  

29

   Events of Default      86  


SECTION 9 - CHANGES TO PARTIES

     91  

30

  

Changes to the Lenders

     91  

31

  

Assignments and transfers by Obligors

     94  

SECTION 10 - THE FINANCE PARTIES

     95  

32

  

Roles of Agent, Security Agent and Arranger

     95  

33

  

Conduct of business by the Finance Parties

     108  

34

  

Sharing among the Finance Parties

     110  

SECTION 11 - ADMINISTRATION

     112  

35

  

Payment mechanics

     112  

36

  

Set-off

     115  

37

  

Notices

     115  

38

  

Calculations and certificates

     117  

39

  

Partial invalidity

     117  

40

  

Remedies and waivers

     117  

41

  

Amendments and grant of waivers

     117  

42

  

Counterparts

     121  

43

  

Confidentiality

     122  

SECTION 12 - GOVERNING LAW AND ENFORCEMENT

     124  

44

  

Governing law

     124  

45

  

Enforcement

     124  

Schedule 1 The parties

     125  

Schedule 2 Ship information

     132  

Schedule 3 Conditions precedent

     134  

Schedule 4 Utilisation Request

     140  

Schedule 5 Form of Transfer Certificate

     141  

Schedule 6 Form of Compliance Certificate

     143  

Schedule 7 Form of Increase Confirmation

     144  

 


THIS AGREEMENT is dated March 25, 2019 and made between:

 

(1)

THE ENTITIES listed in Schedule 1 as Borrowers (the Borrowers and each a Borrower);

 

(2)

THE ENTITIES listed in Schedule 1 as Guarantors (the Guarantors and each a Guarantor);

 

(3)

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK, ING BANK, A BRANCH OF ING-DIBA AG and SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) as mandated lead arrangers (whether acting individually or together, the Arrangers);

 

(4)

THE FINANCIAL INSTITUTIONS listed in Schedule 1 as lenders (the Original Lenders);

 

(5)

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK as agent for the other Finance Parties (the Agent); and

 

(6)

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK as security agent for the other Finance Parties (the Security Agent).

IT IS AGREED as follows:

SECTION 1 - INTERPRETATION

 

1

Definitions and interpretation

 

1.1

Definitions

In this Agreement and (unless otherwise defined in the relevant Finance Document) the other Finance Documents:

Account Bank means, in relation to the Earnings Account, Nordea Bank Abp, London Branch.

Account Holder means Navigator Gas L.L.C. (as more particularly described in Schedule 1).

Account Security means the deed, pledge or other instrument executed by the Account Holder in favour of the Security Agent in the agreed form conferring a Security Interest over the Earnings Account.

Accounting Reference Date means 31 December or such other date as may be approved by the Lenders.

Affiliate means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.

Agent means Crédit Agricole Corporate and Investment Bank or any person who may be appointed as such under clause 32.1 (Appointment of the Agent).

Applicable Fraction has the meaning given to it in clause 7.5(c).

Approved Valuer means any of Clarksons Plc, Barry Rogliano Salles, Braemar Seascope Ltd, Fearnleys, EA Gibson Shipbrokers Limited, Poten & Partners, Steem1960 or such other independent reputable ship broker nominated by the Borrowers and approved by the Agent (acting on the instructions of the Majority Lenders) from time to time.

Auditors means one of PricewaterhouseCoopers, Ernst & Young, KPMG, Deloitte Touche Tohmatsu , Moore Stephens or MSPC Certified Public Accountants and Advisors or another firm approved by the Agent (acting on the instructions of the Majority Lenders) from time to time.

 

1


Availability Period means, in relation to the Facility, the period starting on the date of this Agreement up to and including the date falling three (3) months after such date.

Bail-In Action means the exercise of any Write-down and Conversion Powers.

Bail-In Legislation means in relation to an EEA Member Country which has implemented, or which at any time implements, Article 55 of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms, the relevant implementing law or regulation as described in the EU Bail-In Legislation Schedule from time to time.

Basel II Accord means the “International Convergence of Capital Measurement and Capital Standards, a Revised Framework” published by the Basel Committee on Banking Supervision in June 2004 as updated prior to, and in the form existing on, the date of this Agreement, excluding any amendment thereto arising out of the Basel III Accord.

Basel II Approach means, in relation to any Finance Party, either the Standardised Approach or the relevant Internal Ratings Based Approach (each as defined in the Basel II Regulations applicable to such Finance Party) adopted by that Finance Party (or any of its Affiliates) for the purposes of implementing or complying with the Basel II Accord.

Basel II Regulation means:

 

  (a)

any law or regulation in force as at the date hereof implementing the Basel II Accord, (including the relevant provisions of CRD IV and CRR) to the extent only that such law or regulation re-enacts and/or implements the requirements of the Basel II Accord but excluding any provision of such law or regulation implementing the Basel III Accord; and

 

  (b)

any Basel II Approach adopted by a Finance Party or any of its Affiliates.

Basel III Accord means, together:

 

  (a)

the agreements on capital requirements, a leverage ratio and liquidity standards contained in “Basel III: A global regulatory framework for more resilient banks and banking systems”, “Basel III: International framework for liquidity risk measurement, standards and monitoring” and “Guidance for national authorities operating the countercyclical capital buffer” published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated;

 

  (b)

the rules for global systemically important banks contained in “Global systemically important banks: assessment methodology and the additional loss absorbency requirement - Rules text” published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and

 

  (c)

any further guidance or standards published by the Basel Committee on Banking Supervision relating to “Basel III”.

Basel III Increased Cost means an Increased Cost which is attributable to the implementation or application of or compliance with any Basel III Regulation (whether such implementation, application or compliance is by a government, regulator, Finance Party or any of its Affiliates).

Basel III Regulation means any law or regulation implementing the Basel III Accord (including the relevant provisions of CRD IV and CRR) save to the extent that such law or regulations re-enacts a Basel II Regulation.

 

2


Break Costs means the amount (if any) by which:

 

  (a)

the interest (excluding the Margin) which a Lender should have received for the period from the date of receipt of all or any part of its participation in the Loan or Unpaid Sum to the last day of the current Interest Period in respect of the Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period;

exceeds:

 

  (b)

the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.

Business Day means a day (other than a Saturday or Sunday) on which banks are open for general business in London, Paris, Frankfurt and New York and in the case of clause 5.1 only, a day (other than a Saturday or Sunday) on which banks are open for general business in London, Paris , Stockholm and New York.

Change of Control occurs when:

 

  (a)

the Parent ceases to own 100% of the shares in any of the Borrowers;

 

  (b)

the Ultimate Parent ceases to own directly or indirectly 100% of the shares in any of the Borrowers;

 

  (c)

without the prior approval of the Lenders, two or more persons acting in concert or any individual person (other than the Permitted Holder) acquires legally and/or beneficially, and either directly or indirectly, in excess of 50% of the issued share capital or membership interests of the Ultimate Parent; or

 

  (d)

without the prior approval of the Lenders, two or more persons acting in concert or any individual person (other than the Permitted Holder) has the right or the ability to control, either directly or indirectly, the affairs or composition of the majority of the board or directors (or equivalent) of the Ultimate Parent.

Charged Property means all of the assets of the Obligors which from time to time are, or are expressed or intended to be, the subject of the Security Documents.

Charter means, in relation to a Ship, any time charter with a charter term (excluding any options to extend) exceeding 24 calendar months in respect of that Ship entered into between the relevant Owner and the relevant Charterer.

Charter Assignment means, in relation to a Ship and its Charter Documents, any assignment by the relevant Owner of its interest in such Charter Documents in favour of the Security Agent in the agreed form pursuant to clause 22.8 (Chartering).

Charter Documents means, in relation to a Ship, any Charter of that Ship, any documents supplementing it and any guarantee or security given by any person for the relevant Charterer’s obligations under it.

Charterer means, in relation to a Ship, a charterer of that Ship pursuant to a Charter.

Classification means, in relation to a Ship, the classification specified in respect of such Ship in Schedule 2 (Ship information) with the relevant Classification Society or another classification approved by the Majority Lenders as its classification, at the request of the relevant Owner.

 

3


Classification Society means, in relation to a Ship, the classification society specified in respect of such Ship in Schedule 2 (Ship information) or another classification society (being either ABS, DNVGL, BV, Lloyds or NK) or, if such association no longer exists, any similar association nominated by the Borrowers and approved by the Agent (acting on the instructions of the Lenders) as its Classification Society.

Code means the US Internal Revenue Code of 1986.

Commitment means:

 

  (a)

in relation to an Original Lender, the amount set opposite its name under the heading “Commitment” in Schedule 1 (The original parties) and the amount of any other Commitment assigned to it under this Agreement; and

 

  (b)

in relation to any other Lender, the amount of any Commitment assigned to it under this Agreement,

to the extent not cancelled, reduced or assigned by it under this Agreement.

Compliance Certificate means a certificate substantially in the form set out in Schedule 6 (Form of Compliance Certificate) or otherwise approved.

Confidential Information means all information relating to an Obligor, the Group, the Finance Documents or the Facility of which a Finance Party becomes aware in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facility from either:

 

  (a)

any member of the Group or any of its advisers; or

 

  (b)

another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any member of the Group or any of its advisers,

in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:

 

  (i)

is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of clause 43 (Confidentiality); or

 

  (ii)

is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or

 

  (iii)

is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (i) or (ii) above or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that Finance Party is aware, unconnected with the Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.

Constitutional Documents means, in respect of an Obligor, such Obligor’s articles of incorporation, certificate of formation, bylaws, limited liability company agreement or other constitutional documents including as referred to in any certificate relating to an Obligor delivered pursuant to Schedule 3 (Conditions precedent).

CRD IV means the directive 2013/36/EU of the European Union on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms.

 

4


CRR means regulation 575/2013 of the European Union on prudential requirements for credit institutions and investment firms.

Default means an Event of Default or any event or circumstance specified in clause 29 (Events of Default) which would, with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of the foregoing, be an Event of Default.

Defaulting Lender means any Lender:

 

  (a)

which has failed to make its participation in the Loan available or has notified the Agent that it will not make its participation in the Loan available by the Utilisation Date of that Loan in accordance with clause 5.4 (Lenders’ participation);

 

  (b)

which has otherwise rescinded or repudiated a Finance Document; or

 

  (c)

with respect to which an Insolvency Event has occurred and is continuing,

unless, in the case of paragraph (a) above:

 

  (i)

its failure to pay is caused by:

 

  (A)

administrative or technical error; or

 

  (B)

a Payment Disruption Event; and,

payment is made within five Business Days of its due date; or

 

  (d)

the Lender is disputing in good faith whether it is contractually obliged to make the payment in question.

Designated Website has the meaning given to it in clause 19.9 (Use of websites).

Disposal Repayment Date means in relation to:

 

  (a)

a Total Loss of a Mortgaged Ship, the applicable Total Loss Repayment Date; or

 

  (b)

a sale of a Mortgaged Ship by the relevant Owner, the date upon which such sale is completed by the transfer of title to the purchaser in exchange for payment of all or part of the relevant purchase price.

Earnings means, in relation to a Ship and a person, all money at any time payable to that person for or in relation to the use or operation of such Ship including freight, hire and passage moneys, money payable to that person for the provision of services by or from such Ship or under any charter or pool commitment, requisition for hire compensation, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach and payments for termination or variation of any charter commitment.

Earnings Account means the bank account of the Account Holder held with the Account Bank with account number 45430054, IBAN GB68NDEA40487845430054 and any bank account, deposit or certificate of deposit opened, made or established in accordance with, and designated as an Earnings Account, under clause 27 (Bank accounts).

EEA Member Country means any member state of the European Union, Iceland, Liechtenstein and Norway.

 

5


Enforcement Costs means any costs, expenses, liabilities or other amounts in respect of which any amount is payable under clauses 14.4 (Indemnity concerning security) or 16.3 (Enforcement and preservation costs) or under any other Finance Document to which those provisions apply and any remuneration payable to a Receiver in connection with any Security Documents.

Environmental Claims means:

 

  (a)

enforcement, clean-up, removal or other governmental or regulatory action or orders or claims instituted or made pursuant to any Environmental Laws or resulting from a Spill; or

 

  (b)

any claim made by any other person relating to a Spill.

Environmental Incident means any Spill from any vessel in circumstances where:

 

  (a)

any Ship or its Owner may be liable for Environmental Claims arising from the Spill (other than Environmental Claims arising and fully satisfied before the date of this Agreement); and/or

 

  (b)

any Ship may be arrested or attached in connection with any such Environmental Claim.

Environmental Laws means all laws, regulations and conventions concerning pollution or protection of human health or the environment.

EU Bail-In Legislation Schedule means the document described as such and published by the Loan Market Association (or any successor person) from time to time.

Event of Default means any event or circumstance specified as such in clause 29 (Events of Default).

Existing Loan Agreement means the facility agreement dated 27 January 2015 (as amended and restated from time to time) pursuant to which a loan facility of $278,125,000 was made available to, amongst others, the Borrowers to finance the purchase of certain ships, including the purchase of the Ships by the Borrowers.

Facility means the term loan facility made available under this Agreement as described in clause 2 (The Facility)

Facility Office means the office or offices notified by a Lender or any other Finance Party to the Agent in writing on or before the date it becomes a Lender or, as the case may be, Finance Party (or, following that date, by not less than five Business Days’ written notice) as the office through which it will perform its obligations under this Agreement.

Facility Period means the period from and including the date of this Agreement to and including the date on which the Total Commitments have reduced to zero and all indebtedness of the Obligors under the Finance Documents has been fully paid and discharged.

Fair Market Value means, as at any relevant date, the value of each Mortgaged Ship which has not become a Total Loss as at such date as most recently determined in accordance with clause 25 (Minimum Security Value).

FATCA means:

 

  (a)

sections 1471 to 1474 of the Code or any associated regulations;

 

6


  (b)

any treaty, law or regulation of any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of any law or regulation referred to in paragraph (a) above; or

 

  (c)

any agreement pursuant to the implementation of any treaty, law or regulation referred to in paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.

FATCA Application Date means:

 

  (a)

in relation to a “withholdable payment” described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014; or

 

  (b)

in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraph (a) above, the first date from which such payment may become subject to a deduction or withholding required by FATCA.

FATCA Deduction means a deduction or withholding from a payment under a Finance Document required by FATCA.

FATCA Exempt Party means a Party that is entitled to receive payments free from any FATCA Deduction.

Fee Letter means any letter dated on or about the date of this Agreement between the Agent and/or the Arrangers and the Borrowers setting out certain fees payable by the Borrowers in respect of the Facility.

Final Repayment Date means, subject to clause 35.7 (Business Days), the date which falls six (6) years after the Utilisation Date.

Finance Documents means this Agreement, any Fee Letter, the Security Documents, any Transfer Certificate and any other document designated as such by the Agent and the Borrowers.

Finance Party means the Agent, the Security Agent, the Bookrunner, any Arranger or a Lender.

Financial Indebtedness means any indebtedness for or in respect of:

 

  (a)

moneys borrowed and debit balances at banks or other financial institutions;

 

  (b)

any amount raised by acceptance under any acceptance credit or bill discounting facility (or dematerialised equivalent);

 

  (c)

any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

 

  (d)

the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP (or if the Annual Financial Statements are prepared in accordance with IFRS, IFRS), be treated as a finance or capital lease;

 

  (e)

receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

 

  (f)

any Treasury Transaction (and, when calculating the value of that Treasury Transaction, only the marked to market value (or, if any actual amount is due as a result of the termination or close-out of that Treasury Transaction, that amount) shall be taken into account);

 

7


  (g)

any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution;

 

  (h)

any amount raised by the issue of redeemable shares which are redeemable (other than at the option of the issuer) before the Final Repayment Date or are otherwise classified as borrowings under GAAP (or if the Annual Financial Statements are prepared in accordance with IFRS, IFRS);

 

  (i)

any amount of any liability under an advance or deferred purchase agreement if (a) one of the primary reasons behind entering into the agreement is to raise finance or to finance the acquisition or construction of the asset or service in question (b) the agreement is in respect of the supply of assets or services and payment is due more than 180 days after the date of supply;

 

  (j)

any amount raised under any other transaction (including any forward sale or purchase, sale and sale back, sale and leaseback agreement) having the commercial effect of a borrowing or otherwise classified as borrowings under GAAP (or if the Annual Financial Statements are prepared in accordance with IFRS, IFRS); and

 

  (k)

the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (i) above, without double counting.

First Repayment Date means, subject to clause 35.7 (Business Days), the date falling three months after the Utilisation Date.

Flag State means Liberia, the Republic of the Marshall Islands, the Bahamas, the United Kingdom, or such other state or territory as may be approved by the Lenders, at the request of the relevant Owner, as being the Flag State of a Ship for the purposes of the Finance Documents.

GAAP means generally accepted accounting principles in the United States

General Assignment means, in relation to a Ship, a first assignment of its interest in the Ship’s Insurances and Earnings and Requisition Compensation by the relevant Owner in favour of the Security Agent in the agreed form.

Group means the Ultimate Parent and its Subsidiaries for the time being and, for the purposes of clause 19.1 (Financial statements) and clause 20 (Financial covenants), any other entity required to be treated as a subsidiary in its consolidated accounts in accordance with GAAP (or if the Annual Financial Statements are prepared in accordance with IFRS, IFRS), and/or any applicable law.

Group Member means any Obligor and any other entity which is part of the Group.

Guarantee means, in relation to a Guarantor, the obligations of the Guarantor under clause 17 (Guarantee and indemnity).

Guarantor means each company described as such in Schedule 1 (The original parties) and Guarantors means both of them.

Holding Company means, in relation to a person, any other person in respect of which it is a Subsidiary.

 

8


IFRS means international accounting standards within the meaning of IAS Regulations 1606/2002.

Increase Confirmation means a confirmation substantially in the form set out in Schedule 7 (Form of Increase Confirmation).

Increase Lender has the meaning given to it in clause 2.2 (Increase).

Increased Costs has the meaning given to it in clause 13.1(b) (Increase Costs).

Indemnified Person means:

 

  (a)

each Finance Party and each Receiver and any attorney, agent or other person appointed by them under the Finance Documents;

 

  (b)

each Affiliate of each Finance Party and each Receiver; and

 

  (c)

any officers, employees or agents of each Finance Party, each Receiver and any of the Affiliates of each Finance Party and each Receiver.

Insolvency Event in relation to a Finance Party means that the Finance Party:

 

  (a)

is dissolved (other than pursuant to a consolidation, amalgamation or merger);

 

  (b)

admits in writing its inability generally to pay its debts as they become due;

 

  (c)

makes a general assignment, arrangement or composition with or for the benefit of its creditors;

 

  (d)

institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding up or liquidation by it or such regulator, supervisor or similar official, other than, in each case, any Undisclosed Administration;

 

  (e)

has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition is instituted or presented by a person or entity not described in paragraph (d) above and:

 

  (i)

results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding up or liquidation; or

 

  (ii)

is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof;

 

  (f)

has a resolution passed for its winding up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger);

 

  (g)

seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets, other than, in each case, any Undisclosed Administration;

 

9


  (h)

has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter;

 

  (i)

causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in paragraphs (a) to (i) above; or

 

  (j)

takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts.

Insurance Notice means, in relation to a Ship, a notice of assignment in the form scheduled to the General Assignment for that Ship or in another approved form.

Insurances means, in relation to a Ship:

 

  (a)

all policies and contracts of insurance; and

 

  (b)

all entries in a protection and indemnity or war risks or other mutual insurance association

in the name of such Ship’s owner or the joint names of its owner and any other person in respect of or in connection with such Ship and includes all benefits thereof (including the right to receive claims and to return of premiums).

Interbank Market means the London interbank market

Interest Period means, in relation to the Loan (or any part of the Loan), each period determined in accordance with clause 9 (Interest Periods) and, in relation to an Unpaid Sum, each period determined in accordance with clause 8.3 (Default interest).

Interpolated Screen Rate means, in relation to LIBOR for an Interest Period with respect to the Loan or any part of it or any Unpaid Sum, the rate (rounded to the same number of decimal places as the two relevant Screen Rates) which results from interpolating on a linear basis between:

 

  (a)

the applicable Screen Rate for the longest period (for which that Screen Rate is available) which is less than the relevant Interest Period; and

 

  (b)

the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the relevant Interest Period,

each as of the Specified Time for dollars.

Legal Reservations means:

 

  (a)

the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights of creditors;

 

  (b)

the time barring of claims under the Limitation Act 1980 and the Foreign Limitation Periods Act 1984, the possibility that an undertaking to assume liability for, or indemnify a person against, non-payment of UK stamp duty may be void and defences of set-off or counterclaim; and

 

10


  (c)

similar principles, rights and defences under the laws of any Relevant Jurisdiction.

Lender means:

 

  (a)

any Original Lender; and

 

  (b)

any bank or financial institution which has become a Party in accordance with clause 2.2 (Increase) and clause 30 (Changes to the Lenders),

which in each case has not ceased to be a Party in accordance with the terms of this Agreement.

LIBOR means, in relation to any Loan or any part of the Loan or any Unpaid Sum:

 

  (a)

the applicable Screen Rate as of the Specified Time for the relevant currency and for a period equal in length to the Interest Period of the Loan or relevant part of it or Unpaid Sum; or

 

  (b)

as otherwise determined pursuant to clause 10.1 (Unavailability of Screen Rate),

and if, in either case, that rate is less than zero, LIBOR shall be deemed to be zero.

Loan means the loan made or to be made under the Facility or the principal amount outstanding for the time being of the Loan.

Losses means any costs, expenses, payments, charges, losses, demands, liabilities, claims, actions, proceedings, penalties, fines, damages, judgments, orders or other sanctions.

Loss Payable Clauses means, in relation to a Ship, the provisions concerning payment of claims under the Ship’s Insurances in the form scheduled to the General Assignment in respect of that Ship or in another approved form.

Major Casualty means any casualty to a vessel for which the total insurance claim, inclusive of any deductible, exceeds or may exceed the Major Casualty Amount.

Major Casualty Amount means, in relation to a Ship, the amount specified as such against the name of that Ship in Schedule 2 (Ship information) or the equivalent in any other currency.

Majority Lenders means (if no part of the Loan is then outstanding), a Lender or Lenders whose Commitments in aggregate are equal to or more than 662/3% of the Total Commitments (or, if the Total Commitments have been reduced to zero, in aggregate were equal to or more than 662/3% of the Total Commitments immediately prior to the reduction) or (at any other time), a Lender or Lenders whose participations in the Loan in aggregate are equal to or more than 662/3% of the Loan.

Manager means, in relation to a Ship, a technical or commercial or crewing manager of that Ship acceptable to the Agent (acting on the instructions of the Majority Lenders) pursuant to the provisions of clause 22.4 (Manager) and/or clause 26.8 (Charterer’s manager).

Manager’s Undertaking means, in relation to a Ship, an undertaking by any manager of the Ship to the Security Agent in the agreed form.

Margin means two point four per cent (2.40%) per annum.

 

11


Material Adverse Effect means, in the reasonable opinion of the Majority Lenders, a material adverse effect on:

 

  (a)

the business, operations, property, condition (financial or otherwise) or prospects of the Group taken as a whole; or

 

  (b)

the ability of an Obligor to perform its obligations under the Finance Documents; or

 

  (c)

the validity or enforceability of, or the effectiveness or ranking of any Security Interest granted or purporting to be granted pursuant to any of, the Finance Documents or the rights or remedies of any Finance Party under any of the Finance Documents.

Minimum Value means, at any time, the amount in dollars at that time which is equal to 130% of the Loan outstanding at such time and, in relation to any Mortgaged Ship which has become a Total Loss but whose Disposal Repayment Date has not then occurred, minus such proportion of the Loan as the Fair Market Value of such Mortgaged Ship bore to the aggregate Fair Market Value of all the Mortgaged Ships (including the relevant Mortgaged Ship) immediately before its Total Loss.

Mortgage means, in relation to a Ship, a first mortgage of that Ship in the agreed form by the relevant Owner in favour of the Security Agent.

Mortgage Period means, in relation to a Mortgaged Ship, the period from the date the Mortgage over that Ship is executed and registered until the date such Mortgage is released and discharged or, if earlier, its Total Loss Date.

Mortgaged Ship means, at any relevant time, any Ship which is subject to a Mortgage and/or whose Earnings, Insurances and Requisition Compensation are subject to a Security Interest under the Finance Documents.

Obligors means the parties to the Finance Documents (other than Finance Parties and a Manager that is not a Group Member) and Obligor means any one of them.

Original Financial Statements means the audited consolidated financial statements of the Group for its financial year ended 31 December 2017.

Original Jurisdiction means, in relation to an Obligor, the jurisdiction under whose laws that Obligor is incorporated or formed as at the date of this Agreement or, in the case of any other Obligor, as at the date on which that Obligor becomes an Obligor.

Owner means, in relation to a Ship, the person specified against the name of that Ship in Schedule 2 (Ship information) and Owners means all of them.

Parent means the company described as such in Part 1 of Schedule 1 (The original parties).

Party means a party to this Agreement.

Payment Disruption Event means either or both of:

 

  (a)

a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or

 

  (b)

the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

 

  (i)

from performing its payment obligations under the Finance Documents; or

 

12


  (ii)

from communicating with other Parties in accordance with the terms of the Finance Documents,

(and which (in either such case)) is not caused by, and is beyond the control of, the Party whose operations are disrupted.

Permitted Holder means W.L. Ross & Co. L.L.C. (or its successor in title), any investment funds or other entities wholly owned and/or operated by W.L. Ross & Co L.L.C. (or its successor in title), and their respective Affiliates.

Permitted Liens means, in relation to a Ship:

 

  (a)

unless a Default is continuing, any ship repairer’s or outfitter’s possessory lien in respect of such Ship for an amount not exceeding $2,000,000 (or its equivalent in any other currency or currencies);

 

  (b)

any lien on such Ship for master’s, officer’s or crew’s wages outstanding in the ordinary course of its trading;

 

  (c)

any lien on such Ship for salvage;

 

  (d)

any lien arising by operation of law for not more than two months’ prepaid hire under any charter in relation to a Ship not prohibited by this Agreement;

 

  (e)

liens for master’s disbursements incurred in the ordinary course of trading and any other lien arising by operation of law or otherwise in the ordinary course of the operation, repair or maintenance of a Ship, provided such liens do not secure amounts more than 30 days overdue (unless the overdue amount is being contested by the Owners in good faith by appropriate steps) and subject, in the case of liens for repair or maintenance, to clause 23.15 (Repairer’s liens);

 

  (f)

any Security Interest created in favour of a plaintiff or defendant in any proceedings or arbitration as security for costs and expenses while the Owners are actively prosecuting or defending such proceedings or arbitration in good faith so long as any such proceedings or the continued existence of such Security Interest shall not and may reasonably be considered unlikely to lead to the arrest, sale, forfeiture or loss of, the Ship or any interest in the Ship; and

 

  (g)

any Security Interest 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 so long as any such proceedings or the continued existence of such Security Interest shall not and may reasonably be considered unlikely to lead to the arrest, sale, forfeiture or loss of, the Ship or any interest in the Ship.

Permitted Security Interests means, in relation to any Mortgaged Ship, any Security Interest over it which is:

 

  (a)

granted by the Finance Documents; or

 

  (b)

a Permitted Lien; or

 

  (c)

is approved by the Majority Lenders.

Pollutant means and includes crude oil and its products, any other polluting, toxic or hazardous substance and any other substance whose release into the environment is regulated or penalised by Environmental Laws.

 

13


Quotation Day means, in relation to any period for which an interest rate is to be determined, two Business Days before the first day of that period unless market practice in the Interbank Market differs, in which case the Quotation Day shall be determined by the Agent in accordance with market practice in the Interbank Market (and if quotations would normally be given by leading banks in the Interbank Market on more than one day, the Quotation Day will be the last of those days).

Receiver means a receiver or a receiver and manager or an administrative receiver appointed in relation to the whole or any part of any Charged Property under any relevant Security Document.

Reference Bank means any Lender who provides a Reference Bank Rate or such other entities as may be appointed by the Facility Agent in consultation with the Borrowers and Reference Banks means all of them.

Reference Bank Rate means the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Agent at its request by the Reference Banks as the rate of either (a) if, (i) the Reference Bank is a contributor to the applicable Screen Rate and (ii) it consists of a single figure, the rate (applied to the relevant Reference Bank and the relevant currency and period) which contributors to the applicable Screen Rate are asked to submit to the relevant administrator or (b) in any other case, the rate at which the relevant Reference Bank could borrow funds in the Interbank Market in USD, were it to do so by asking for and then accepting interbank offers in reasonable market size in that currency and for that period.

Registry means, in relation to each Ship, such registrar, commissioner or representative of the relevant Flag State who is duly authorised and empowered to register the relevant Ship, the relevant Owner’s title to such Ship and the relevant Mortgage under the laws of its Flag State.

Relevant Jurisdiction means, in relation to an Obligor:

 

  (a)

its Original Jurisdiction;

 

  (b)

any jurisdiction where any Charged Property owned by it is situated;

 

  (c)

any jurisdiction where it conducts its business; and

 

  (d)

any jurisdiction whose laws govern the perfection of any of the Security Documents entered into by it.

Repayment Date means:

 

  (a)

the First Repayment Date;

 

  (b)

each of the dates falling at three monthly intervals thereafter up to but not including the Final Repayment Date; and

 

  (c)

the Final Repayment Date.

Repeating Representations means each of the representations and warranties set out in clauses 18.1 (Status) to 18.10 (Ranking and effectiveness of security) (except for clauses 18.7 (Information) and 18.8 (Original Financial Statements)) and clause 18.17 (Environmental matters).

Representative means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian.

 

14


Requisition Compensation means, in relation to a Ship, any compensation paid or payable by a government entity for the requisition for title, confiscation or compulsory acquisition of such Ship.

Resolution Authority means any body which has authority to exercise any Write-down and Conversion Powers.

Sanctioned Party means a person:

 

  (a)

listed on, or owned or controlled by a person listed on, or acting on behalf of a person listed on, any Sanctions List;

 

  (b)

located in, incorporated under the laws of, or owned or (directly or indirectly) controlled by, or acting on behalf of, a person located in or organised under the laws of a country or territory that is the target of any Sanctions; or

 

  (c)

otherwise a person with whom a national of a Sanctions Authority would be prohibited or restricted by law from engaging in trade, business or other activities.

Sanctions means the economic sanctions laws, regulations, embargoes or other restrictive measures, administered, enacted, enforced, and/or imposed by:

 

  (a)

the United States of America;

 

  (b)

the European Union;

 

  (c)

the United Kingdom;

 

  (d)

where the Facility Office of any Lender is in the European Union, each member state of the European Union where each such Facility Office is located; and

 

  (e)

any Sanctions Authorities.

Sanctions Authority means:

 

  (a)

the Office of Foreign Assets Control of the US Department of Treasury;

 

  (b)

the United States Department of State;

 

  (c)

Her Majesty’s Treasury;

 

  (d)

where the Facility Office of any Lender is in the European Union, the relevant authority in each member state of the European Union where each such Facility Office is located; and

 

  (e)

the relevant authority in any country where an Obligor is incorporated or has its principal place of business.

Sanctions List means the “Specially Designated Nationals and Blocked Persons” list maintained by OFAC, the “Consolidated List of Financial Sanctions Targets” and the “Investment Ban List” maintained by Her Majesty’s Treasury, or any similar list maintained by, or any other public announcement of Sanctions or designation of a Sanctioned Party made by, any of the Sanctions Authorities.

Screen Rate means the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate) for

 

15


dollars and the relevant period displayed (before any correction, recalculation or republication by the administrator) on pages LIBOR01 or LIBOR02 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate), or on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters. If such page or service ceases to be available, the Agent may specify another page or service displaying the relevant rate after consultation with the Borrowers and the Lenders.

Security Agent means Crédit Agricole Corporate and Investment Bank or any person who may be appointed as such under clause 32.11 (Resignation of the Agent), having regard to clause 32.18 (Application of certain clauses to Security Agent).

Security Cover Ratio means, at any time, (a) the aggregate Fair Market Value of the Mortgaged Ships (as evidenced by the most recent valuations provided to the Agent pursuant to this Agreement) to (b) prior to the utilisation of the Loan, the Total Commitments or, after the utilisation of the Loan, the amount of the Loan outstanding immediately prior to the relevant Mortgaged Ship’s Disposal Repayment Date.

Security Documents means:

 

  (a)

the Mortgages over the Ships;

 

  (b)

the General Assignments in relation to the Ships;

 

  (c)

the Share Security;

 

  (d)

any Charter Assignment;

 

  (e)

the Account Security;

 

  (f)

any Subordination Agreement;

 

  (g)

any Manager’s Undertakings; and

 

  (h)

any other document as may be executed to guarantee and/or secure any amounts owing to the Finance Parties under this Agreement or any other Finance Document.

Security Interest means a mortgage, charge, pledge, lien, assignment, trust, hypothecation or other security interest of any kind securing any obligation of any person or any other agreement or arrangement having a similar effect

Security Value means, at any time, the amount in dollars which, at that time, is the aggregate of (a) the aggregate Fair Market Value of all of the Mortgaged Ships which have not then become a Total Loss and (b) the value of any additional security then held by the Security Agent provided under clause 25 (Minimum security value), in each case as most recently determined in accordance with this Agreement.

Share Security means in relation to the Borrowers, the document constituting a first Security Interest by the Parent in favour of the Security Agent in the agreed form in respect of all of the shares or membership interests in the Borrowers.

Ships means each of the ships as described in Schedule 2 (Ship information) and Ship means any of them.

Ship Representations means each of the representations and warranties set out in clauses 18.29 (Ship status) and 18.30 (Ship’s employment).

 

16


Specified Time means 11.00am (London time) on the Quotation Day.

Spill means any actual or threatened spill, release or discharge of a Pollutant into the environment.

Subordination Agreement means an agreement in the agreed form fully subordinating the Parents’ rights and interest in and to all Financial Indebtedness incurred by an Obligor (except for the Ultimate Parent) to the Parents to the Finance Parties’ under the Finance Documents.

Subsidiary of a person means any other person:

 

  (a)

directly or indirectly controlled by such person; or

 

  (b)

of whose dividends or distributions on ordinary voting share capital or membership interests such person is entitled to receive more than 50 per cent.

Tax means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).

Tax Credit means a credit against, relief or remission for, or repayment of any Tax.

Tax Deduction has the meaning given to it in clause 12.1(a).

Total Commitments means the aggregate of the Commitments, being $107,000,000 as at the date of this Agreement.

Total Loss means, in relation to a Ship, its:

 

  (a)

actual, constructive, compromised or arranged total loss; or

 

  (b)

requisition for title, confiscation or other compulsory acquisition by a government entity; or

 

  (c)

hijacking, theft, condemnation, capture, seizure, arrest or detention for more than 60 days or, where there has been a hijacking, theft, capture, seizure or detention of the Ship as a result of an act of piracy, 365 days or, if earlier, the date on which the insurance proceeds are paid by the insurers in respect of such hijack, theft, capture, seizure or detention as a result of privacy.

Total Loss Date means, in relation to the Total Loss of a Ship:

 

  (a)

in the case of an actual total loss, the date it happened or, if such date is not known, the date on which that Ship was last reported;

 

  (b)

in the case of a constructive, compromised, agreed or arranged total loss, the earliest of:

 

  (i)

the date notice of abandonment of that Ship is given to its insurers; or

 

  (ii)

if the insurers do not admit such a claim, the date later determined by a competent court of law to have been the date on which the total loss happened; or

 

  (iii)

the date upon which a binding agreement as to such compromised or arranged total loss has been entered into by the vessel’s insurers;

 

17


  (c)

in the case of a requisition for title, confiscation or compulsory acquisition, the date it happened; and

 

  (d)

in the case of hijacking, theft, condemnation, capture, seizure, arrest or detention, the date 60 days or, in respect of any hijacking, theft, capture, seizure or detention of the Ship as a result of an act of piracy, 365 days after the date upon which it happened or, if earlier, the date on which the insurance proceeds are paid by the insurers in respect of such hijack, theft, capture, seizure or detention as a result of privacy.

Total Loss Repayment Date means where a Mortgaged Ship has become a Total Loss the earlier of:

 

  (a)

the date 120 days after its Total Loss Date; and

 

  (b)

the date upon which insurance proceeds or Requisition Compensation for such Total Loss are paid by insurers or the relevant government entity.

Transfer Certificate means a certificate substantially in the form set out in Schedule 5 (Form of Transfer Certificate) or any other form agreed between the Agent and the Borrowers.

Transfer Date means, in relation to a transfer, the later of:

 

  (a)

the proposed Transfer Date specified in the Transfer Certificate; and

 

  (b)

the date on which the Agent executes the Transfer Certificate.

Treasury Transaction means any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price.

Trust Property means, collectively:

 

  (a)

all moneys duly received by the Security Agent under or in respect of the Finance Documents;

 

  (b)

any portion of the balance on the Earnings Account held by or charged to the Security Agent at any time;

 

  (c)

the Security Interests, guarantees, security, powers and rights given to the Security Agent under and pursuant to the Finance Documents including, without limitation, the covenants given to the Security Agent in respect of all obligations of any Obligor;

 

  (d)

all assets paid or transferred to or vested in the Security Agent or its agent or received or recovered by the Security Agent or its agent in connection with any of the Finance Documents whether from any Obligor or any other person; and

 

  (e)

all or any part of any rights, benefits, interests and other assets at any time representing or deriving from any of the above, including all income and other sums at any time received or receivable by the Security Agent or its agent in respect of the same (or any part thereof).

Ultimate Parent means Navigator Holdings Ltd, a corporation domesticated under the laws of the Republic of the Marshall Islands.

Undisclosed Administration means, in relation to a Lender, the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official by a supervisory authority or regulator under or based on the laws of the country where that Lender is subject to home jurisdiction supervision and/or regulation, if applicable law requires that such appointment is not to be publicly disclosed.

 

18


Unpaid Sum means any sum due and payable but unpaid by an Obligor under the Finance Documents.

Utilisation means the utilisation of the Facility.

Utilisation Date means the date on which the Utilisation is made.

Utilisation Request means a notice substantially in the form set out in Schedule 4 (Utilisation Request).

VAT means:

 

  (a)

any tax imposed in compliance with the Council Directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112); and

 

  (b)

any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such tax referred to in paragraph (a) above, or imposed elsewhere.

Write-down and Conversion Powers means in relation to any Bail-In Legislation described in the EU Bail-In Legislation Schedule from time to time, the powers described as such in relation to that Bail-In Legislation in the EU Bail-In Legislation Schedule.

 

1.2

Construction

 

  (a)

Unless a contrary indication appears, any reference in any of the Finance Documents to:

 

  (i)

Sections, clauses and Schedules are to be construed as references to the Sections and clauses of, and the Schedules to, the relevant Finance Document and references to a Finance Document include its Schedules;

 

  (ii)

a Finance Document or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as it may from time to time be amended, restated, novated or replaced, however fundamentally;

 

  (iii)

words importing the plural shall include the singular and vice versa;

 

  (iv)

a time of day are to London time;

 

  (v)

any person includes its successors in title, permitted assignees or transferees;

 

  (vi)

the knowledge, awareness and/or beliefs (and similar expressions) of any Obligor shall be construed so as to mean the knowledge, awareness and beliefs of the director and officers of such Obligor, having made due and careful enquiry;

 

  (vii)

agreed form means:

 

  (A)

where a Finance Document has already been executed by all of the relevant parties, such Finance Document in its executed form;

 

  (B)

prior to the execution of a Finance Document, the form of such Finance Document separately agreed in writing between the Agent and the

 

19


  Borrowers as the form in which that Finance Document is to be executed or another form approved at the request of the Borrowers or, if not so agreed or approved, is in the form specified by the Agent;

 

  (viii)

approved by the Majority Lenders or approved by the Lenders means approved in writing by the Agent acting on the instructions of the Majority Lenders or, as the case may be, all of the Lenders (on such conditions as they may respectively impose) and otherwise approved means approved in writing by the Agent (on such conditions as the Agent may impose) and approval and approve shall be construed accordingly;

 

  (ix)

assets includes present and future properties, revenues and rights of every description;

 

  (x)

an authorisation means any authorisation, consent, concession, approval, resolution, licence, exemption, filing, notarisation or registration;

 

  (xi)

charter commitment means, in relation to a vessel, any charter or contract for the use, employment or operation of that vessel or the carriage of people and/or cargo or the provision of services by or from it and includes any agreement for pooling or sharing income derived from any such charter or contract;

 

  (xii)

control of an entity means:

 

  (A)

the power (whether by way of ownership of shares, membership interests, proxy, contract, agency or otherwise) to:

 

  (1)

cast, or control the casting of, more than 30% of the maximum number of votes that might be cast at a general meeting of that entity; or

 

  (2)

appoint or remove all, or the majority, of the directors or other equivalent officers of that entity; or

 

  (3)

give directions with respect to the operating and financial policies of that entity with which the directors or other equivalent officers of that entity are obliged to comply; and/or

 

  (B)

the holding beneficially of more than 30% of the issued share capital or membership interests of that entity (excluding any part of that issued share capital or membership interests that carries no right to participate beyond a specified amount in a distribution of either profits or capital) (and, for this purpose, any Security Interest over share capital or membership interests shall be disregarded in determining the beneficial ownership of such share capital or membership interests);

and controlled shall be construed accordingly;

 

  (xiii)

the term disposal or dispose means a sale, transfer or other disposal (including by way of lease or loan but not including by way of loan of money) by a person of all or part of its assets, whether by one transaction or a series of transactions and whether at the same time or over a period of time, but not the creation of a Security Interest;

 

  (xiv)

dollars/$ means the lawful currency of the United States of America;

 

  (xv)

the equivalent of an amount specified in a particular currency (the specified currency amount) shall be construed as a reference to the amount of the other

 

20


  relevant currency which can be purchased with the specified currency amount in the London foreign exchange market at or about 11 a.m. on the date the calculation falls to be made for spot delivery, as conclusively determined by the Agent (with the relevant exchange rate of any such purchase being the Agent’s spot rate of exchange);

 

  (xvi)

a government entity means any government, state or agency of a state;

 

  (xvii)

a guarantee means any guarantee, letter of credit, bond, indemnity or similar assurance against loss, or any obligation, direct or indirect, actual or contingent, to purchase or assume any indebtedness of any person or to make an investment in or loan to any person or to purchase assets of any person where, in each case, such obligation is assumed in order to maintain or assist the ability of such person to meet its indebtedness;

 

  (xviii)

indebtedness includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;

 

  (xix)

month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month or the calendar month in which it is to end, except that:

 

  (A)

if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that month (if there is one) or on the immediately preceding Business Day (if there is not); and

 

  (B)

if there is no numerically corresponding day in that month, that period shall end on the last Business Day in that month

and the above rules in paragraphs (i) to (ii) will only apply to the last month of any period;

 

  (xx)

an obligation means any duty, obligation or liability of any kind;

 

  (xxi)

something being in the ordinary course of business of a person means something that is in the ordinary course of that person’s current day-to-day operational business (and not merely anything which that person is entitled to do under its Constitutional Documents);

 

  (xxii)

pay or repay in clause 28 (Business restrictions) includes by way of set-off, combination of accounts or otherwise;

 

  (xxiii)

a person includes any individual, firm, company, corporation, government entity or any association, trust, joint venture, consortium, partnership or other entity (whether or not having separate legal personality);

 

  (xxiv)

a regulation includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation and includes (without limitation) any Basel II Regulation or Basel III Regulation;

 

  (xxv)

right means any right, privilege, power or remedy, any proprietary interest in any asset and any other interest or remedy of any kind, whether actual or contingent, present or future, arising under contract or law, or in equity;

 

21


  (xxvi)

trustee, fiduciary and fiduciary duty has in each case the meaning given to such term under applicable law;

 

  (xxvii)

(A) the winding up, dissolution, or administration of person or (B) a receiver or administrative receiver or administrator in the context of insolvency proceedings or security enforcement actions in respect of a person shall be construed so as to include any equivalent or analogous proceedings or any equivalent and analogous person or appointee (respectively) under the law of the jurisdiction in which such person is established or incorporated or any jurisdiction in which such person carries on business including (in respect of proceedings) the seeking or occurrences of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors;

 

  (xxviii)

a provision of law is a reference to that provision as amended or re-enacted; and

 

  (xxix)

a reference to costs in the context of enforcement in a Finance Document shall include fees, costs and expenses of legal advisers, financial advisers and insurance and other consultants, brokers, surveyors and advisers.

 

  (b)

Where in this Agreement a provision includes a monetary reference level in one currency, unless a contrary indication appears, such reference level is intended to apply equally to its equivalent in other currencies as of the relevant time for the purposes of applying such reference level to any other currencies.

 

  (c)

Section, clause and Schedule headings are for ease of reference only.

 

  (d)

Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement.

 

  (e)

A Default (other than an Event of Default) is continuing if it has not been remedied or waived and an Event of Default is continuing if it has not been waived or, if in the opinion of the Agent such Event of Default is capable of being remedied, remedied to the satisfaction of the Agent.

 

  (f)

Unless a contrary indication appears, in the event of any inconsistency between the terms of this Agreement and the terms of any other Finance Document when dealing with the same or similar subject matter, the terms of this Agreement shall prevail.

 

1.3

Third party rights

 

  (a)

Unless expressly provided to the contrary in a Finance Document for the benefit of a Finance Party or another Indemnified Person, a person who is not a party to a Finance Document has no right under the Contracts (Rights of Third Parties) Act 1999 (the Third Parties Act) to enforce or to enjoy the benefit of any term of the relevant Finance Document.

 

  (b)

Any Finance Document may be rescinded or varied by the parties to it without the consent of any person who is not a party to it (unless otherwise provided by this Agreement).

 

  (c)

An Indemnified Person who is not a party to a Finance Document may only enforce its rights under that Finance Document through a Finance Party and if and to the extent and in such manner as the Finance Party may determine.

 

22


1.4

Finance Documents

Where any other Finance Document provides that this clause 1.4 shall apply to that Finance Document, any other provision of this Agreement which, by its terms, purports to apply to all or any of the Finance Documents and/or any Obligor shall apply to that Finance Document as if set out in it but with all necessary changes.

 

1.5

Conflict of documents

The terms of the Finance Documents other than as relates to the creation and/or perfection of security) are subject to the terms of this Agreement and, in the event of any conflict between any provision of this Agreement and any provision of any Finance Document (other than in relation to the creation and/or perfection of security) the provisions of this Agreement shall prevail.

 

23


SECTION 2 - THE FACILITY

 

2

The Facility

 

2.1

The Facility

Subject to the terms of this Agreement, the Lenders make available to the Borrowers a term loan facility in an aggregate amount equal to the Total Commitments, to be advanced to the Borrowers in accordance with clause 5 (Utilisation).

 

2.2

Increase

 

  (a)

The Borrowers may by giving prior notice to the Agent by no later than the date falling five Business Days after the effective date of a cancellation of:

 

  (i)

the undrawn Commitments of a Defaulting Lender in accordance with clause 7.4(g); or

 

  (ii)

the Commitments of a Lender in accordance with clause 7.1 (Illegality),

request that the Total Commitments be increased (and the Commitments under the Facility shall be so increased rateably) in an aggregate amount of up to the amount of the Commitment so cancelled as follows:

 

  (i)

the increased Commitments will be assumed by one or more Lenders or other banks or financial institutions (each an Increase Lender) selected by the Borrowers (each of which shall not be a member of the Group and which is further acceptable to the Agent (acting reasonably)) and each of which confirms (such confirmation, if given by a Lender, to be given in its sole discretion) its willingness to assume and does assume all the obligations of a Lender corresponding to that part of the increased Commitments which it is to assume, as if it had been an Original Lender;

 

  (iii)

each of the Obligors and any Increase Lender shall assume obligations towards one another and/or acquire rights against one another as the Obligors and the Increase Lender would have assumed and/or acquired had the Increase Lender been an Original Lender;

 

  (iv)

each Increase Lender shall become a Party as a “Lender” and any Increase Lender and each of the other Finance Parties shall assume obligations towards one another and acquire rights against one another as that Increase Lender and those Finance Parties would have assumed and/or acquired had the Increase Lender been an Original Lender;

 

  (v)

the Commitments of the other Lenders shall continue in full force and effect; and

 

  (vi)

any increase in the Total Commitments shall take effect on the date specified by the Borrowers in the notice referred to above or any later date on which the conditions set out in clause 2.2(b) are satisfied.

 

  (b)

An increase in the Total Commitments will only be effective on:

 

  (i)

the execution by the Agent of an Increase Confirmation from the relevant Increase Lender;

 

  (ii)

in relation to an Increase Lender which is not a Lender immediately prior to the relevant increase the performance by the Agent of all necessary “know your

 

24


  customer” or other similar checks under all applicable laws and regulations in relation to the assumption of the increased Commitments by that Increase Lender, the completion of which the Agent shall promptly notify to the Borrowers and the Increase Lender.

 

  (c)

Each of the other Finance Parties hereby appoint the Agent as its agent to execute on its behalf any Increase Confirmation delivered to the Agent in accordance with this clause 2.2.

 

  (d)

Each Increase Lender, by executing the Increase Confirmation, confirms (for the avoidance of doubt) that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the increase becomes effective.

 

  (e)

Unless the Agent otherwise agrees or the increased Commitments are assumed by an existing Lender, the Borrowers shall, on the date upon which the increase takes effect, pay to the Agent (for its own account) a fee of $5,000 and the Borrowers shall promptly on demand pay the Agent the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with any increase in Commitments under this clause 2.2.

 

  (f)

The Borrowers may pay to the Increase Lender a fee in the amount and at the times agreed between the Borrowers and the Increase Lender in a letter between the Borrowers and the Increase Lender setting out that fee. A reference in this Agreement to a Fee Letter shall include any letter referred to in this clause 2.2(f).

 

  (g)

Clause 30.5 (Limitation of responsibility of Existing Lenders) shall apply mutatis mutandis in this clause 2.2(g) in relation to an Increase Lender as if references in that clause to:

 

  (i)

an Existing Lender were references to all the Lenders immediately prior to the relevant increase;

 

  (ii)

the New Lender were references to that Increase Lender; and

 

  (iii)

a re-assignment were references to an assignment.

 

2.3

Finance Parties’ rights and obligations

 

  (a)

The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.

 

  (b)

The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from an Obligor shall be a separate and independent debt in respect of which a Finance Party shall be entitled to enforce its rights (subject to clause 32.22 (All enforcement action through the Agent)) in accordance with paragraph (c) below. The rights of each Finance Party include any debt owing to that Finance Party under the Finance Documents and, for the avoidance of doubt, any part of the Loan or any other amount owed by an Obligor which relates to a Finance Party’s participation in the Facility or its role under a Finance Document (including any such amount payable to the Agent on its behalf) is a debt owing to that Finance Party by that Obligor.

 

25


  (c)

A Finance Party may, except as otherwise stated in the Finance Documents (including clauses 32.22 (All enforcement action through the Agent)) and 33.2 (Finance Parties acting together), separately enforce its rights under the Finance Documents.

 

2.4

Borrowers’ rights and obligations

 

  (a)

The obligations of each Borrower under this Agreement are joint and several. Failure by a Borrower to perform its obligations under this Agreement shall constitute a failure by all of the Borrowers.

 

  (b)

Each Borrower irrevocably and unconditionally and jointly and severally with the other Borrower:

 

  (i)

agrees that it is responsible for the performance of the obligations of each other Borrower under this Agreement;

 

  (ii)

acknowledges and agrees that it is a principal and original debtor in respect of all amounts due from the Borrowers under this Agreement; and

 

  (iii)

agrees with each Finance Party that, if any obligation of another Borrower under this Agreement is or becomes unenforceable, invalid or illegal for any reason it will, as an independent and primary obligation, indemnify that Finance Party immediately on demand against any and all Losses it incurs as a result of another Borrower not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by that other Borrower under this Agreement. The amount payable under this indemnity shall be equal to the amount which that Finance Party would otherwise have been entitled to recover.

 

  (c)

The obligations of each Borrower under the Finance Documents shall continue until all amounts which may be or become payable by the Borrowers under or in connection with the Finance Documents have been irrevocably and unconditionally paid or discharged in full, regardless of any intermediate payment or discharge in whole or in part.

 

  (d)

If any discharge, release or arrangement (whether in respect of the obligations of a Borrower or any security for those obligations or otherwise) is made by a Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of the Borrowers under this Agreement will continue or be reinstated as if the discharge, release or arrangement had not occurred.

 

  (e)

The obligations of each Borrower under the Finance Documents shall not be affected by an act, omission, matter or thing which, but for this clause (whether or not known to it or any Finance Party), would reduce, release or prejudice any of its obligations under the Finance Documents including:

 

  (i)

any time, waiver or consent granted to, or composition with, any Obligor or other person;

 

  (ii)

the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any other Obligor;

 

  (iii)

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 Obligor 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 realise the full value of any security;

 

26


  (iv)

any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;

 

  (v)

any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of a Finance Document or any other document or security;

 

  (vi)

any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or

 

  (vii)

any insolvency or similar proceedings.

 

  (f)

Each Borrower waives any right it may have of first requiring any Finance 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 Borrower under any Finance Document. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.

 

  (g)

After cancellation of the Total Commitments in accordance with clauses 7.1 (Illegality) and 7.7 (Automatic cancellation) or the giving of notice under paragraph (a) of clause 29.21 (Acceleration), then, until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably and unconditionally paid or discharged in full, each Finance Party (or any trustee or agent on its behalf) may:

 

  (i)

refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Borrower will be entitled to the benefit of the same; and

 

  (ii)

hold in a suspense account any money received from any Borrower or on account of any Borrower’s liability under any Finance Document.

 

  (h)

Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Agent otherwise directs (on such terms as it may require), no Borrower shall exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:

 

  (i)

to be indemnified by another Obligor;

 

  (ii)

to claim any contribution from any other Obligor or any guarantor of any Obligor’s obligations under the Finance Documents;

 

  (iii)

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 or of any guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party;

 

  (iv)

to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which that Borrower is liable under this Agreement or any of the other Finance Documents;

 

27


  (v)

to exercise any right of set-off against any other Obligor; and/or

 

  (vi)

to claim or prove as a creditor of any other Obligor in competition with any Finance Party.

 

  (i)

If a Borrower receives any benefit, payment or distribution in relation to such rights it will promptly pay an equal amount to the Agent for application in accordance with clause 35 (Payment mechanics). This only applies until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full.

 

3

Purpose

 

3.1

Purpose

The Borrowers shall apply all amounts borrowed under the Facility in accordance with this clause 3.

 

3.2

Refinancing of Existing Loan Agreement

The Loan shall be made available for the purpose of refinancing part of the Existing Loan Agreement and for general corporate and working capital purposes

 

3.3

Monitoring

No Finance Party is bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.

 

4

Conditions of Utilisation

 

4.1

Initial conditions precedent

The Lenders will only be obliged to comply with clause 5.4 (Lenders’ participation) in relation to the Utilisation if on or before the date that the Borrowers deliver the Utilisation Request, all of the documents and other evidence listed in Part 1 of Schedule 3 (Conditions precedent to the Utilisation Request) in form and substance satisfactory to the Agent.

 

4.2

Ship and security conditions precedent

The Total Commitments shall only become available for borrowing under this Agreement if the Agent, or its duly authorised representative, has received all of the documents and evidence listed in Part 2 of Schedule 3 (Ship and security conditions precedent) in form and substance satisfactory to the Agent.

 

4.3

Notice to Lenders

The Agent shall notify the Borrowers and the Lenders promptly upon receiving and being satisfied with all of the documents and evidence referred to in this clause 4 in form and substance satisfactory to it. Other than to the extent that the Majority Lenders notify the Agent in writing to the contrary before the Agent gives any such notification, the Lenders authorise (but do not require) the Agent to give that notification. The Agent shall not be liable for any damages, costs or losses whatsoever as a result of giving any such notification.

 

28


4.4

Further conditions precedent

The Lenders will only be obliged to comply with clause 5.4 (Lenders’ participation) if:

 

  (a)

on the date of the Utilisation Request and on the proposed Utilisation Date no Event of Default is continuing or would result from the proposed Utilisation; and

 

  (b)

on the date of the Utilisation Request and on the proposed Utilisation Date, all of the representations set out in clause 18 (Representations) are true.

 

4.5

Waiver of conditions precedent

The conditions in this clause 4 are inserted solely for the benefit of the Finance Parties and may be waived on their behalf in whole or in part and with or without conditions by the Agent acting on the instructions of the Majority Lenders.

 

29


SECTION 3 - UTILISATION

 

5

Utilisation

 

5.1

Delivery of the Utilisation Request

The Borrowers may utilise the Facility by delivery to the Agent of the duly completed Utilisation Request not later than 11:00 a.m. three (3) Business Days before the proposed Utilisation Date.

 

5.2

Completion of the Utilisation Request

 

  (a)

The Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:

 

  (i)

the proposed Utilisation Date is a Business Day falling on or before the last day of the Availability Period;

 

  (ii)

the currency and amount of the Utilisation comply with clause 5.3 (Currency and amount);

 

  (iii)

the proposed Interest Period complies with clause 9 (Interest Periods); and

 

  (iv)

it identifies the purpose of the Utilisation and that purpose complies with clause 3 (Purpose).

 

  (b)

Only one Utilisation Request may be submitted.

 

5.3

Currency and amount

 

  (a)

The currency specified in the Utilisation Request must be dollars.

 

  (b)

On the Utilisation Date, the amount of the Loan must not exceed the lower of the Total Commitments and 65% of the aggregate Fair Market Value of the Ships.

 

  (c)

If the amount requested in the Utilisation Request is greater than the amount capable of being advanced as a result of compliance with the requirements of clause 5.3(b) then only the lower amount shall be available to be advanced (and the Utilisation Request shall be construed by reference to this lower amount).

 

5.4

Lenders’ participation

 

  (a)

If the conditions set out in this Agreement have been met, each Lender shall make its participation in the Loan available by the Utilisation Date through its Facility Office.

 

  (b)

The amount of each Lender’s participation in the Loan will be equal to the proportion borne by its undrawn Commitment to the undrawn Total Commitments under the Facility immediately prior to making the Loan.

 

  (c)

The Agent shall promptly notify each Lender of the amount of the Loan and the amount of its participation in the Loan, in each case by 11:00 a.m. on the Quotation Day.

 

  (d)

The Agent shall pay all amounts received by it in respect of the Loan (and its own participation in it, if any) to the Borrowers or for their account in accordance with the instructions contained in the Utilisation Request.

 

30


SECTION 4 - REPAYMENT, PREPAYMENT AND CANCELLATION

 

6

Repayment and reduction

 

6.1

Scheduled repayment of Facility

The Borrowers shall repay the Loan by twenty four (24) quarterly repayment instalments of $2,287,500 and, together with the final instalment, a balloon repayment of $52,100,000. Each of the instalments shall be repaid on each of the Repayment Dates, commencing with a first instalment on the First Repayment Date and ending with the final scheduled instalment on the Final Repayment Date.

 

6.2

Adjustment of scheduled repayments

If the Total Commitments have been partially reduced under this Agreement or the Loan is partially prepaid (a) pursuant to clause 7.3 (voluntary prepayment of Loan) for the purpose of removing a Mortgaged Ship from the financing arrangements contemplated by this Agreement or (b) in connection with a sale or Total Loss of a Ship pursuant to clause 7.5(b) (Sale or Total Loss) then the amount of the remaining instalments by which the Loan shall be repaid under clause 6.1 shall be reduced pro rata to such reduction in the Total Commitments or such prepayment. Any other prepayment made pursuant to clause 7.3 (Voluntary Prepayment of Loan) shall be treated as reducing the instalments in inverse chronological order, with any such reduction first being applied against the balloon repayment of $52,100,00.

 

6.3

Final Repayment Date

On the Final Repayment Date (without prejudice to any other provision of this Agreement), all outstanding amounts under this Agreement and the Security Documents (including, but not limited to the outstanding amount of the Loan) shall be repaid in full.

 

7

Illegality, prepayment and cancellation

 

7.1

Illegality

If, in any applicable jurisdiction, it becomes unlawful or otherwise impossible for any Lender to perform any of its obligations as contemplated by this Agreement or any of the other Finance Documents, or for any Lender to fund or maintain its participation in the Facility and in the Loan:

 

  (a)

that Lender shall promptly notify the Agent upon becoming aware of that event;

 

  (b)

upon the Agent notifying the Borrowers, the Commitment of that Lender will be immediately cancelled and the remaining Total Commitments shall each be reduced rateably; and

 

  (c)

the Borrowers shall repay that Lender’s participation in the Loan on the last day of the Interest Period occurring after the Agent has notified the Borrowers or, if earlier, the date specified by the Lender in the notice delivered to the Agent (being no earlier than the last day of any applicable grace period permitted by law).

 

7.2

Change of control

 

  (a)

The Borrowers shall promptly notify the Agent upon any Obligor becoming aware of a Change of Control.

 

  (b)

If a Change of Control occurs and unless the Agent has previously approved the Change of Control in writing (acting on the instructions of the Majority Lenders, whose

 

31


  consent shall not be unreasonably withheld or delayed) the Total Commitments shall be cancelled with effect from the date such Change of Control occurs and the Loan shall be prepaid in full on or before the date falling 30 days after the date on which such Change of Control occurs (together with all other outstanding amounts under this Agreement and any of the Security Documents then due and payable at such time).

 

7.3

Voluntary prepayment of Loan

The Borrowers may, if they give the Agent not less than three Business Days’ (or such shorter period as the Majority Lenders may agree) prior written notice, prepay either the whole or any part of the Loan (but if in part, being an amount that reduces the Loan by a minimum amount of $500,000 and which is a multiple of $500,000 or such other amount as is acceptable to the Agent).

 

7.4

Right of replacement or cancellation and prepayment in relation to a single Lender

 

  (a)

If:

 

  (i)

any sum payable to any Lender by an Obligor is required to be increased under clause 12.2 (Tax gross-up);

 

  (ii)

any Lender claims indemnification from the Borrowers under clause 12.3 (Tax indemnity) or clause 13.1 (Increased Costs);

 

  (iii)

any Lender refuses to consent to any amendments or waivers requested by the Borrowers pursuant to any provision of this Agreement where such provision is expressed to require the consent of such Lender; or

 

  (iv)

during a Market Disruption Event, any Lender notifies the Agent of a sum under clause 10.3(ii) and that sum is materially greater than the equivalent sums notified by the other Lenders to the Agent under the same clause 10.3(ii),

the Borrowers may, whilst the circumstance giving rise to the requirement for that increase or indemnification continues, give the Agent notice of cancellation of the Commitment of that Lender and their intention to procure the repayment of that Lender’s participation in the Loan or give the Agent notice of its intention to replace that Lender in accordance with clause 7.4(d).

 

  (b)

On receipt of a notice referred to in clause 7.4(a) above, the Commitment of that Lender shall immediately be reduced to zero and (unless the Commitment of the relevant Lender is replaced in accordance with clause 7.4(d)) the remaining Total Commitments shall each be reduced rateably.

 

  (c)

On the last day of each Interest Period which ends after the Borrowers have given notice under clause 7.4(a) above in relation to a Lender (or, if earlier, the date specified by the Borrowers in that notice), the Borrowers shall repay that Lender’s participation in the Loan.

 

  (d)

The Borrowers may, in the circumstances set out in clause 7.4(a), with 10 Business Days’ prior notice to the Agent and that Lender, replace that Lender by requiring that Lender to transfer (and, to the extent permitted by law, that Lender shall transfer) pursuant to clause 30 (Changes to the Lenders) 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 selected by the Borrowers which confirms its willingness to assume and does assume all the obligations of the transferring Lender in accordance with clause 30 (Changes to the Lenders) for a purchase price in cash or other cash payment payable at the time of the transfer equal to the aggregate of:

 

  (i)

the outstanding principal amount of such Lender’s participation in the Loan;

 

32


  (ii)

all accrued interest owing to such Lender;

 

  (iii)

the Break Costs which would have been payable to such Lender pursuant to clause 10.5 (Break Costs) had the Borrowers prepaid in full that Lender’s participation in the Loan on the date of the transfer; and

 

  (iv)

all other amounts payable to that Lender under the Finance Documents on the date of the transfer.

 

  (e)

The replacement of a Lender pursuant to clause 7.4(d) shall be subject to the following conditions:

 

  (i)

the Borrowers shall have no right to replace the Agent;

 

  (ii)

neither the Agent nor any Lender shall have any obligation to find a replacement Lender;

 

  (iii)

in no event shall the Lender replaced under clause 7.4(d) be required to pay or surrender any of the fees received by such Lender pursuant to the Finance Documents; and

 

  (iv)

the Lender shall only be obliged to assign its rights pursuant to clause 7.4(d) above once it is satisfied that it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to that assignment and the Agent has approved such “know your customer” or other similar checks.

 

  (f)

A Lender shall perform the checks described in clause 7.4(e)(iv) above as soon as reasonably practicable following delivery of a notice referred to in clause 7.4(d) above and shall notify the Agent and the Borrowers when it is satisfied that it has complied with those checks.

 

  (g)

If any Lender becomes a Defaulting Lender, the Borrowers may, at any time whilst the Lender continues to be a Defaulting Lender, give the Agent 5 Business Days’ notice of cancellation of the undrawn Commitments of that Lender.

 

  (h)

On such notice becoming effective, the undrawn Commitments of the Defaulting Lender shall immediately be reduced to zero and the Agent shall as soon as practicable after receipt of such notice, notify all the Lenders.

 

7.5

Sale or Total Loss

 

  (a)

If a Ship becomes a Total Loss before the Total Commitment has become available for borrowing under this Agreement, the Total Commitment shall be reduced by an amount equal to the greater of:

 

  (i)

the dollar value of the Applicable Fraction multiplied by the Total Commitments immediately prior to the Total Loss; and

 

  (ii)

the amount required so that the Security Cover Ratio following such reduction is equal to the Security Cover Ratio prior to such reduction.

 

33


  (b)

On a Mortgaged Ship’s Disposal Repayment Date, the Borrowers shall prepay such amount of the Loan that is equal to the greater of:

 

  (i)

the dollar value of Applicable Fraction multiplied by the Loan outstanding immediately prior to the Mortgaged Ship’s Disposal Repayment Date; and

 

  (ii)

the amount required so that the Security Cover Ratio following such prepayment is equal to the Security Cover Ratio prior to such prepayment.

 

  (c)

For the purposes of clause 7.5, Applicable Fraction means a fraction having a numerator equal to the Fair Market Value of the Mortgaged Ship which was the subject of the sale or Total Loss and a denominator equal to the aggregate Fair Market Value of all the Mortgaged Ships immediately prior to such sale or Total Loss.

 

7.6

Release of Mortgaged Ship Security

Once the Agent has confirmed that it has received or will receive to its satisfaction all amounts payable pursuant to clause 7.5(b), the Borrowers may request the consent of the Security Agent (acting on the instructions of all Lenders) to release, discharge and/or, as appropriate, reassign the Security Documents (and the Security Interests assigned or charged thereunder) executed in respect of such Mortgaged Ship. In addition, the Borrowers shall also be entitled to make a request for a release of security in respect of a Mortgaged Ship where it has made a prepayment under clause 7.3 (Voluntary prepayment of Loan) for the purpose of removing that Mortgaged Ship from the financing arrangements contemplated by this Agreement provided that the Borrowers shall be in compliance with its obligations under clause 25 (Minimum security value) following such release or discharge. When any consent to the release of security is so given, any release arrangements of the type referred to in this clause shall be at the cost and expense of the Borrowers.

 

7.7

Automatic cancellation

Any part of the Total Commitments which has not become available or been utilised by the last day of the Availability Period shall be automatically cancelled at close of business in London on that last day.

 

7.8

Restrictions

 

  (a)

Any notice of cancellation or prepayment given by any Party under this clause 7 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment.

 

  (b)

Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.

 

  (c)

The Borrowers may not reborrow any part of the Facility which is repaid or prepaid.

 

  (d)

The Borrowers shall not repay or prepay all or any part of the Loan or cancel all or any part of the Commitments except at the times and in the manner expressly provided for in this Agreement.

 

  (e)

Subject to clause 2.2 (Increase) no amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated.

 

  (f)

If the Agent receives a notice under this clause 7 it shall promptly forward a copy of that notice to either the Borrowers or the affected Lender, as appropriate.

 

  (g)

If the Total Commitments are partially reduced and/or the Loan is partially prepaid under this Agreement (other than under clause 7.1 (Illegality), clause 7.4 (Right of cancellation and prepayment in relation to a single Lender) or clause 7.5 (Sale or Total Loss)) the Commitments of the Lenders shall be reduced rateably.

 

34


SECTION 5 - COSTS OF UTILISATION

 

8

Interest

 

8.1

Calculation of interest

The rate of interest on the Loan for each Interest Period is the percentage rate per annum which is the aggregate of the applicable:

 

  (a)

Margin; and

 

  (b)

LIBOR.

 

8.2

Payment of interest

The Borrowers shall pay accrued interest on the Loan on the last day of each Interest Period.

 

8.3

Default interest

 

  (a)

If an Obligor fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which, subject to clause 8.3(b) below, is two point zero per cent (2.0%) higher than the rate of interest most recently calculated (prior to the due date of the overdue amount) pursuant to clause 8.1 (Calculation of interest), for successive Interest Periods, each of a duration selected by the Agent (acting reasonably). Any interest accruing in accordance with this clause 8.3 shall be immediately payable by the Obligor on demand by the Agent.

 

  (b)

If any overdue amount consists of all or part of the Loan which became due on a day which was not the last day of an Interest Period relating to the Loan or the relevant part of it:

 

  (i)

the first Interest Period for that overdue amount shall have a duration equal to the unexpired portion of the current Interest Period relating to the Loan; and

 

  (ii)

the rate of interest applying to the overdue amount during that first Interest Period shall be two point zero per cent (2.0%) per annum higher than the rate which would have applied if the overdue amount had not become due.

 

  (c)

Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.

 

8.4

Notification of rates of interest

The Agent shall promptly notify the Lenders and the Borrowers of the determination of a rate of interest under this Agreement.

 

9

Interest Periods

 

9.1

Selection of Interest Periods

 

  (a)

Each Interest Period shall be three months in duration and the first Interest Period shall start on the Utilisation Date and each subsequent Interest Period shall start on the last day of its preceding Interest Period.

 

35


  (b)

No Interest Period shall extend beyond the Final Repayment Date.

 

9.2

Non-Business Days

If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).

 

10

Changes to the calculation of interest

 

10.1

Unavailability of Screen Rate

 

  (a)

If no Screen Rate is available for LIBOR for the Interest Period of the Loan, the applicable LIBOR shall be the Interpolated Screen Rate for a period equal in length to the Interest Period of that Loan.

 

  (b)

If no Screen Rate is available for LIBOR for:

 

  (i)

dollars; or

 

  (ii)

the Interest Period of the Loan and it is not possible to calculate the Interpolated Screen Rate,

the applicable LIBOR shall be the Reference Bank Rate as of the Specified Time and for a period equal in length to the Interest Period of the Loan.

 

10.2

Calculation of Reference Bank Rate

Subject to clause 10.3 (Market Disruption Event), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation by the Specified Time, the applicable LIBOR shall be determined on the basis of the quotations of the remaining Reference Banks.

 

10.3

Market Disruption Event

 

  (a)

If a Market Disruption Event occurs in relation to the Loan for any Interest Period, then the rate of interest on each Lender’s share of the Loan for the Interest Period shall be the rate per annum which is the sum of:

 

  (i)

the Margin; and

 

  (ii)

the rate notified to the Agent by that Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in the Loan from whatever source it may reasonably select.

 

  (b)

If a Market Disruption Event occurs, the Agent shall, as soon as practicable, notify the Borrowers.

 

  (c)

In this Agreement Market Disruption Event means that:

 

  (i)

at or about noon on the Quotation Day for the relevant Interest Period the Screen Rate is not available, it is not possible to calculate the Interpolated Screen Rate and none or only one of the Reference Banks supplies a rate to the Agent to determine LIBOR for the relevant Interest Period; or

 

36


  (ii)

before close of business in London on the Quotation Day for the relevant Interest Period, the Agent receives notifications from a Lender or Lenders (whose participations in the Loan are equal to or exceed 50% of that Loan) that the cost to it of funding its participation in that Loan from whatever source it may reasonably select would be in excess of LIBOR.

 

10.4

Alternative basis of interest or funding

 

  (a)

If a Market Disruption Event occurs and the Agent or the Borrowers so requires, the Agent and the Borrowers shall enter into negotiations (for a period of not more than 30 days) with a view to agreeing a substitute basis for determining the rate of interest.

 

  (b)

Any alternative basis agreed pursuant to clause 10.4(a) above shall, with the prior consent of all the Lenders be binding on all Parties.

 

10.5

Break Costs

 

  (a)

The Borrowers shall, within three Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of the Loan or Unpaid Sum being paid by the Borrowers on a day other than the last day of an Interest Period for the Loan or Unpaid Sum or relevant part of it.

 

  (b)

Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue.

 

11

Fees

The Borrowers shall pay to the Agent the fees in the amount and at the times agreed in any Fee Letter.

 

37


SECTION 6 - ADDITIONAL PAYMENT OBLIGATIONS

 

12

Tax gross-up and indemnities

 

12.1

Definitions

 

  (a)

In this Agreement:

Protected Party means a Finance Party or, in relation to clause 14.4 (Indemnity concerning security) and clause 14.7 (Interest) insofar as it relates to interest on any amount demanded by that Indemnified Person under clause 14.4 (Indemnity concerning security), any Indemnified Person, which is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document.

Tax Deduction means a deduction or withholding for or on account of Tax from a payment under a Finance Document other than a FATCA Deduction.

Tax Payment means either the increase in a payment made by an Obligor to a Finance Party under clause 12.2 (Tax gross-up) or a payment under clause 12.3 (Tax indemnity).

 

  (b)

Unless a contrary indication appears, in this clause 12 a reference to determines or determined means a determination made in the absolute discretion of the person making the determination.

 

12.2

Tax gross-up

 

  (a)

Each Obligor shall make all payments to be made by it under any Finance Document without any Tax Deduction, unless a Tax Deduction is required by law.

 

  (b)

The Borrowers shall, promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction), notify the Agent accordingly. Similarly, a Lender shall notify the Agent on becoming so aware in respect of a payment payable to that Lender. If the Agent receives such notification from a Lender it shall notify the Borrowers and that Obligor.

 

  (c)

If a Tax Deduction is required by law to be made by an Obligor, the amount of the payment due from that Obligor under the relevant Finance Document shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.

 

  (d)

If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.

 

  (e)

Within 30 days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to the Agent for the Finance Party entitled to the payment evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.

 

12.3

Tax indemnity

 

  (a)

The Borrowers shall (within three Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document.

 

38


  (b)

Clause 12.3(a) above shall not apply:

 

  (i)

with respect to any Tax assessed on a Finance Party:

 

  (A)

under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or

 

  (B)

under the law of the jurisdiction in which that Finance Party’s Facility Office is located in respect of amounts received or receivable in that jurisdiction,

if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party;

 

  (ii)

to the extent a loss, liability or cost:

 

  (A)

is compensated for by an increased payment under clause 12.2 (Tax gross-up);

 

  (B)

is compensated for by a payment under clause 12.5 (Indemnities on an after Tax basis); or

 

  (C)

relates to a FATCA Deduction required to be made by a Party.

 

  (c)

A Protected Party making, or intending to make a claim under clause 12.3(a) above shall promptly notify the Agent of the event which will give, or has given, rise to the claim, following which the Agent shall notify the Borrowers.

 

  (d)

A Protected Party shall, on receiving a payment from an Obligor under this clause 12.3, notify the Agent.

 

12.4

Tax Credit

If an Obligor makes a Tax Payment and the relevant Finance Party determines that:

 

  (a)

a Tax Credit is attributable (i) to an increased payment of which that Tax Payment forms part, (ii) to that Tax Payment or (iii) to a Tax Deduction in consequence of which that Tax Payment was required; and

 

  (b)

that Finance Party has obtained and utilised that Tax Credit,

the Finance Party shall pay an amount to the Obligor which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been required to be made by the Obligor.

 

12.5

Indemnities on after Tax basis

 

  (a)

If and to the extent that any sum payable to any Protected Party by the Borrowers under any Finance Document by way of indemnity or reimbursement proves to be insufficient, by reason of any Tax suffered thereon, for that Protected Party to discharge the corresponding liability to a third party, or to reimburse that Protected Party for the cost incurred by it in discharging the corresponding liability to a third party, the Borrowers

 

39


  shall pay that Protected Party such additional sum as (after taking into account any Tax suffered by that Protected Party on such additional sum) shall be required to make up the relevant deficit.

 

  (b)

If and to the extent that any sum (the Indemnity Sum) constituting (directly or indirectly) an indemnity to any Protected Party but paid by the Borrowers to any person other than that Protected Party, shall be treated as taxable in the hands of the Protected Party, the Borrowers shall pay to that Protected Party such sum (the Compensating Sum) as (after taking into account any Tax suffered by that Protected Party on the Compensating Sum) shall reimburse that Protected Party for any Tax suffered by it in respect of the Indemnity Sum.

 

  (c)

For the purposes of this clause 12.5 a sum shall be deemed to be taxable in the hands of a Protected Party if it falls to be taken into account in computing the profits or gains of that Protected Party for the purposes of Tax and, if so, that Protected Party shall be deemed to have suffered Tax on the relevant sum at the rate of Tax applicable to that Protected Party’s profits or gains for the period in which the payment of the relevant sum falls to be taken into account for the purposes of such Tax.

 

  (d)

There shall be taken into account, in determining whether any amount referred to in clause 12.5(a) is insufficient, the amount of any deduction or other relief, allowance or credit available to the Protected Party in respect of the Protected Party’s corresponding liability to a third party or the cost incurred by the Protected Party in discharging the corresponding liability to a third party.

 

12.6

Stamp taxes

 

  (a)

The Borrowers shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.

 

  (b)

Paragraph (a) above shall not apply in respect of any stamp duty, registration or other similar Taxes which are payable in respect of an assignment or transfer of any kind by a Finance Party of any of its rights and/or obligations under a Finance Document other than at the request of the Borrowers or Ultimate Parent or following an Event of Default which is continuing.

 

12.7

Value added tax

 

  (a)

All amounts expressed in a Finance Document to be payable by any party to a Finance Party which (in whole or in part) constitute the consideration for any supply for VAT purposes are deemed to be exclusive of any VAT which is chargeable on that supply, and accordingly, subject to clause 12.7(b) below, if VAT is or becomes chargeable on any supply made by any Finance Party to any party under a Finance Document, and such Finance Party is required to account to the relevant tax authority for the VAT, that party must pay to such Finance Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of the VAT (and such Finance Party must promptly provide an appropriate VAT invoice to that party).

 

40


  (b)

If VAT is or becomes chargeable on any supply made by any Finance Party (the Supplier) to any other Finance Party (the Recipient) under a Finance Document, and any party to a Finance Document other than the Recipient (the Subject Party) is required by the terms of any Finance Document to pay an amount equal to the consideration for such supply to the Supplier (rather than being required to reimburse or indemnify the Recipient in respect of that consideration):

 

  (i)

(where the Supplier is the person required to account to the relevant tax authority for the VAT) the Subject Party must also pay to the Supplier (at the same time as paying that amount) an additional amount equal to the amount of the VAT. The Recipient must (where this paragraph (a) applies) promptly pay to the Subject Party an amount equal to any credit or repayment the Recipient receives from the relevant tax authority which the Recipient reasonably determines relates to the VAT chargeable on that supply; and

 

  (ii)

(where the Recipient is the person required to account to the relevant tax authority for the VAT) the Subject Party must promptly, following demand from the Recipient, pay to the Recipient an amount equal to the VAT chargeable on that supply but only to the extent that the Recipient reasonably determines that it is not entitled to credit or repayment from the relevant tax authority in respect of that VAT.

 

  (c)

Where a Finance Document requires any party to it to reimburse or indemnify a Finance Party for any cost or expense, that party shall reimburse or indemnify (as the case may be) such Finance Party for the full amount of such cost or expense, including such part thereof as represents VAT save to the extent that such Finance Party reasonably determines that it is entitled to credit or repayment of in respect of such VAT from the relevant tax authority.

 

  (d)

Any reference in this clause 12.7 (Value Added Tax) to any party shall, at any time when such party is treated as a member of a group for VAT purposes, include (where appropriate and unless the context otherwise requires) a reference to any member of such group at such time.

 

  (e)

In relation to any supply made by a Finance Party to any party under a Finance Document, if reasonably requested by such Finance Party, that party must promptly provide such Finance Party with details of that party’s VAT registration and such other information as is reasonably requested in connection with such Finance Party’s VAT reporting requirements in relation to such supply.

 

12.8

FATCA Information

 

  (a)

Subject to clause 12.8(c) below, each Party shall, within ten Business Days of a reasonable request by another Party:

 

  (i)

confirm to that other Party whether it is:

 

  (A)

a FATCA Exempt Party; or

 

  (B)

not a FATCA Exempt Party;

 

  (ii)

supply to that other Party such forms, documentation and other information relating to its status under FATCA as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA; and

 

  (iii)

supply to that other Party such forms, documentation and other information relating to its status as that other Party reasonably requests for the purposes of that other Party’s compliance with any other law, regulation, or exchange of information regime.

 

  (b)

If a Party confirms to another Party pursuant to clause 12.8(a)(i) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly.

 

41


  (c)

Clause 12.8(a) above shall not oblige any Finance Party to do anything, and paragraph (a)(iii) above shall not oblige any other Party to do anything, which would or might in its reasonable opinion constitute a breach of:

 

  (i)

any law or regulation;

 

  (ii)

any fiduciary duty; or

 

  (iii)

any duty of confidentiality.

 

  (d)

If a party to any Finance Document fails to confirm its status or to supply forms, documentation or other information requested in accordance with clause 12.8(a)(i) or clause 12.8(a)(ii) above (including, for the avoidance of doubt, where 12.8(c) applies), then such Party shall be treated for the purposes of the Finance Documents (and payments under them) as if it is not a FATCA Exempt Party until such time as the Party in question provides the requested confirmation, forms, documentation or other information.

 

12.9

FATCA Deduction

 

  (a)

Each Party may make any FATCA Deduction it is required to make by FATCA, and any payment required in connection with that FATCA Deduction, and no Party shall be required to increase any payment in respect of which it makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction.

 

  (b)

Each Party shall promptly, upon becoming aware that it must make a FATCA Deduction (or that there is any change in the rate or the basis of such FATCA Deduction), notify the Party to whom it is making the payment and, in addition, shall notify the Company and the Agent and the Agent shall notify the other Finance Parties.

 

13

Increased Costs

 

13.1

Increased Costs

 

  (a)

Subject to clause 13.3 (Exceptions), the Borrowers shall, within three Business Days of a demand by the Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates which:

 

  (i)

arises as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation or (ii) compliance with any law or regulation made after the date of this Agreement; and/or

 

  (ii)

is a Basel III Increased Cost.

 

  (b)

In this Agreement Increased Costs means:

 

  (i)

a reduction in the rate of return from the Facility or on a Finance Party’s (or its Affiliate’s) overall capital;

 

  (ii)

an additional or increased cost; or

 

  (iii)

a reduction of any amount due and payable under any Finance Document,

 

42


which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document.

 

13.2

Increased Cost claims

 

  (a)

A Finance Party intending to make a claim pursuant to clause 13.1 (Increased Costs) shall notify the Agent of the event giving rise to the claim, following which the Agent shall promptly notify the Borrowers.

 

  (b)

Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs.

 

13.3

Exceptions

 

  (a)

Clause 13.1 (Increased Costs) does not apply to the extent any Increased Cost is:

 

  (i)

attributable to a Tax Deduction required by law to be made by an Obligor;

 

  (ii)

attributable to a FATCA Deduction required to be made by a Party;

 

  (iii)

compensated for by clause 12.3 (Tax indemnity) (or would have been compensated for under clause 12.3 (Tax indemnity) but was not so compensated solely because any of the exclusions in clause 12.3(b) applied); or

 

  (iv)

attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation.

 

  (b)

Any claim for an Increased Cost made pursuant to clause 13.1 above that arises from or is related to a Basel III Increased Cost incurred by any Finance Party shall be recoverable only to the extent that such Basel III Increased Cost is attributable to the implementation or application of or compliance with any Basel III Regulation which has come into force after the date of this Agreement.

 

  (c)

In this clause 13.3, a reference to a Tax Deduction has the same meaning given to the term in clause 12.1 (Definitions).

 

14

Other indemnities

 

14.1

Currency indemnity

 

  (a)

If any sum due from an Obligor under the Finance Documents (a Sum), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the First Currency) in which that Sum is payable into another currency (the Second Currency) for the purpose of:

 

  (i)

making or filing a claim or proof against that Obligor; and/or

 

  (ii)

obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,

that Obligor shall, as an independent obligation, within three Business Days of demand by a Finance Party, indemnify each Finance Party to whom that Sum is due against any Losses arising out of or as a result of the conversion including any discrepancy between (i) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (ii) the rate or rates of exchange available to that person at the time of its receipt of that Sum.

 

43


  (b)

Each Obligor waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.

 

14.2

Other indemnities

The Borrowers shall (or shall procure that another Obligor will), within three Business Days of demand by a Finance Party, indemnify each Finance Party against any and all Losses incurred by that Finance Party as a result of:

 

  (a)

the occurrence of any Event of Default;

 

  (b)

a failure by an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any and all Losses arising as a result of clause 34 (Sharing among the Finance Parties);

 

  (c)

funding, or making arrangements to fund, its participation in the Loan requested by the Borrowers in the Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by that Finance Party alone);

 

  (d)

the Loan (or part of the Loan) not being prepaid in accordance with a notice of prepayment given by the Borrowers;

 

  (e)

arising or asserted under or in connection with any law relating to safety at sea, the ISM Code, any Environmental Law or any Sanctions (including, without limitation, any Losses incurred by that Finance Party in investigating any possible breach of such laws but excluding any Losses incurred by that Finance Party solely by reason of that Finance Party’s own breach of such laws); or

 

  (f)

incurred by it as a result of any claim, action, civil penalty or fine against, any settlement, and any other kind of loss or liability, and all reasonable costs and expenses (including reasonable counsel fees and disbursements) incurred by the Agent, the Security Agent or any Lender as a result of conduct of any Obligor or any of their partners, directors, officers, employees, agents or advisors, that violates any Sanctions.

 

14.3

Indemnity to the Agent

The Borrowers shall promptly indemnify the Agent and the Security Agent against:

 

  (a)

any and all Losses incurred by the Agent or the Security Agent (acting reasonably) as a result of:

 

  (i)

investigating any event which it reasonably believes is a Default;

 

  (ii)

acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised;

 

  (iii)

instructing lawyers, accountants, tax advisers, or other professional advisers or experts as permitted under this Agreement; or

 

  (iv)

any action taken by the Agent or the Security Agent or any of their representatives, agents or contractors in connection with any powers conferred by any Security Document to remedy any breach of any Obligor’s obligations under the Finance Documents; and

 

44


  (b)

any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent or the Security Agent in the course of acting as Agent or, as the case may be, Security Agent under the Finance Documents (otherwise than by reason of the Agent’s or the Security Agent’s gross negligence or wilful misconduct) (or, in the case of any cost, loss or liability pursuant to clause 35.11 (Disruption to payment systems etc.) notwithstanding the Agent’s or the Security Agent’s negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent or the Security Agent in acting as Agent or, as the case may be, the Security Agent under the Finance Documents.

 

14.4

Indemnity concerning security

 

  (a)

The Borrowers shall (or shall procure that another Obligor will) promptly indemnify each Indemnified Person against any and all Losses incurred by it in connection with:

 

  (i)

any failure by the Borrowers to comply with clause 16 (Costs and expenses);

 

  (ii)

acting or relying on any notice, request or instruction received in respect of the Finance Documents which it reasonably believes to be genuine, correct and appropriately authorised;

 

  (iii)

the taking, holding, protection or enforcement of the Security Documents;

 

  (iv)

the exercise or purported exercise of any of the rights, powers, discretions, authorities and remedies vested in the Security Agent and/or any other Finance Party and each Receiver by the Finance Documents or by law unless and to the extent that it was caused by its gross negligence or wilful misconduct;

 

  (v)

any claim (whether relating to the environment or otherwise) made or asserted against the Indemnified Person which would not have arisen but for the execution or enforcement of one or more Finance Documents (unless and to the extent it is caused by the gross negligence or wilful misconduct of that Indemnified Person); or

 

  (vi)

any breach by any Obligor of the Finance Documents.

 

  (b)

The Security Agent may, in priority to any payment to the other Finance Parties, indemnify itself out of the Trust Property in respect of, and pay and retain, all sums necessary to give effect to the indemnity in this clause 14.4 and shall have a lien on the Security Documents and the proceeds of the enforcement of those Security Documents for all moneys payable to it.

 

14.5

Continuation of indemnities

The indemnities by the Borrowers in favour of the Indemnified Persons contained in this Agreement shall continue in full force and effect notwithstanding any breach by any Finance Party or the Borrowers of the terms of this Agreement, the repayment or prepayment of the Loan, the cancellation of the Total Commitments or the repudiation by the Agent or the Borrowers of this Agreement.

 

14.6

Third Parties Act

Each Indemnified Person may rely on the terms of clause 14.4 (Indemnity concerning security) and clauses 12 (Tax gross-up and indemnities) and 14.7 (Interest) insofar as it relates to

 

45


interest on any amount demanded by that Indemnified Person under clause 14.4 (Indemnity concerning security), subject to clause 1.3 (Third party rights) and the provisions of the Third Parties Act.

 

14.7

Interest

Moneys becoming due by the Borrowers to any Indemnified Person under the indemnities contained in this clause 14 (Other indemnities) or elsewhere in this Agreement shall be paid on demand made by such Indemnified Person and shall be paid together with interest on the sum demanded from the date of demand therefor to the date of reimbursement by the Borrowers to such Indemnified Person (both before and after judgment) at the rate referred to in clause 8.3 (Default interest).

 

14.8

Exclusion of liability

No Indemnified Person will be in any way liable or responsible to any Obligor (whether as mortgagee in possession or otherwise) who is a Party or is a party to a Finance Document to which this clause applies for any loss or liability arising from any act, default, omission or misconduct of that Indemnified Person, except to the extent caused by its own gross negligence or wilful misconduct. Any Indemnified Person may rely on this clause 14.8 subject to clause 1.3 (Third party rights) and the provisions of the Third Parties Act.

 

15

Mitigation by the Lenders

 

15.1

Mitigation

 

  (a)

Each Finance Party shall, in consultation with the Borrowers, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of clause 7.1 (Illegality), clause 12 (Tax gross-up and indemnities) or clause 13 (Increased Costs) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.

 

  (b)

Clause 15.1(a) does not in any way limit the obligations of any Obligor under the Finance Documents.

 

15.2

Limitation of liability

 

  (a)

The Borrowers shall promptly indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under clause 15.1 (Mitigation).

 

  (b)

A Finance Party is not obliged to take any steps under clause 15.1 (Mitigation) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it.

 

16

Costs and expenses

 

16.1

Transaction expenses

The Borrowers shall promptly within five Business Days of demand pay the Agent, the Security Agent and the Arrangers the amount of all costs and expenses (including fees, costs and expenses of legal advisers and insurance and other consultants and advisers) reasonably incurred by any of them (and by any Receiver) in connection with the negotiation, preparation, printing, execution, syndication, registration and perfection and any release, discharge or reassignment of:

 

46


  (a)

this Agreement and any other documents referred to in this Agreement and the Security Documents;

 

  (b)

any other Finance Documents executed or proposed to be executed after the date of this Agreement including any executed to provide additional security under clause 25 (Minimum security value); or

 

  (c)

any Security Interest expressed or intended to be granted by a Finance Document.

 

16.2

Amendment costs

If an Obligor requests an amendment, waiver or consent, the Borrowers shall, within five Business Days of demand by the Agent, reimburse the Agent for the amount of all costs and expenses (including fees, costs and expenses of legal advisers and insurance and other consultants and advisers) reasonably incurred by the Agent and the Security Agent (and by any Receiver) in responding to, evaluating, negotiating or complying with that request or requirement.

 

16.3

Enforcement, preservation and other costs

The Borrowers shall on demand by a Finance Party, pay to each Finance Party the amount of all costs and expenses (including fees, costs and expenses of legal advisers and insurance and other consultants, brokers, surveyors and advisers) incurred by that Finance Party in connection with:

 

  (a)

the enforcement of, or the preservation of any rights under, any Finance Document and any proceedings initiated by or against any Indemnified Person and as a consequence of holding the Charged Property or enforcing those rights and any proceedings instituted by or against any Indemnified Person as a consequence of taking or holding the Security Documents or enforcing those rights;

 

  (b)

any valuation carried out under clause 25 (Minimum security value);

 

  (c)

any inspection carried out under clause 23.8 (Inspection and notice of dry-dockings); or

 

  (d)

or any survey carried out under clause 23.16 (Survey report).

 

47


SECTION 7 - GUARANTEE

 

17

Guarantee and indemnity

 

17.1

Guarantee and indemnity

Each Guarantor irrevocably and unconditionally:

 

  (a)

guarantees to the Security Agent (as trustee for the Finance Parties) and the other Finance Parties punctual performance by each other Obligor of all such Obligor’s obligations under the Finance Documents;

 

  (b)

undertakes with the Security Agent (as trustee for the Finance Parties) and the other Finance Parties that whenever another Obligor does not pay any amount when due under or in connection with any Finance Document, it shall immediately on demand pay that amount as if it was the principal obligor; and

 

  (c)

agrees with the Security Agent (as trustee for the Finance Parties) and the other Finance Parties that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent and primary obligation indemnify that Finance Party immediately on demand against any cost, loss or liability it incurs as a result of the Borrowers not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by the Borrowers under any Finance Document on the date when it would have been due. The amount payable by a Guarantor under this indemnity will not exceed the amount it would have had to pay under this clause 17.1 if the amount claimed had been recoverable on the basis of a guarantee.

 

17.2

Continuing guarantee

Each Guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.

 

17.3

Reinstatement

If any discharge, release or arrangement (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is made by a Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of each Guarantor under this clause 17 will continue or be reinstated as if the discharge, release or arrangement had not occurred.

 

17.4

Waiver of defences

The obligations of a Guarantor under this clause 17 will not be affected by an act, omission, matter or thing (whether or not known to it or any Finance Party) which, but for this clause, would reduce, release or prejudice any of its obligations under this clause 17 including (without limitation):

 

  (a)

any time, waiver or consent granted to, or composition with, any Obligor or other person;

 

  (b)

the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any other Obligor;

 

48


  (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 Obligor 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 realise the full value of any security;

 

  (d)

any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;

 

  (e)

any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of any Finance Document or any other document or security including without limitation any change in the purpose of, any extension of or any increase in any facility or the addition of any new facility under any Finance Document or other document or security;

 

  (f)

any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or

 

  (g)

any insolvency or similar proceedings.

 

17.5

Immediate recourse

Each Guarantor waives any right it may have of first requiring any Finance 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 17. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.

 

17.6

Appropriations

Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:

 

  (a)

refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and

 

  (b)

hold in an interest-bearing suspense account any moneys received from a Guarantor or on account of any Guarantor’s liability under this clause 17.

 

17.7

Deferral of Guarantors rights

Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid 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 or by reason of any amount being payable, or liability arising, under this clause 17:

 

  (a)

to be indemnified by another Obligor;

 

  (b)

to claim any contribution from any other guarantor of any Obligor’s obligations under the Finance Documents;

 

  (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 or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party;

 

49


  (d)

to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which a Guarantor has given a guarantee, undertaking or indemnity under clause 17 (Guarantee and Indemnity);

 

  (e)

to exercise any right of set-off against any other Obligor; and/or

 

  (f)

to claim or prove as a creditor of any other Obligor in competition with any Finance Party.

If a Guarantor receives any benefit, payment or distribution in relation to such rights it will promptly pay an equal amount to the Agent for application in accordance with clause 35 (Payment mechanics). This only applies until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full.

 

17.8

Additional security

Each Guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.

 

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SECTION 8 - REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT

 

18

Representations

Each Borrower makes and repeats the representations and warranties set out in this clause 18 to each Finance Party at the times specified in clause 18.35 (Times when representations are made).

 

18.1

Status

 

  (a)

The Ultimate Parent is domesticated and validly existing in good standing under the laws of its Original Jurisdiction as a corporation, and each Borrower and the Parent is duly formed or, as applicable, domesticated and validly existing in good standing under the laws of its Original Jurisdiction of its incorporation or formation as a limited liability company, and each Obligor has no registered place of business outside its Original Jurisdiction.

 

  (b)

Each Obligor has power and authority to carry on its business as it is now being conducted and to own its property and other assets.

 

18.2

Binding obligations

Subject to the Legal Reservations, the obligations expressed to be assumed by each Obligor in each Finance Document and any Charter Document to which it is, or is to be, a party are or, when entered into by it, will be legal, valid, binding and enforceable obligations and each Security Document to which an Obligor is, or will be, a party, creates or will create the Security Interests which that Security Document purports to create and those Security Interests are or will be valid and effective.

 

18.3

Power and authority

 

  (a)

Each Obligor has power to enter into, perform and deliver and comply with its obligations under, and has taken all necessary action to authorise its entry into, each Finance Document and any Charter Document to which it is or is to be a party.

 

  (b)

No limitation on any Obligor’s powers to borrow, create security or give guarantees will be exceeded as a result of any transaction under, or the entry into of, any Finance Document or any Charter Document to which such Obligor is, or is to be, a party.

 

18.4

Non-conflict

The entry into and performance by each Obligor of, and the transactions contemplated by the Finance Documents and the Charter Documents to which it is a party and the granting of the Security Interests purported to be created by the Security Documents do not and will not conflict with:

 

  (a)

any law or regulation applicable to any Obligor;

 

  (b)

the Constitutional Documents of any Obligor; or

 

  (c)

any agreement or other instrument binding upon any Obligor or its assets, or constitute a default or termination event (however described) under any such agreement or instrument.

 

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18.5

Validity and admissibility in evidence

 

  (a)

All authorisations required or desirable:

 

  (i)

to enable each Obligor lawfully to enter into, exercise its rights and comply with its obligations under each Finance Document and any Charter Document to which it is a party;

 

  (ii)

to make each Finance Document and any Charter Document to which it is a party admissible in evidence in its Relevant Jurisdiction; and

 

  (iii)

to ensure that each of the Security Interests created under the Security Documents has the priority and ranking contemplated by them,

have been obtained or effected and are in full force and effect except any authorisation or filing referred to in clause 18.12 (No filing or stamp taxes), which authorisation or filing will be promptly obtained or effected within any applicable period.

 

  (b)

All authorisations necessary for the conduct of the business, trade and ordinary activities of each Obligor have been obtained or effected (subject to the Legal Reservations) and are in full force and effect if failure to obtain or effect those authorisations might have a Material Adverse Effect.

 

18.6

Governing law and enforcement

Save as otherwise identified in any legal opinion delivered to the Agent under clause 4.1 (Initial conditions precedent) and subject to any Legal Reservations:

 

  (a)

the choice of English law or any other applicable law as the governing law of any Finance Document and any Charter Document will be recognised and enforced in each Obligor’s Relevant Jurisdiction; and

 

  (b)

any judgment obtained in England in relation to an Obligor will be recognised and enforced in each Obligor’s Relevant Jurisdictions.

 

18.7

Information

 

  (a)

Any Information is true and accurate in all material respects at the time it was given or made.

 

  (b)

There are no facts or circumstances or any other information which could make the Information incomplete, untrue, inaccurate or misleading in any material respect.

 

  (c)

The Information does not omit anything which could make the Information incomplete, untrue, inaccurate or misleading in any material respect.

 

  (d)

All opinions, projections, forecasts or expressions of intention contained in the Information and the assumptions on which they are based have been arrived at after due and careful enquiry and consideration and were believed to be reasonable by the person who provided that Information as at the date it was given or made.

 

  (e)

For the purposes of this clause 18.7, Information means: any information provided by any Obligor or any other Group Member to any of the Finance Parties in connection with the Finance Documents, the Charter Documents or the transactions referred to in them.

 

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18.8

Original Financial Statements

 

  (a)

The Original Financial Statements were prepared in accordance with GAAP consistently applied.

 

  (b)

The audited Original Financial Statements give a true and fair view of the consolidated financial condition and results of operations of the Group during the relevant financial year.

 

  (c)

There has been no material adverse change in its assets, business or financial condition (or the assets, business or consolidated financial condition of the Group) since the date of the Original Financial Statements.

 

18.9

Pari passu ranking

Each Obligor’s payment obligations under the Finance Documents to which it is, or is to be, a party rank at least pari passu with all its other present and future unsecured and unsubordinated payment obligations, except for obligations mandatorily preferred by law applying to companies generally.

 

18.10

Ranking and effectiveness of security

Subject to the Legal Reservations and any filing, registration or notice requirements which is referred to in any legal opinion delivered to the Agent under clause 4.1 (Initial conditions precedent), the security created by the Security Documents has (or will have when the Security Documents have been executed) the priority which it is expressed to have in the Security Documents, the Charged Property is not subject to any Security Interest other than Permitted Security Interests and such security will constitute perfected security on the assets described in the Security Documents.

 

18.11

No insolvency

No corporate action, legal proceeding or other procedure or step described in clause 29.9 (Insolvency proceedings) or creditors’ process described in clause 29.10 (Creditors’ process) has been taken or, to the knowledge of any Obligor, threatened in relation to a Group Member and none of the circumstances described in clause 29.8 (Insolvency) applies to any Group Member.

 

18.12

No filing or stamp taxes

Under the laws of each Obligor’s Relevant Jurisdictions it is not necessary that any Finance Document or any Charter Document to which it is, or is to be, party be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration, notarial or similar Taxes or fees be paid on or in relation to any such Finance Document or any Charter Document or the transactions contemplated by the Finance Documents except any filing, recording or enrolling or any tax or fee payable in relation to any Finance Document which is referred to in any legal opinion delivered to the Agent under clause 4.1 (Initial conditions precedent) and which will be made or paid promptly after the date of the relevant Finance Document.

 

18.13

Tax

 

  (a)

No Obligor is required to make any Tax Deduction and no other party is required to make any such deduction from any payment it may make under any Charter Document.

 

53


  (b)

The execution or delivery or performance by any Party of the Finance Documents will not result in any Finance Party:

 

  (i)

having any liability in respect of Tax in any Flag State;

 

  (ii)

having or being deemed to have a place of business in any Flag State or any Relevant Jurisdiction of any Obligor.

 

18.14

No Default

 

  (a)

No Default is continuing or is reasonably likely to result from the making of any Utilisation or the entry into, the performance of, or any transaction contemplated by, any Finance Document or any Charter Document.

 

  (b)

No other event or circumstance is outstanding which constitutes (or, with the expiry of a grace period, the giving of notice, the making of any determination or any combination of any of the foregoing, would constitute) a default or termination event (however described) under any other agreement or instrument which is binding on any Obligor r or to which any Obligor’s assets are subject which might have a Material Adverse Effect.

 

18.15

No proceedings pending or threatened

No litigation, arbitration or administrative proceedings or investigations of, or before, any court, arbitral body or agency which, if adversely determined, might be expected to have a Material Adverse Effect, have (to the best of any Obligor’s knowledge and belief) been started or threatened against any Obligor or any other Group Member.

 

18.16

No breach of laws

 

  (a)

No Obligor has breached any law or regulation which breach might have a Material Adverse Effect.

 

  (b)

No labour dispute is current or, to the best of any Obligor’s knowledge and belief (having made due and careful enquiry), threatened against any Obligor which may have a Material Adverse Effect.

 

18.17

Environmental matters

 

  (a)

No Environmental Law applicable to any Ship and/or any Obligor has been violated in a manner or circumstances which might have, a Material Adverse Effect.

 

  (b)

All consents, licences and approvals required under such Environmental Laws have been obtained and are currently in force.

 

  (c)

No Environmental Claim has been made or threatened or is pending against any Obligor or Ship where that claim might have a Material Adverse Effect and there has been no Environmental Incident which has given, or might give, rise to such a claim.

 

18.18

Tax Compliance

 

  (a)

No Obligor is materially overdue in the filing of any Tax returns or overdue in the payment of any material amount in respect of Tax.

 

  (b)

No claims or investigations are being, or are reasonably likely to be, made or conducted against any Obligor with respect to Taxes such that a liability of, or claim against, any Obligor is reasonably likely to arise for an amount for which adequate reserves have not been provided in the Original Financial Statements and which might have a Material Adverse Effect.

 

54


  (c)

Each Obligor is resident for Tax purposes only in its Original Jurisdiction except for any Taxes which may arise in the usual course of its business of operating and trading the Ships.

 

18.19

Anti- corruption law

Each Obligor has conducted its businesses in compliance with applicable anti-corruption laws and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws.

 

18.20

Sanctions

No Obligor nor any other Group Member (or their Affiliates), nor any of their respective directors, officers or employees nor, to the knowledge of any Obligor, any persons acting on any of their behalf:

 

  (a)

is a Sanctioned Party;

 

  (b)

owns or controls a Sanctioned Party;

 

  (c)

is in breach of Sanctions; or

 

  (d)

has received notice of or is aware of any claim, action, suit, proceeding or investigation against it with respect to Sanctions applicable to it by any Sanctions Authority.

 

18.21

Security and Financial Indebtedness

On and following the Utilisation Date, and except for those Security Interests granted by the Obligors pursuant to the Existing Loan Agreement that will be discharged on the Utilisation Date:

 

  (a)

no Security Interest shall exist over all or any of the present or future assets of any Obligor in breach of this Agreement; and

 

  (b)

no Obligor shall have any Financial Indebtedness outstanding in breach of this Agreement (including but not limited any Financial Indebtedness referred to in clause 28.2 (Financial Indebtedness)).

 

18.22

Legal and beneficial ownership

Each Obligor is or, on the date the Security Documents to which it is a party are entered into, will be the sole legal and beneficial owner of the respective assets over which it purports to grant a Security Interest under the Security Documents to which it is a party.

 

18.23

Membership interests

The membership interests of each Borrower are fully paid and not subject to any option to purchase or similar rights. The Constitutional Documents of each Borrower do not and could not restrict or inhibit any transfer of those membership interests on creation or enforcement of the Security Documents. There are no agreements in force which provide for the issue or allotment of, or grant any person the right to call for the issue or allotment of, any membership interest or loan capital of each Borrower (including any option or right of pre-emption or conversion).

 

18.24

Accounting Reference Date

The financial year-end of each Obligor is the Accounting Reference Date.

 

55


18.25

Material Adverse Effect

There has been no Material Adverse Effect which has affected the ability of the Borrowers to make all the required payments under this Agreement or the validity or enforceability of this Agreement since the date of the Original Financial Statements.

 

18.26

No adverse consequences

Save as otherwise identified in any legal opinion delivered to the Agent under clause 4.1 (Initial conditions precedent):

 

  (a)

it is not necessary under the laws of the Relevant Jurisdictions of any Obligor:

 

  (i)

in order to enable any Finance Party to enforce its rights under any Finance Document to which it is, or is to be, a party; or

 

  (ii)

by reason of the execution of any Finance Document or the performance by any Obligor of its obligations under any Finance Document to which it is, or is to be, a party,

that any Finance Party should be licensed, qualified or otherwise entitled to carry on business in any of such Relevant Jurisdictions; and

 

  (b)

no Finance Party is or will be deemed to be resident, domiciled or carrying on business in any Relevant Jurisdiction by reason only of the execution, performance and/or enforcement of any Finance Document.

 

18.27

Copies of documents

The copies of any Charter Documents and the Constitutional Documents of the Obligors delivered to the Agent under clause 4 (Conditions of Utilisation) will be true, complete and accurate copies of such documents and include all amendments and supplements to them as at the time of such delivery and no other agreements or arrangements exist between any of the parties to any Charter Document which would materially affect the transactions or arrangements contemplated by any Charter Document or modify or release the obligations of any party under that Charter Document.

 

18.28

No immunity

No Obligor or any of its assets is immune to any legal action or proceeding.

 

18.29

Ship status

Each Ship will on the first day of the relevant Mortgage Period be:

 

  (a)

registered permanently in the name of the relevant Owner through the relevant Registry as a ship under the laws and flag of the relevant Flag State;

 

  (b)

operationally seaworthy and in every way fit for service;

 

  (c)

classed with the relevant Classification free of all requirements and recommendations of the relevant Classification Society; and

 

  (d)

insured in the manner required by the Finance Documents.

 

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18.30

Ship’s employment

Each Ship shall on the first day of the relevant Mortgage Period be free of any charter commitment (other than any Charter if any Charter has been entered into by an Owner) which, if entered into after that date, would require approval under the Finance Documents.

 

18.31

Ownership of the Obligors

Each of the Borrowers is a wholly, legally and beneficially owned:

 

  (a)

indirect Subsidiary of the Ultimate Parent; and

 

  (b)

direct Subsidiary of the Parent.

 

18.32

Address commission

There are no rebates, commissions or other payments in connection with any Charter other than those referred to in it.

 

18.33

No money laundering

None of the Obligors are in contravention of any anti-money laundering law, official requirement or other regulatory measure or procedure implemented to combat “money laundering”.

 

18.34

No corrupt practices

None of the Obligors are engaged in any practice which would be deemed corrupt in any Relevant Jurisdiction.

 

18.35

Times when representations are made

 

  (a)

All of the representations and warranties set out in this clause 18 (other than Ship Representations relating to Ships which are not Mortgaged Ships at such time) are deemed to be made on the dates of:

 

  (i)

this Agreement;

 

  (ii)

the Utilisation Request; and

 

  (iii)

the issuing of any Compliance Certificate.

 

  (b)

The Repeating Representations are deemed to be made on the first day of each Interest Period.

 

  (c)

All of the Ship Representations are deemed to be made on the first day of the Mortgage Period for the relevant Ship.

 

  (d)

Each representation or warranty deemed to be made after the date of this Agreement shall be deemed to be made by reference to the facts and circumstances then existing at the date the representation or warranty is deemed to be made.

 

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19

Information undertakings

The Borrowers undertake that this clause 19 will be complied with throughout the Facility Period.

In this clause 19:

Annual Financial Statements means the financial statements for a financial year of the Group delivered pursuant to clause 19.1(a).

Quarterly Financial Statements means the financial statements for a financial quarter of the Group delivered pursuant to clause 19.1(b).

 

19.1

Financial statements

 

  (a)

The Borrowers shall supply to the Agent as soon as the same become available, but in any event within 120 days after the end of each financial year, the audited consolidated financial statements of the Group and the unaudited financial statements of the Borrowers, in each case for that financial year.

 

  (b)

The Borrowers shall supply to the Agent as soon as the same become available, but in any event within 90 days after the end of each financial quarter (other than the last financial quarter) of each financial year, the unaudited consolidated financial statements of the Group for that financial quarter duly signed by the chief financial officer or a financial controller of the Ultimate Parent.

 

  (c)

The Borrowers shall supply to the Agent not later than 30 June and 31 December each year throughout the Facility Period:

 

  (i)

financial projections for the Group for the succeeding three years in form and substance satisfactory to the Agent (acting on behalf of the Majority lenders), such financial projections to be for such period as reflects the current reporting practice of the Group from time to time and in any event being for a period of not less than three years; and

 

  (ii)

details of contracted employment of the Group’s fleet for the following 12 month period.

 

19.2

Provision and contents of Compliance Certificate

 

  (a)

The Borrowers shall supply a Compliance Certificate to the Agent, with each set of Quarterly Financial Statements for the Group.

 

  (b)

Each Compliance Certificate shall, amongst other things, including supporting schedules setting out (in reasonable detail) computations as to compliance with clause 20 (Financial covenants).

 

  (c)

Each Compliance Certificate shall be signed by a director or the chief financial officer of the Ultimate Parent.

 

19.3

Requirements as to financial statements

 

  (a)

The Borrowers shall procure that each set of Annual Financial Statements includes a profit and loss account, a balance sheet and a cashflow statement and each set of Quarterly Financial Statements includes an income statement, a cashflow statement and a balance sheet and that, in addition, each set of Annual Financial Statements shall be audited by the Auditors.

 

  (b)

Each set of financial statements delivered pursuant to clause 19.1 (Financial statements) shall:

 

  (i)

be prepared in accordance with GAAP or, if elected by the Group, IFRS;

 

58


  (ii)

give a true and fair view of (in the case of Annual Financial Statements for any financial year), or fairly represent (in other cases), the financial condition and operations of the Group or as at the date as at which those financial statements were drawn up; and

 

  (iii)

in the case of annual audited financial statements, not be the subject of any qualification in the Auditors’ opinion on the consolidated financial statements.

 

  (c)

The Borrowers shall procure that each set of financial statements delivered pursuant to clause 19.1 (Financial statements) shall be prepared using GAAP or IFRS, accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements, unless, in relation to any set of financial statements, the Borrowers notify the Agent that there has been a change in GAAP or, as the case may be, IFRS or the accounting practices and the Auditors deliver to the Agent:

 

  (i)

a description of any change necessary for those financial statements to reflect the GAAP or, as the case may be, IFRS or accounting practices and reference periods upon which corresponding Original Financial Statements were prepared; and

 

  (ii)

sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Lenders to determine whether clause 20 (Financial covenants) has been complied with and to make an accurate comparison between the financial position indicated in those financial statements and the Original Financial Statements.

Any reference in this Agreement to any financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.

 

19.4

Year-end

The Borrowers shall procure that each financial year-end of each Obligor falls on the Accounting Reference Date.

 

19.5

Information: miscellaneous

The Borrowers shall supply to the Agent:

 

  (a)

at the same time as they are dispatched, copies of all financial statements, financial forecasts, reports, proxy statements and other material communications provided to the shareholders or members of the Borrowers and copies of all material documents dispatched by any Guarantor or any Obligors to its creditors generally (or any class of them);

 

  (b)

promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any Obligor, and which, if adversely determined, might have a Material Adverse Effect or which would involve a liability, or a potential or alleged liability, exceeding $5,000,000 (or its equivalent in other currencies);

 

  (c)

promptly, such information as the Agent may reasonably require about the Charged Property and compliance of the Obligors with the terms of any Security Documents; and

 

  (d)

promptly on request, such further information regarding the financial condition, assets and operations of the Group as any Finance Party through the Agent may reasonably request.

 

59


19.6

Notification of Default

The Borrowers shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon any Obligor becoming aware of its occurrence (unless that Obligor is aware that a notification has already been provided by another Obligor).

 

19.7

Sanctions information

The Obligors shall supply to the Agent:

 

  (a)

promptly upon becoming aware of them, the details of any inquiry, claim, action, suit, proceeding or investigation pursuant to Sanctions against it, any of its direct or indirect owners, Subsidiaries, any of their joint ventures or any of their respective directors, officers, employees, agents or representatives, as well as information on what steps are being taken with regards to answer or oppose such; and

 

  (b)

promptly upon becoming aware that it, any of its direct or indirect owners, Subsidiaries, any of their joint ventures or any of their respective directors, officers, employees, agents or representatives has become or is likely to become a Sanctioned Party.

 

19.8

Sufficient copies

The Borrowers, if so requested by the Agent, shall deliver sufficient copies of each document to be supplied under the Finance Documents to the Agent to distribute to each of the Lenders.

 

19.9

Use of websites

 

  (a)

The Borrowers may satisfy their respective obligations under this Agreement to deliver any information in relation to those Lenders (the Website Lenders) who accept this method of communication by posting this information onto an electronic website designated by the Borrowers and the Agent (the Designated Website) if:

 

  (i)

the Agent expressly agrees (after consultation with each of the Lenders) that it will accept communication of the information by this method;

 

  (ii)

both the Borrowers and the Agent are aware of the address of and any relevant password specifications for the Designated Website; and

 

  (iii)

the information is in a format previously agreed between the Borrowers and the Agent.

If any Lender (a Paper Form Lender) does not agree to the delivery of information electronically then the Agent shall notify the Borrowers accordingly and the Borrowers shall supply the information to the Agent (in sufficient copies for each Paper Form Lender) in paper form. In any event the Borrowers shall supply the Agent with at least one copy in paper form of any information required to be provided by it.

 

  (b)

The Agent shall supply each Website Lender with the address of and any relevant password specifications for the Designated Website following designation of that website by the Borrowers and the Agent.

 

  (c)

The Borrowers shall promptly upon any of them becoming aware of its occurrence notify the Agent if:

 

  (i)

the Designated Website cannot be accessed due to technical failure;

 

60


  (ii)

the password specifications for the Designated Website change;

 

  (iii)

any new information which is required to be provided under this Agreement is posted onto the Designated Website;

 

  (iv)

any existing information which has been provided under this Agreement and posted onto the Designated Website is amended; or

 

  (v)

any Borrower becomes aware that the Designated Website or any information posted onto the Designated Website is or has been infected by any electronic virus or similar software.

If the Borrowers notify the Agent under paragraphs (i) or (v) above, all information to be provided by the Borrowers under this Agreement after the date of that notice shall be supplied in paper form unless and until the Agent and each Website Lender is satisfied that the circumstances giving rise to the notification are no longer continuing.

 

  (d)

Any Website Lender may request, through the Agent, one paper copy of any information required to be provided under this Agreement which is posted onto the Designated Website. The Borrowers shall comply with any such request within ten Business Days.

 

19.10

“Know your customer” checks

 

  (a)

If:

 

  (i)

the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

 

  (ii)

any change in the status of an Obligor or the composition of the shareholders or members of an Obligor after the date of this Agreement; or

 

  (iii)

a proposed assignment or transfer by a Lender of any of its rights and/or 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) above, 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, each Obligor shall promptly upon the request of the Agent or any Lender, 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 any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

 

  (b)

Each Finance Party shall promptly upon the request of the Agent or the Security Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent or the Security Agent (for itself) in order for it to carry out and be satisfied with the results of all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

 

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20

Financial covenants

Each Borrower undertakes that this clause 20 will be complied with throughout the Facility Period as tested on a quarterly basis in accordance with clause 20.3 (Financial testing).

 

20.1

Financial definitions

In this clause 20:

Cash Equivalents shall mean the following (all of which shall be valued at market value and freely disposable and for the avoidance of doubt none of the following shall be deemed disqualified from being freely disposable by reason of being included in minimum liquidity calculations under this Agreement or other agreements respecting Indebtedness, or being subject to a lien):

 

  (a)

securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof;

 

  (b)

certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender and certificates of deposit with maturities of one year or less from the date of acquisition and overnight bank deposits of any other commercial bank whose principal place of business is organized under the laws of any country that is a member of the Organization for Economic Cooperation and Development or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow, or a political subdivision of any such country, and having capital and surplus in excess of $200,000,000;

 

  (c)

commercial paper of any issuer rated at least A-2 by Standard & Poor’s Ratings Group or P-2 by Moody’s investors Service, Inc. with maturities of one year or less from the date of acquisition; and

 

  (d)

additional money market investments with maturities of one year or less from the date of acquisition rated at least A-1 or AA by Standard & Poor’s Ratings Group or P-1 or Aa by Moody’s Investors Service, Inc.

Indebtedness means, with respect to any Group Member, at any date of determination (without duplication) (a) all indebtedness of such Group Member for borrowed money, (b) all obligations of such Group Member evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Group Member in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (d) all obligations of such Group Member to pay the deferred and unpaid 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 thereof or the completion of such services, except trade payables, (e) all obligations on account of principal of such Group Member as lessee under capitalised leases, (f) all indebtedness of other persons secured by a lien on any asset of such Group Member, whether or not such indebtedness is assumed by such Group Member; provided that the amount of such 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 indebtedness, and (g) all indebtedness of other persons guaranteed by such Group Member to the extent guaranteed and the amount of Indebtedness of any Group Member 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 the amount outstanding at any time of any indebtedness issued with an original issue discount is the face amount of such indebtedness less the remaining unamortised portion of the original issue discount of such indebtedness at such time as determined in accordance with GAAP (or if the Annual Financial Statements are prepared in accordance with IFRS, IFRS); and provided further that Indebtedness shall not include any liability for current or deferred Taxes, or any trade payable.

 

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Total Assets means, at any time, the total assets of the Group determined in accordance with GAAP (as shown in the most recent Quarterly Financial Statements).

Total Indebtedness means, at any time, the aggregate sum of all Indebtedness of the Group as reflected in the consolidated balance sheet of the Group determined in accordance with GAAP (as shown in the most recent Quarterly Financial Statements).

Total Stockholders’ Equity means, at any time, the shareholders’ equity for the Group determined in accordance with GAAP (as shown in the most recent Quarterly Financial Statements).

 

20.2

Financial condition

At all times during the Facility Period, the Borrowers shall procure that the Group:

 

  (a)

maintains at all times, cash and Cash Equivalents equal to or greater than (i) $35,000,000 and (ii) five per cent (5%) of the Total Indebtedness; and

 

  (b)

maintains a ratio of Total Stockholders’ Equity to Total Assets of not less than 30%.

 

20.3

Financial testing

The financial covenants set out in clause 20.2 (Financial condition) shall be calculated in accordance with GAAP (or if the Annual Financial Statements are prepared in accordance with IFRS, IFRS) and tested by reference to each of the financial statements and/or each Compliance Certificate delivered pursuant to clause 19.2 (Provision and contents of Compliance Certificate).

 

21

General undertakings

Each Borrower undertakes that this clause 21 will be complied with throughout the Facility Period.

 

21.1

Authorisations

Each Obligor will promptly:

 

  (a)

obtain, comply with and do all that is necessary to maintain in full force and effect; and

 

  (b)

supply certified copies to the Agent of,

any authorisation required under any law or regulation of a Relevant Jurisdiction to:

 

  (i)

enable it to perform its obligations under the Finance Documents and any Charter Documents in each case to which it is a party;

 

  (ii)

ensure the legality, validity, enforceability or admissibility in evidence of any Finance Document or Charter Document in each case to which it is a party; and

 

  (iii)

carry on its business where failure to do so has, or is reasonably likely to have, a Material Adverse Effect.

 

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21.2

Compliance with laws

 

  (a)

Each Obligor will comply in all respects with all laws and regulations (including Environmental Laws) to which it may be subject if failure to comply has or reasonably likely to have a Material Adverse Effect.

 

  (b)

No Obligor or Other Group Member will directly or indirectly use the proceeds of the Facility for any purpose which would breach the Bribery Act 2010, the United States Foreign Corrupt Practices Act of 1977 or other similar legislation in other jurisdictions.

 

  (c)

Each Obligor shall:

 

  (i)

conduct its businesses in compliance with applicable anti-corruption laws; and

 

  (ii)

maintain policies and procedures designed to promote and achieve compliance with such laws.

 

21.3

Tax compliance

 

  (a)

Each Obligor shall pay and discharge all Taxes imposed upon it or its assets within such time period as may be allowed by law without incurring penalties unless and only to the extent that:

 

  (i)

such payment is being contested in good faith;

 

  (ii)

adequate reserves are being maintained for those Taxes and the costs required to contest them which have been disclosed in its latest financial statements delivered to the Agent under clause 19.1 (Financial statements); and

 

  (iii)

such payment can be lawfully withheld.

 

  (b)

Except as approved by the Majority Lenders, each Obligor shall maintain its residence for Tax purposes in the jurisdiction in which it is incorporated or, as the case may be, formed and ensure that it is not resident for Tax purposes in any other jurisdiction save for any Taxes which may arise in the usual course of its business of operating and trading the Ships.

 

21.4

Change of business

Except as approved by the Majority Lenders, no substantial change will be made to the general nature of the business of the Guarantors or the other Obligors or the Group taken as a whole from that carried on at the date of this Agreement.

 

21.5

Merger

Except as approved by the Majority Lenders, no Obligor will enter into any amalgamation, demerger, merger, consolidation, re-domiciliation, legal migration or corporate reconstruction.

 

21.6

Further assurance

 

  (a)

Each Obligor shall promptly do all such acts or execute all such documents (including assignments, transfers, mortgages, charges, notices and instructions) as the Agent may reasonably specify (and in such form as the Agent may reasonably require):

 

  (i)

to perfect the Security Interests created or intended to be created by that Obligor under or evidenced by the Security Documents (which may include the execution

 

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  of a mortgage, charge, assignment or other security over all or any of the assets which are, or are intended to be, the subject of the Security Documents) or for the exercise of any rights, powers and remedies of the Security Agent provided by or pursuant to the Finance Documents or by law;

 

  (ii)

to confer on the Security Agent Security Interests over any property and assets of that Obligor located in any jurisdiction equivalent or similar to the Security Interest intended to be conferred by or pursuant to the Security Documents;

 

  (iii)

to facilitate the realisation of the assets which are, or are intended to be, the subject of the Security Documents; and/or

 

  (iv)

to facilitate either the accession by a New Lender to any Security Document following an assignment in accordance with clause 30.1 (Assignments and Transfers by the Lenders).

 

  (b)

Each Obligor shall take all such action as is available to it (including making all filings and registrations) as may be necessary for the purpose of the creation, perfection, protection or maintenance of any Security Interest conferred or intended to be conferred on the Security Agent by or pursuant to the Finance Documents.

 

21.7

Negative pledge in respect of Charged Property

Except:

 

  (a)

as approved by the Majority Lenders;

 

  (b)

for Permitted Liens; and

 

  (c)

any Security Interest granted by an Obligor in accordance with the terms of the Existing Loan Agreement that will be fully discharged on the Utilisation Date,

no Obligor will grant or allow to exist any Security Interest over any Charged Property.

 

21.8

Environmental matters

 

  (a)

The Agent will be notified as soon as reasonably practicable of any Environmental Claim being made against any Obligor or any Ship which, if successful to any extent, might have a Material Adverse Effect and of any Environmental Incident which may give rise to such an Environmental Claim and will be kept regularly and promptly informed in reasonable detail of the nature of, and response to, any such Environmental Incident and the defence to any such claim.

 

  (b)

Environmental Laws (and any consents, licences or approvals obtained under them) applicable to any Ship will not be violated in a way which might have a Material Adverse Effect.

 

21.9

Inspection of records

Upon reasonable notice from the Agent, allow any representative of the Agent, subject to applicable laws and regulations, to visit and inspect the Borrowers’ properties and, on request, to examine the Borrowers’ books of account, records, reports, agreements and other papers and to discuss the Borrowers’ affairs, finances and accounts with its offices, in each case at such times and as often as the Agent reasonably requests.

 

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21.10

Managing member of Borrowers

At all times (unless the Lenders have provided their written consent) the managing member of each Borrower shall be the Parent.

 

21.11

No change of name etc

During the Facility Period, no Obligor will change:

 

  (a)

its name;

 

  (b)

the type of legal entity which it exists as; or

 

  (c)

its Original Jurisdiction.

 

21.12

Year end

No Borrower may change its financial year end.

 

21.13

Sanctions

 

  (a)

Each Obligor shall (and shall ensure that each member of the Group will) comply in all respects with all Sanctions applicable to it.

 

  (b)

No Obligor nor any other member of the Group nor any Affiliate of any member of the Group nor any of their respective directors, officers or employees will, directly or (to the Obligor’s knowledge) indirectly:

 

  (i)

make any part of the proceeds of the Loan available to, or for the benefit of, a Sanctioned Party, or permit or authorise any such proceeds to be applied in a manner or for a purpose prohibited by any Sanctions applicable to it; or

 

  (ii)

fund all or part of any repayment under the Facility out of proceeds derived from transactions which would be prohibited by any Sanctions applicable to it or would otherwise cause it to be in breach of Sanctions or to become a Sanctioned Party.

 

  (c)

Each Obligor shall procure that no proceeds from any activity or dealing with a Sanctioned Party are credited to any bank account held with any Finance Party (including the Earnings Account) or any Affiliate of a Finance Party, to the extent crediting such bank account would lead to non-compliance by it, such Finance Party or such Affiliate of a Finance Party with any Sanctions.

 

  (d)

No Owner shall employ the Ship owned by it nor allow its employment, operation or management in any manner contrary to Sanctions.

 

21.14

Listing

The Parent shall maintain its listing on The New York Stock Exchange.

 

21.15

Contractual recognition of bail-in

Notwithstanding any other term of any Finance Document or any other agreement, arrangement or understanding between the Finance Parties and the Obligors, each Finance Party and each Obligor acknowledges and accepts that any liability of any party to any other party under or in connection with the Finance Documents may be subject to Bail-In Action by the relevant Resolution Authority and acknowledges and accepts to be bound by the effect of:

 

  (a)

any Bail-In Action in relation to any such liability, including (without limitation):

 

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  (i)

a reduction, in full or in part, in the principal amount, or outstanding amount due (including any accrued but unpaid interest) in respect of any such liability;

 

  (ii)

a conversion of all, or part of, any such liability into shares or other instruments of ownership that may be issued to, or conferred on, it; and

 

  (iii)

a cancellation of any such liability; and

 

  (b)

a variation of any term of any Finance Document to the extent necessary to give effect to any Bail-In Action in relation to any such liability.

 

21.16

Anti-terrorism law

Each Obligor will comply in all material respects with any and all anti-terrorism laws applicable to it and its activities, if failure to comply would have a Material Adverse Effect.

 

22

Dealings with Ship

Each Borrower undertakes that this clause 22 will be complied with in relation to each Mortgaged Ship throughout the relevant Ship’s Mortgage Period.

 

22.1

Ship’s name and registration

 

  (a)

The Ship’s name shall only be changed after prior notice to the Agent.

 

  (b)

The Ship shall be permanently registered in the name of the relevant Owner with the relevant Registry within 90 days of the date of the Mortgage of the Ship and registered in the name of the relevant Owner with the relevant Registry under the laws of its Flag State. Except with approval, the Ship shall not be registered under any other flag or at any other port or fly any other flag (other than that of its Flag State). If that registration is for a limited period, it shall be renewed at least 45 days before the date it is due to expire and the Agent shall be notified of that renewal at least 30 days before that date.

 

  (c)

Nothing will be done and no action will be omitted if that might result in such registration being forfeited or imperilled or the Ship being required to be registered under the laws of another state of registry.

 

22.2

Notification of certain events

The Borrowers shall notify the Agent immediately if the Ship becomes a Total Loss or partial loss or is materially damaged.

 

22.3

Sale or other disposal of Ship

Save where the net sale proceeds will enable the relevant Owner to comply with its mandatory prepayment obligations under clause 7.5 (Sale or Total Loss) and, if no Default is then continuing, for a sale to a buyer who is not an Affiliate of a Borrower for a cash price payable on completion of the sale which is no less than the amount of the prepayment required in respect of the Loan pursuant to clause 7.5 (Sale or Total Loss), the relevant Owner will not sell, or agree to, transfer, abandon or otherwise dispose of the relevant Ship or any share or interest in it.

 

22.4

Manager

 

  (a)

Each Ship shall be technically managed by Northern Marine Management Limited, Navigator Gas Shipmanagement Limited, Thome Ship Management Limited Pte or another first class technical manager approved by the Agent and commercially managed by NGT Services (UK) Limited or another first class commercial manager approved by the Agent.

 

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  (b)

A Manager of a Ship shall not be appointed or changed without the prior approval of the Agent unless the proposed manager is a manager referred to in paragraph (a) above.

 

  (c)

The Borrowers shall procure that each Manager delivers a duly executed Manager’s Undertaking to the Security Agent immediately following its appointment as Manager.

 

22.5

Copy of Mortgage on board

A properly certified copy of the relevant Mortgage shall be kept on board the Ship with its papers and shown to anyone having business with the Ship which might create or imply any commitment or Security Interest over or in respect of the Ship (other than a lien for crew’s wages and salvage) and to any representative of the Security Agent.

 

22.6

Notice of Mortgage

A framed printed notice of the Ship’s Mortgage shall be prominently displayed in the navigation room and in the Master’s cabin of the Ship. The notice must be in plain type and read as follows:

“NOTICE OF MORTGAGE

This Ship is subject to a First Preferred Mortgage to [●] with offices at [●], acting in its capacity as security agent and as trustee, under authority of Title 21 of the Liberian Code of Laws of 1956 as amended. Under the terms of the said Mortgage and related documents neither the Owner nor any charterer nor the Master of this Ship nor any other person has any right, power or authority to create, incur or permit to be imposed upon this Ship any lien, commitments or encumbrances whatsoever other than for crew’s wages and salvage”.

No-one will have any right, power or authority to create, incur or permit to be imposed upon the Ship any lien whatsoever other than for crew’s wages and salvage.

 

22.7

Conveyance on default

Where the Ship is (or is to be) sold in exercise of any power conferred by the Security Documents, the relevant Owner shall, upon the Agent’s request, immediately execute such form of transfer of title to the Ship as the Agent may require.

 

22.8

Chartering

Except with approval, the relevant Owner shall not enter into any charter commitment for the Ship, which is:

 

  (a)

a bareboat or demise charter or passes possession and operational control of the Ship to another person; or

 

  (b)

a Charter, unless the relevant Owner executes a Charter Assignment in respect of such Charter prior to delivery of the relevant Ship under such Charter.

If a Charterer requires the Lenders to enter into a letter of quiet enjoyment, such letter will be on terms acceptable to the Lenders acting reasonably.

 

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22.9

Lay up

Except with approval, the Ship shall not be laid up or deactivated.

 

22.10

Sharing of Earnings

Except with approval, the relevant Owner shall not enter into any arrangement under which its Earnings from the Ship may be shared with anyone else.

 

22.11

Payment of Earnings

The relevant Owner’s Earnings from the Ship shall be paid in accordance with clause 27.1 (Earnings Account) unless required to be paid to the Security Agent pursuant to the General Assignment for that Ship. If any Earnings are held by brokers or other agents, they shall be paid to the Agent, if it requires this after the Earnings have become payable to it under the Ship’s General Assignment for that Ship.

 

23

Condition and operation of Ship

Each Borrower undertakes that this clause 23 will be complied with in relation to each Mortgaged Ship throughout the relevant Ship’s Mortgage Period.

 

23.1

Defined terms

In this clause 23 and in Schedule 3 (Conditions precedent):

applicable code means any code or prescribed procedures required to be observed by the Ship or the persons responsible for its operation under any applicable law (including but not limited to those currently known as the ISM Code and the ISPS Code);

applicable law means all laws and regulations applicable to vessels registered in the Ship’s Flag State or which for any other reason apply to the Ship or to its condition or operation at any relevant time; and

applicable operating certificate means any certificates or other document relating to the Ship or its condition or operation required to be in force under any applicable law or any applicable code.

 

23.2

Repair

The Ship shall be kept in a good, safe and efficient state of repair. The quality of workmanship and materials used to repair the Ship or replace any materially damaged, worn or lost parts or equipment shall be sufficient to ensure that the Ship’s value is not materially reduced.

 

23.3

Modification

Except with approval, the structure, type or performance characteristics of the Ship shall not be modified in a way which could or might materially alter the Ship or materially reduce its value.

 

23.4

Removal of parts

Except with approval, no material part of the Ship or any equipment shall be removed from the Ship if to do so would materially reduce its value (unless at the same time it is replaced with equivalent parts or equipment owned by the relevant Owner free of any Security Interest except under the Security Documents).

 

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23.5

Third party owned equipment

Except with approval, equipment owned by a third party shall not be installed on the Ship if it cannot be removed without risk of causing damage to the structure or fabric of the Ship or incurring significant expense.

 

23.6

Maintenance of class; compliance with laws and codes

 

  (a)

The Ship’s class shall be the relevant Classification (and being the highest applicable classification available in the relevant Classification Society (or the equivalent classification with another Classification Society)), free of overdue conditions or recommendations affecting the Ship’s class.

 

  (b)

The relevant Owner shall ensure that:

 

  (i)

the Ship shall comply in all material aspects with all laws or regulations applicable to it; and

 

  (ii)

it will comply in all material aspects with all laws applicable to its business and applicable to the Ship, its ownership, employment, operation, management and registration, including the ISM Code, the ISPS Code, all Environmental Laws and the laws of the Flag State; and

 

  (iii)

it shall obtain, comply with and do all that is necessary to maintain in full force and effect any approvals required by any Environmental Law,

and without limiting paragraphs (i), (ii) and (iii) above, the Owner shall not employ Ship nor allow its employment, operation or management in any manner contrary to any law or regulation including but not limited to the ISM Code, the ISPS Code and all Environmental Laws.

 

  (c)

There shall be kept in force and on board the Ship or in such person’s custody any applicable operating certificates which are required by applicable laws or applicable codes to be carried on board the Ship or to be in such person’s custody.

 

23.7

Surveys

The Ship shall be submitted to continuous surveys and any other surveys which are required for it to maintain the Classification as its class. Copies of reports of those surveys shall be provided promptly to the Agent if it so requests which request shall not exceed more than one in each calendar year.

 

23.8

Inspection and notice of dry-dockings

The Agent and/or surveyors or other persons appointed by it for such purpose shall be allowed to board the Ship to inspect it once per annum if no Event of Default has occurred and is continuing or as frequently as may be required by the Agent following the occurrence of an Event of Default, or a Major Casualty (whereupon the Agent and/or surveyors or other persons appointed by it for such purpose shall be entitled to board the Ship to inspect it during the period falling shortly after completion of the repair works in respect of that Major Casualty), provided advance written notice is provided to the Obligors and such inspection does not interfere with the normal commercial operation of the Ship. The Agent shall be given all proper facilities needed for the purposes of any such inspection and the reasonable costs of such inspection shall be borne by the Borrowers.

 

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23.9

Prevention of arrest

All debts, damages, liabilities and outgoings which have given, or may give, rise to maritime, statutory or possessory liens on, or claims enforceable against, the Ship, its Earnings or Insurances shall be promptly paid and discharged unless such payment is being contested in good faith and adequate reserves are being maintained for such payment.

 

23.10

Release from arrest

The Ship, its Earnings and Insurances shall promptly be released from any arrest, detention, attachment or levy, and any legal process against the Ship shall be promptly discharged, by whatever action is required to achieve that release or discharge.

 

23.11

Information about Ship

The Agent shall promptly be given any information which it may reasonably require about the Ship or its employment, position, use or operation, including details of towages and salvages, and copies of all its charter commitments entered into by or on behalf of any Obligor and copies of any applicable operating certificates.

 

23.12

Notification of certain events

The Agent shall promptly be notified of:

 

  (a)

any damage to the Ship where the cost of the resulting repairs may exceed the Major Casualty Amount for such Ship;

 

  (b)

any occurrence which may result in the Ship becoming a Total Loss;

 

  (c)

any requisition of the Ship for hire;

 

  (d)

any material Environmental Incident involving the Ship and Environmental Claim being made in relation to such an incident;

 

  (e)

any withdrawal or threat to withdraw any applicable operating certificate;

 

  (f)

the issue of any operating certificate required under any applicable code;

 

  (g)

the receipt of notification that any application for such a certificate has been refused;

 

  (h)

any requirement made in relation to the Ship by any insurer or the Ship’s Classification Society or by any competent authority which is not, or cannot be, complied with in the manner or time required; and

 

  (i)

any arrest or detention of the Ship or any exercise or purported exercise of a lien or other claim on the Ship or its Earnings or Insurances.

 

23.13

Payment of outgoings

All tolls, dues and other outgoings whatsoever in respect of the Ship and its Earnings and Insurances shall be paid promptly. Proper accounting records shall be kept of the Ship and its Earnings.

 

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23.14

Evidence of payments

The Agent shall be allowed proper and reasonable access to those accounting records when it requests it and, when it requires it, shall be given satisfactory evidence that:

 

  (a)

the wages and allotments and the insurance and pension contributions of the Ship’s crew are being promptly and regularly paid;

 

  (b)

all deductions from its crew’s wages in respect of any applicable Tax liability are being properly accounted for; and

 

  (c)

the Ship’s master has no claim for disbursements other than those incurred by him in the ordinary course of trading on the voyage then in progress.

 

23.15

Repairers’ liens

Except with approval, the Ship shall not be put into any other person’s possession for work to be done on the Ship if the cost of that work will exceed or is likely to exceed $2,000,000 (or its equivalent in any other currency or currencies) unless that person gives the Security Agent a written undertaking in approved terms not to exercise any lien on the Ship or its Earnings for any of the cost of such work.

 

23.16

Survey report

As soon as reasonably practicable after the Agent requests it (which request shall not exceed one request per year) the Agent shall be given a report on the seaworthiness and/or safe operation of the Ship, from approved surveyors or inspectors. If any recommendations are made in such a report they shall be complied with in the way and by the time recommended in the report.

 

23.17

Lawful use

The Ship shall not be employed:

 

  (a)

in any way or activity which would be unlawful under international law or other law applicable to an Obligor or the trading of a Ship;

 

  (b)

to the extent that such activity or employment would be unlawful under international law or other law applicable to an Obligor or the trading of a Ship, in carrying illicit, contraband or prohibited goods; or

 

  (c)

in a way which may make it liable to be condemned by a prize court or destroyed, seized or confiscated,

and the persons responsible for the operation of a Ship shall take all necessary and proper precautions to ensure that this does not happen, including participation in industry or other voluntary schemes available to the Ship and in which leading operators of ships operating under the same flag or engaged in similar trades generally participate at the relevant time.

 

23.18

War zones

The Ship shall not enter or remain in any zone which has been declared a war zone by any government entity or the Ship’s war risk insurers, unless appropriate insurances have been taken out by the relevant Owner. Any requirements of the Agent and/or the Ship’s insurers necessary to ensure that the Ship remains properly insured in accordance with the Finance Documents (including any requirement for the payment of extra insurance premiums) shall be complied with.

 

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23.19

Environmental matters

Where the Ship is to trade to the United States, the relevant Owner shall provide to the Agent as soon as possible, but in any event no later than 10 days prior to the relevant Ship’s arrival in the United States, evidence of the relevant Ship’s certificate of financial responsibility and vessel response plan required under United States law and evidence of their approval by the appropriate United States government entity and (if requested by the Agent) an environmental report in respect of the relevant Ship from an approved person.

 

24

Insurance

Each Borrower undertakes that this clause 24 shall be complied with in relation to each Mortgaged Ship and its Insurances throughout the relevant Ship’s Mortgage Period.

 

24.1

Insurance terms

In this clause 24:

approved insurers means insurers or underwriters with a minimum credit rating of “BBB” by Standard & Poor’s Ratings Group (or an equivalent credit rating by another international ratings agency).

excess risks means the proportion (if any) of claims for general average, salvage and salvage charges not recoverable under the hull and machinery insurances of a vessel in consequence of the value at which the vessel is assessed for the purpose of such claims exceeding its insured value;

excess war risk P&I cover means cover for claims only in excess of amounts recoverable under the usual war risk cover including (but not limited to) hull and machinery, crew and protection and indemnity risks;

hull cover means insurance cover against the risks identified in clause 24.2(a)(i);

minimum hull cover means, in relation to a Mortgaged Ship, an amount equal to or greater than its market value and which, when taken together with the minimum hull values of the other Mortgaged Ships, is at the relevant time 120% of the aggregate of the Total Commitments for the Mortgaged Ships at such time; and

P&I risks means the usual risks (including liability for oil pollution, excess war risk P&I cover) covered by a protection and indemnity association which is a member of the International Group of protection and indemnity associations (or, if the International Group ceases to exist, any other leading protection and indemnity association or other leading provider of protection and indemnity insurance) (including, without limitation, the proportion (if any) of any collision liability not covered under the terms of the hull cover).

 

24.2

Coverage required

 

  (a)

The Ship shall at all times be insured:

 

  (i)

against (A) fire and usual marine risks (including excess risks) and (B) war risks (including war protection and indemnity risks and terrorism, piracy and confiscation risks) on an agreed value basis, in each case for at least its minimum hull cover and in the case of sub-section (A), provided that the hull and machinery insurances for the Ship shall at all times cover 80% of its market value and the remaining minimum hull cover may be insured by way of excess risks cover;

 

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  (ii)

against P&I risks for the highest amount then available in the insurance market for vessels of similar age, size and type as the Ship (but, in relation to liability for oil pollution, for an amount of not less than $1,000,000,000);

 

  (iii)

against such other risks and matters which the Agent notifies it that it considers reasonable for a prudent shipowner or operator to insure against at the time of that notice; and

 

  (iv)

on terms which comply with the other provisions of this clause 24.

 

  (b)

The Ship shall not enter or remain in any zone which has been declared a war, conditional or excluded zone by any government entity or the Ship’s insurers for war risks and/or allied perils (including piracy) unless:

 

  (i)

appropriate insurances have been taken out by the relevant Owner; and

 

  (ii)

any requirements of the Agent and/or the Ship’s insurers necessary to ensure that the Ship remains properly insured in accordance with the Finance Documents (including any requirement for the payment of extra insurance premiums) have been complied with.

 

24.3

Placing of cover

The insurance coverage required by clause 24.2 (Coverage required) shall be:

 

  (a)

in the name of the Ship’s Owner and (in the case of the Ship’s hull cover) no other person (other than the Security Agent if required by it) (unless such other person, if so required by the Agent, has duly executed and delivered a first priority assignment of its interest in the Ship’s Insurances to the Security Agent in an approved form and provided such supporting documents and opinions in relation to that assignment as the Agent requires);

 

  (b)

if the Agent so requests, in the joint names of the Ship’s Owner and the Security Agent (and, to the extent reasonably practicable in the insurance market, without liability on the part of the Security Agent for premiums or calls);

 

  (c)

in dollars or another approved currency;

 

  (d)

arranged through approved brokers or direct with approved insurers or protection and indemnity or war risks associations; and

 

  (e)

on approved terms and with approved insurers or approved associations.

 

24.4

Deductibles

The aggregate amount of any excess or deductible under the Ship’s hull cover shall not exceed $1,000,000 or such higher amount as the Lenders may agree (such agreement not to be unreasonably withheld or delayed).

 

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24.5

Mortgagee’s insurance

The Borrowers shall promptly reimburse to the Agent the cost (as conclusively certified by the Agent) of taking out and keeping in force in respect of the Ship and the other Mortgaged Ships on approved terms, or in considering or making claims under:

 

  (a)

a mortgagee’s interest insurance and a mortgagee’s additional perils (pollution risks cover) for the benefit of the Finance Parties for an aggregate amount up to 120% of the Loan at such time; and

 

  (b)

any other insurance cover which the Agent reasonably requires in respect of any Finance Party’s interests and potential liabilities (whether as mortgagee of the Ship or beneficiary of the Security Documents).

 

24.6

Fleet liens, set off and cancellations

If the Ship’s hull cover also insures other vessels, the Security Agent shall either be given an undertaking in approved terms by the brokers or (if such cover is not placed through brokers or the brokers do not, under any applicable laws or insurance terms, have such rights of set off and cancellation) the relevant insurers that the brokers or (if relevant) the insurers will not:

 

  (a)

set off against any claims in respect of the Ship any premiums due in respect of any of such other vessels insured (other than other Mortgaged Ships); or

 

  (b)

cancel that cover because of non-payment of premiums in respect of such other vessels,

or the Borrowers shall ensure that hull cover for the Ship and any other Mortgaged Ships is provided under a separate policy from any other vessels.

 

24.7

Payment of premiums

All premiums, calls, contributions or other sums payable in respect of the Insurances shall be paid punctually and the Agent shall be provided with all relevant receipts or other evidence of payment upon request.

 

24.8

Details of proposed renewal of Insurances

At least 14 days before any of the Ship’s Insurances are due to expire, the Agent shall be notified of the names of the brokers, insurers and associations proposed to be used for the renewal of such Insurances and the amounts, risks and terms in, against and on which the Insurances are proposed to be renewed.

 

24.9

Instructions for renewal

At least seven days before any of the Ship’s Insurances are due to expire, instructions shall be given to brokers, insurers and associations for them to be renewed or replaced on or before their expiry.

 

24.10

Confirmation of renewal

The Ship’s Insurances shall be renewed upon their expiry in a manner and on terms which comply with this clause 24 and confirmation of such renewal given by approved brokers or insurers to the Agent at least seven days (or such shorter period as may be approved) before such expiry.

 

24.11

P&I guarantees

Any guarantee or undertaking required by any protection and indemnity or war risks association in relation to the Ship shall be provided when required by the association.

 

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24.12

Insurance documents

The Agent shall be provided with pro forma copies of all insurance policies and other documentation issued by brokers, insurers and associations in connection with the Ship’s Insurances as soon as they are available after they have been placed or renewed and all insurance policies and other documents relating to the Ship’s Insurances shall be deposited with any approved brokers or (if not deposited with approved brokers) the Agent or some other approved person.

 

24.13

Letters of undertaking

Unless otherwise approved where the Agent is satisfied that equivalent protection is afforded by the terms of the relevant Insurances and/or any applicable law and/or a letter of undertaking provided by another person, on each placing or renewal of the Insurances, the Agent shall be provided promptly with letters of undertaking in an approved form (having regard to general insurance market practice and law at the time of issue of such letter of undertaking) from the relevant brokers, insurers and associations.

 

24.14

Insurance Notices and Loss Payable Clauses

The interest of the Security Agent as assignee of the Insurances shall be endorsed on all insurance policies and other documents by the incorporation of a Loss Payable Clause and an Insurance Notice in respect of the Ship and its Insurances signed by its Owner and, unless otherwise approved, each other person assured under the relevant cover (other than the Security Agent if it is itself an assured).

 

24.15

Insurance correspondence

If so required by the Agent, the Agent shall promptly be provided with copies of all written communications between the assureds and brokers, insurers and associations relating to any of the Ship’s Insurances as soon as they are available.

 

24.16

Qualifications and exclusions

All requirements applicable to the Ship’s Insurances shall be complied with and the Ship’s Insurances shall only be subject to approved exclusions or qualifications.

 

24.17

Independent report

If the Agent asks the Borrowers for a detailed report from an approved independent firm of marine insurance brokers giving their opinion on the adequacy of the Ship’s Insurances then the Agent shall be provided promptly with such a report at no cost to the Agent or (if the Agent obtains such a report itself) the Borrowers shall reimburse the Agent for the cost of obtaining that report.

 

24.18

Collection of claims

All documents and other information and all assistance required by the Agent to assist it and/or the Security Agent in trying to collect or recover any claims under the Ship’s Insurances shall be provided promptly.

 

24.19

Employment of Ship

The Ship shall only be employed or operated in conformity with the terms of the Ship’s Insurances (including any express or implied warranties) and not in any other way (unless the insurers have consented and any additional requirements of the insurers have been satisfied).

 

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24.20

Declarations and returns

If any of the Ship’s Insurances are on terms that require a declaration, certificate or other document to be made or filed before the Ship sails to, or operates within, an area, those terms shall be complied with within the time and in the manner required by those Insurances.

 

24.21

Application of recoveries

All sums paid under the Ship’s Insurances to anyone other than the Security Agent shall be applied in repairing the damage and/or in discharging the liability in respect of which they have been paid except to the extent that the repairs have already been paid for and/or the liability already discharged.

 

24.22

Settlement of claims

Any claim under the Ship’s Insurances for a Total Loss or Major Casualty shall only be settled, compromised or abandoned with prior approval.

 

24.23

Change in insurance requirements

If the Agent gives notice to the Borrowers to change the terms and requirements of this clause 24 (which the Agent may only do, in such manner as it considers appropriate (acting reasonably having consideration to market conditions at the relevant time), as a result in changes of circumstances or practice after the date of this Agreement), this clause 24 shall be modified in the manner so notified by the Agent on the date 14 days after such notice from the Agent is received.

 

25

Minimum security value

Each Borrower undertakes that this clause 25 will be complied with throughout any Mortgage Period.

 

25.1

Valuation of assets

For the purpose of the Finance Documents, the value at any time of any Mortgaged Ship or any other asset over which additional security is provided under this clause 25 will be its value as most recently determined in accordance with this clause 25.

 

25.2

Valuation frequency

 

  (a)

Valuations of each Mortgaged Ship shall be carried out semi-annually, such valuations to be provided to the Agent at the same time that a Compliance Certificate is provided to the Agent at the end of the Group’s second and fourth financial quarter pursuant to clause 19.2(a).

 

  (b)

Each valuation shall be dated no earlier than 30 days prior to delivery of that valuation to the Agent.

 

  (c)

In addition valuations of the relevant Mortgaged Ship and each such other asset in accordance with this clause 25 shall be required:

 

  (i)

prior to the Utilisation Date in accordance with clause 4.1 (Initial conditions precedent) and paragraph 11 of Part 2 of Schedule 3; and

 

  (ii)

as may be further required by the Agent at any other time if an Event of Default has occurred and is continuing or if a mandatory prepayment event occurs under clause 7.5 (Sale or Total Loss).

 

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  (d)

The Agent (acting on the instructions of the Majority Lenders) may request further valuations at any other time (subject to such valuations not interfering with the normal commercial operation of the Ship). Such additional valuations will be at the cost of the Agent unless such valuations show that the Security Value is less than the Minimum Value at that time, in which case the costs for such valuations will be borne by the Borrowers.

 

25.3

Expenses of valuation

The Borrowers shall bear, and reimburse to the Agent where incurred by the Agent, all reasonable costs and expenses of providing such valuations other than as set out in clause 25.2(d).

 

25.4

Valuations procedure

The value of any Mortgaged Ship shall be determined in accordance with, and by two Approved Valuers appointed in accordance with, this clause 25. Additional security provided under this clause 25 shall be valued in such a way, on such a basis and by such persons (including the Agent itself) as may be approved by the Majority Lenders or as may be agreed in writing by the Borrowers and the Agent (on the instructions of the Majority Lenders).

 

25.5

Currency of valuation

Valuations shall be provided by Approved Valuers in dollars or, if an Approved Valuer is of the view that the relevant type of vessel is generally bought and sold in another currency, in that other currency. If a valuation is provided in another currency, for the purposes of this Agreement it shall be converted into dollars at the Agent’s spot rate of exchange for the purchase of dollars with that other currency as at the date to which the valuation relates.

 

25.6

Basis of valuation

Each valuation will be addressed to the Agent in its capacity as such and made:

 

  (a)

without physical inspection (unless required by the Agent);

 

  (b)

on the basis of a sale for prompt delivery for a price payable in full in cash on delivery at arm’s length on normal commercial terms between a willing buyer and a willing seller; and

 

  (c)

without taking into account the benefit of any charter commitment (including a Charter).

 

25.7

Information required for valuation

The Borrowers shall promptly provide to the Agent and any such valuer any information which they reasonably require for the purposes of providing such a valuation.

 

25.8

Approval of valuers

All valuers must be Approved Valuers. The Agent shall respond promptly to any request by the Borrowers, and the Borrowers shall respond promptly to any request by the Agent, for approval of a broker nominated by the Borrowers or, as the case may be, the Agent to become an Approved Valuer. The Agent may, acting reasonably, at any time by notice to the Borrowers withdraw any Approved Valuer or previous approval of a valuer for the purposes of future valuations. That valuer may not then be appointed to provide valuations unless it is once more approved.

 

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25.9

Appointment of valuers

When valuations of a Mortgaged Ship are required for the purposes of this clause 25, the Agent and the Borrowers shall promptly each nominate an Approved Valuer to provide such valuations and the Borrowers shall be responsible for appointing such nominated Approved Valuers and obtaining the required valuations of the Mortgaged Ship. If the Borrowers fails to do so promptly, the Agent may appoint both Approved Valuers to provide the required valuations.

 

25.10

Number of valuers

Each valuation shall be carried out by the two Approved Valuers selected pursuant to clause 25.9 (Appointment of valuers).

 

25.11

Differences in valuations

If valuations provided by individual valuers differ, the value of the relevant Ship for the purposes of the Finance Documents will be the arithmetic mean average of those valuations. If the higher of the two valuations obtained pursuant to clause 25.10 is more than 110 per cent of the lower of the two valuations then a third valuation shall be obtained from a third Approved Valuer (nominated by the Agent and appointed by the Borrowers) and the value of the relevant Mortgaged Ship for the purposes of the Finance Documents will be the arithmetic mean average of those three valuations.

 

25.12

Security shortfall

If at any time the Security Value is less than the Minimum Value, the Agent may, and shall, if so directed by the Majority Lenders, by notice to the Borrowers require that such deficiency be remedied. The Borrowers shall then within 30 days of receipt of such notice ensure that the Security Value equals or exceeds the Minimum Value. For this purpose, the Borrowers may:

 

  (a)

provide additional security over other assets approved by the Majority Lenders in accordance with this clause 25; and/or

 

  (b)

prepay under clause 7.3 (Voluntary prepayment of Loan) a corresponding amount of the Loan.

 

25.13

Creation of additional security

The value of any additional security which the Borrowers offer to provide to remedy all or part of a shortfall in the amount of the Security Value will only be taken into account for the purposes of determining the Security Value if and when:

 

  (a)

that additional security, its value and the method of its valuation have been approved by the Majority Lenders, it being agreed that cash collateral provided in dollars or in the form of letters of credit denominated in dollars shall always be acceptable to the Lenders, and shall be valued at par;

 

  (b)

a Security Interest over that security has been constituted in favour of the Security Agent or (if appropriate) the Finance Parties in an approved form and manner;

 

  (c)

this Agreement has been unconditionally amended in such manner as the Agent requires in consequence of that additional security being provided; and

 

  (d)

the Agent, or its duly authorised representative, has received such documents and evidence it may require in relation to that amendment and additional security including documents and evidence of the type referred to in Schedule 3 in relation to that amendment and additional security and its execution and (if applicable) registration,

 

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26

Chartering undertakings

Each Borrower undertakes that this clause 26 will be complied with in relation to each Mortgaged Ship and its Charter Documents and, if a Charterer is a Group Member, by the relevant Charterer at any time during the relevant Ship’s Mortgage Period that the Ship is subject to a Charter.

 

26.1

Variations

Except with approval (such approval not to be unreasonably withheld or delayed), the Charter Documents shall not be materially varied.

 

26.2

Releases and waivers

Except with approval (such approval not to be unreasonably withheld or delayed), there shall be no release by the relevant Owner of any obligation of any other person under the Charter Documents (including by way of novation), no waiver of any breach of any such obligation and no consent to anything which would otherwise be such a breach.

 

26.3

Charter performance

The relevant Owner shall perform its obligations under the Charter Documents and use its reasonable endeavours to ensure that each other party to them performs their obligations under the Charter Documents.

 

26.4

Notice of assignment

In respect of any Charter, the relevant Owner shall give notice of assignment of the Charter Documents to the other parties to them in the form specified by the Charter Assignment for that Ship promptly following the execution of the Charter Assignment and shall use its reasonable endeavours to ensure that the Agent receives a copy of that notice acknowledged by each addressee in the form specified therein.

 

26.5

Payment of Charter Earnings

All Earnings which the relevant Owner is entitled to receive under the Charter Documents shall be paid in the manner required by the Security Documents (and, if the Charterer is a Group Member, without any set-off or counter-claim and free and clear of any deductions or withholdings).

 

26.6

Enforcement of charter assignment

The Charterer shall allow the Security Agent to enforce the rights of the relevant Owner under the Charter as assignee of those rights under the relevant Charter Assignment.

 

26.7

Sub-chartering

Except with approval (such approval not to be unreasonably withheld or delayed), the Owner shall use all reasonable endeavours to procure that the Charterer shall not enter into any charter commitment for the Ship which, if entered into by the relevant Owner would require approval under clause 22.8 (Chartering) and if the Security Agent is at any time entitled to enforce its rights as mortgagee of the Ship under the terms of any Mortgage, the Charterer will exercise its rights under any sub-charter of the Ship in such manner as the Agent may direct.

 

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26.8

Charterer’s manager

A manager of the Ship shall not be appointed by the Charterer unless in accordance with clause 22.4 or that manager and the terms of its employment are approved by the Agent acting reasonably.

 

26.9

Security Interests by Charterer

Except as approved by the Majority Lenders (such approval not to be unreasonably withheld or delayed), the Owner shall procure (in respect of a Charterer that is a member of the Group) or use all reasonable endeavours to procure (in respect of any other Charterer) that the Charterer shall not grant or allow to exist any Security Interest over any asset of the Charterer over which a Security Interest is granted or expressed to be granted by its Charterer’s Assignment.

 

27

Bank accounts

Each Borrower undertakes that this clause 27 will be complied with throughout the Facility Period.

 

27.1

Earnings Account

 

  (a)

The Account Holder shall be the holder of one Account with an Account Bank which shall be designated as the “Earnings Account” for the purposes of the Finance Documents.

 

  (b)

The Earnings of the Mortgaged Ships and all moneys payable to the relevant Owner under the Ship’s Insurances shall be paid by the persons from whom they are due or, if applicable, paid by the Owner receiving the same to the Earnings Account unless required to be paid to the Security Agent under the relevant Finance Documents.

 

  (c)

The Account Holder shall not withdraw amounts standing to the credit of the Earnings Account except as permitted by clause 27.1(d) and 27.1(e).

 

 

  (d)

As long as no Default has occurred and is continuing, the Account Holder may withdraw amounts from the Earnings Account.

 

  (e)

If a Default has occurred and is continuing, the Account Holder may only withdraw the following amounts from the Earnings Account, in each case with the Agent’s prior approval:

 

  (i)

payments then due to Finance Parties under the Finance Documents (other than payments due in respect of a prepayment);

 

  (ii)

payments of the proper costs and expenses of insuring, repairing, operating and maintaining any Mortgaged Ship; and

 

  (iii)

payments to purchase other currencies in amounts and at times required to make payments referred to above in the currency in which they are due.

 

27.2

Other provisions

 

  (a)

The Earnings Account may only be designated for the purposes described in this clause 27 if:

 

  (i)

such designation is made in writing by the Agent and acknowledged by the Borrowers and the Account Holder and specifies the names and addresses of the Account Bank and the Account Holder and the number and any designation or other reference attributed to the Earnings Account;

 

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  (ii)

an Account Security has been duly executed and delivered by the Account Holder in favour of the Security Agent;

 

  (iii)

any notice required by the Account Security to be given to an Account Bank has been given to, and acknowledged by, the Account Bank in the form required by the relevant Account Security; and

 

  (iv)

the Agent, or its duly authorised representative, has received such documents and evidence it may require in relation to the Earnings Account and the Account Security including documents and evidence of the type referred to in Schedule 3 in relation to the Earnings Account and the Account Security.

 

  (b)

The rates of payment of interest and other terms regulating the Earnings Account will be a matter of separate agreement between the Account Holder and the Account Bank. If the Earnings Account is a fixed term deposit account, the Account Holder may select the terms of deposits until the Account Security has become enforceable and the Security Agent directs otherwise.

 

  (c)

The Account Holder shall not close the Earnings Account or alter the terms of the Earnings Account from those in force at the time it is designated for the purposes of this clause 27 or waive any of its rights in relation to the Earnings Account except with approval.

 

  (d)

The Account Holder shall deposit with the Security Agent all certificates of deposit, receipts or other instruments or securities relating to the Earnings Account, notify the Security Agent of any claim or notice relating to the Earnings Account from any other party and provide the Agent with any other information it may request concerning the Earnings Account.

 

  (e)

Each of the Agent and the Security Agent agrees that if it is an Account Bank in respect of the Earnings Account then there will be no restrictions on creating a Security Interest over the Earnings Account as contemplated by this Agreement and it shall not (except with the approval of the Majority Lenders) exercise any right of combination, consolidation or set-off which it may have in respect of the Earnings Account in a manner adverse to the rights of the other Finance Parties.

 

28

Business restrictions

Except as otherwise approved by the Majority Lenders (such approval not to be unreasonably withheld in the case of clause 28.12 (Distributions and other payments)) and except in relation to Financial Indebtedness and Security Interests arising in respect of the Existing Loan Agreement (which will be prepaid and discharged on the Utilisation Date), each Borrower undertakes that this clause 28 will be complied with by and in respect of each Borrower or, as the case may be, each Guarantor, throughout the Facility Period.

 

28.1

General negative pledge

In this 28.1, Quasi-Security means an arrangement or transaction described in clause 28.1(b):

 

  (a)

No Owner shall permit any Security Interest to exist, arise or be created or extended over all or any part of its assets.

 

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  (b)

(Without prejudice to clauses 28.2 (Financial Indebtedness) and 28.6 (Disposals)), no Borrower shall:

 

  (i)

sell, transfer or otherwise dispose of any of its assets on terms whereby that asset is or may be leased to, or re-acquired by, any other Group Member other than pursuant to disposals permitted under clause 28.6 (Disposals);

 

  (ii)

sell, transfer, factor or otherwise dispose of any of its receivables on recourse terms (except for the discounting of bills or notes in the ordinary course of business);

 

  (iii)

enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or

 

  (iv)

enter into any other preferential arrangement having a similar effect,

in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.

 

  (c)

The Guarantors shall not permit any Security Interest to be granted or created in respect of the share capital or membership interests of the Borrowers.

 

  (d)

Clauses 28.1(a) and 28.1(b) above do not apply to any Security Interest or (as the case may be) Quasi-Security, listed below:

 

  (i)

those granted or expressed to be granted by any of the Security Documents; and

 

  (ii)

in relation to a Mortgaged Ship, Permitted Liens.

 

28.2

Financial Indebtedness

No Borrower shall incur or permit to exist, any Financial Indebtedness owed by it to anyone else except:

 

  (a)

any Financial Indebtedness outstanding under the Existing Loan Agreement that will be fully repaid on the Utilisation Date;

 

  (b)

Financial Indebtedness incurred under the Finance Documents;

 

  (c)

Financial Indebtedness owed to another Group Member which is fully subordinated to all amounts payable by the Borrowers under the Finance Documents on terms approved by the Agent pursuant to a Subordination Agreement entered into between the Parents, the Borrowers and the Security Agent;

 

  (d)

Financial Indebtedness permitted under clause 28.3 (Guarantees); and

 

  (e)

Financial Indebtedness permitted under clause 28.4 (Loans and credit),

and the Borrowers shall not incur or permit to exist any Financial Indebtedness or Indebtedness (as defined in clause 20.1 (Financial definitions)), that would cause the Borrowers to be in default of clause 20 (Financial covenants).

 

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28.3

Guarantees

No Borrower shall give or permit to exist, any guarantee by it in respect of indebtedness of any person or allow any of its indebtedness to be guaranteed by anyone else except:

 

  (a)

guarantees granted by an Obligor in accordance with the terms of the Existing Loan Agreement that will be unconditionally released on the Utilisation Date;

 

  (b)

guarantees of obligations of another Group Member that are not Financial Indebtedness or obligations prohibited by any Finance Document;

 

  (c)

guarantees in favour of trade creditors of the Group given in the ordinary course of its business; and

 

  (d)

guarantees which are Financial Indebtedness permitted under clause 28.2 (Financial Indebtedness).

 

28.4

Loans and credit

No Borrower shall make, grant or permit to exist any loans or any credit by it to anyone else other than:

 

  (a)

loans or credit to another Group Member permitted under clause 28.2 (Financial Indebtedness); and

 

  (b)

trade credit granted by it to its customers on normal commercial terms in the ordinary course of its trading activities.

 

28.5

Bank accounts and other financial transactions

No Borrower shall:

 

  (a)

maintain any current or deposit account with a bank or financial institution except for the deposit of money, operation of current accounts and the conduct of electronic banking operations with Lenders;

 

  (b)

hold cash in any account (other than with a Lender) over or in respect of which any set-off, combination of accounts, netting or Security Interest exists except as permitted by clause 28.1 (General negative pledge); or

 

  (c)

be party to any banking or financial transaction, whether on or off balance sheet, that is not expressly permitted under this clause 28 (Business restrictions).

 

28.6

Disposals

No Borrower shall enter into a single transaction or a series of transactions, whether related or not and whether voluntarily or involuntarily, to dispose of any asset except for any of the following disposals so long as they are not prohibited by any other provision of the Finance Documents:

 

  (a)

disposals of assets made in (and on terms reflecting) the ordinary course of trading of the disposing entity;

 

  (b)

disposals of assets made by one Group Member to another Group Member;

 

  (c)

disposals of obsolete assets, or assets which are no longer required for the purpose of the business of the relevant Group Member, in each case for cash on normal commercial terms and on an arm’s length basis;

 

84


  (d)

any disposal of receivables on a non-recourse basis on arm’s length terms (including at fair market value) for non-deferred cash consideration in the ordinary course of its business;

 

  (e)

disposals permitted by clauses 28.1 (General negative pledge) or 28.2 (Financial Indebtedness);

 

  (f)

dealings with trade creditors with respect to book debts in the ordinary course of trading; and

 

  (g)

the application of cash or cash equivalents in the acquisition of assets or services in the ordinary course of its business.

 

28.7

Contracts and arrangements with Affiliates

No Borrower shall be party to any arrangement or contract with any of its Affiliates unless such arrangement or contract is on an arm’s length basis.

 

28.8

Subsidiaries

No Borrower shall establish or acquire a company or other entity which would be or become a Group Member or reactivate any dormant Group Member.

 

28.9

Acquisitions and investments

No Borrower shall acquire any person, business, assets or liabilities or make any investment in any person or business or enter into any joint-venture arrangement except:

 

  (a)

capital expenditures or investments related to maintenance of a Ship in the ordinary course of its business;

 

  (b)

acquisitions of assets in the ordinary course of business (not being new businesses or vessels);

 

  (c)

the incurrence of liabilities in the ordinary course of its business;

 

  (d)

any loan or credit not otherwise prohibited under this Agreement;

 

  (e)

pursuant to any Finance Documents or any Charter Documents to which it is party; or

 

  (f)

any acquisition pursuant to a disposal permitted under clause 28.6 (Disposals).

 

28.10

Reduction of capital

No Borrower shall redeem or purchase or otherwise reduce any of its equity or any other share capital or membership interests or any warrants or any uncalled or unpaid liability in respect of any of them or reduce the amount (if any) for the time being standing to the credit of its share premium account or capital redemption or other undistributable reserve in any manner.

 

28.11

Increase in capital

No Borrower shall issue membership interests or other equity interests to anyone except the Parent.

 

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28.12

Distributions and other payments

A dividend may be paid on a quarterly basis on and after 31 December 2020 provided that, at such time:

 

  (a)

the Group is on a consolidated basis in pro forma compliance with clause 20 (Financial covenants) after giving effect to such dividend paid or declared; and

 

  (b)

no Default has occurred or will occur following such dividend paid or declared.

 

29

Events of Default

Each of the events or circumstances set out in clauses 29.1 to 29.20 is an Event of Default.

 

29.1

Non-payment

An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless:

 

  (a)

its failure to pay is caused by administrative or technical error or by a Payment Disruption Event; and

 

  (b)

payment is made within two Business Days of its due date.

 

29.2

Financial covenants

The Borrowers do not comply with clause 20 (Financial covenants).

 

29.3

Value of security

The Borrowers do not comply with clause 25.12 (Security shortfall).

 

29.4

Insurance

 

  (a)

The Insurances of a Mortgaged Ship are not placed and kept in force in the manner required by clause 24.2 (Coverage required) and 24.3 (Placing of cover).

 

  (b)

Any insurer either:

 

  (i)

cancels any such Insurances; or

 

  (ii)

disclaims liability under them by reason of any misstatement or failure or default by any person.

 

29.5

Other obligations

 

  (a)

An Obligor does not comply with any provision of the Finance Documents (other than those referred to in clauses 29.1 (Non-payment), 29.2(Financial covenants), 29.3(Value of security), 29.4 (Insurance) and 29.20 (Sanctions undertakings)).

 

  (b)

No Event of Default under clause 29.5(a) above will occur if the Agent considers (acting on the instructions of the Majority Lenders) that the failure to comply is capable of remedy and the failure is remedied within seven (7) days (and in the case of clause 23.10 (Release from arrest) thirty (30) days) of the Agent giving notice to the Borrowers.

 

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29.6

Misrepresentation

Any representation or statement made or deemed to be made by an Obligor in the Finance Documents or any other document delivered by or on behalf of any Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.

 

29.7

Cross default

 

  (a)

Any Financial Indebtedness of any Group Member exceeding $500,000 is not paid when due nor within any originally applicable grace period.

 

  (b)

Any Financial Indebtedness of any Group Member exceeding $500,000 is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described).

 

  (c)

Any commitment for any Financial Indebtedness of any Group Member exceeding $500,000 is cancelled or suspended by a creditor of that Group Member exceeding $500,000 as a result of an event of default (however described).

 

  (d)

The counterparty to a Treasury Transaction exceeding $500,000 entered into by any Group Member becomes entitled to terminate that Treasury Transaction early by reason of an event of default (however described).

 

  (e)

Any creditor of any Group Member becomes entitled to declare any Financial Indebtedness of that Group Member exceeding $500,000 due and payable prior to its specified maturity as a result of an event of default (however described).

 

  (f)

No Event of Default will occur under this clause 29.7 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within clauses 29.7(a) to 29.7(e) above is less than $500,000 in respect of the Borrowers or $10,000,000 in respect of the Guarantors (or their equivalent in any other currency or currencies).

No Event of Default under this clause 29.7 will occur if the Agent (acting on behalf the Majority Lenders) considers that the failure to comply is capable of remedy and the failure is remedied within five Business Days of the Agent giving notice to the Borrowers

 

29.8

Insolvency

 

  (a)

A Group Member is unable or admits inability to pay its debts as they fall due suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors (excluding any Finance Party in its capacity as such) with a view to rescheduling any of its indebtedness.

 

  (b)

The value of the assets of any Group Member is less than its liabilities (taking into account contingent and prospective liabilities).

 

  (c)

A moratorium is declared in respect of any indebtedness of any Group Member. If a moratorium occurs, the ending of the moratorium will not remedy any Event of Default caused by that moratorium.

 

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29.9

Insolvency proceedings

 

  (a)

Any corporate action, legal proceedings or other procedure or step is taken in relation to:

 

  (i)

the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any Group Member other than a solvent liquidation or reorganisation of any Group Member which is not an Obligor;

 

  (ii)

a composition, compromise, assignment or arrangement with any creditor of any Group Member;

 

  (iii)

the appointment of a liquidator (other than in respect of a solvent liquidation of a Group Member which is not an Obligor), receiver, administrator, administrative receiver, compulsory manager or other similar officer in respect of any Group Member or any of its assets (including the directors of any Group Member requesting a person to appoint any such officer in relation to it or any of its assets); or

 

  (iv)

enforcement of any Security Interest over any assets of any Group Member,

or any analogous procedure or step is taken in any jurisdiction.

 

  (b)

Clause 29.9(a) shall not apply to any winding-up petition (or analogous procedure or step) which is frivolous or vexatious and is discharged, stayed or dismissed within 28 days of commencement or, if earlier, the date on which it is advertised.

 

29.10

Creditors’ process

 

  (a)

Any expropriation, attachment, sequestration, distress, execution or analogous process affects any asset or assets of any Group Member, which would in aggregate exceed $500,000 or, when aggregated with the value of any assets of the other Group Members affected by any process mentioned in this clause 29.10(a), would exceed $10,000,000, and is not discharged within 28 days.

 

  (b)

Any judgment or order for an amount in excess of $500,000 in respect of the Borrowers, or $10,000,000 in respect of the Guarantors, is made against any Group Member and is not stayed or complied with within 28 days.

 

29.11

Unlawfulness and invalidity

 

  (a)

It is or becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents or any Security Interest created or expressed to be created or evidenced by the Security Documents ceases to be effective.

 

  (b)

Any obligation or obligations of any Obligor under any Finance Documents are not (subject to the Legal Reservations) or cease to be legal, valid, binding or enforceable and the cessation individually or cumulatively materially and adversely affects the interests of the Lenders under the Finance Documents.

 

  (c)

Any Finance Document or any Security Interest created or expressed to be created or evidenced by the Security Documents ceases to be in full force and effect or is alleged by a party to it (other than a Finance Party) to be ineffective for any reason.

 

  (d)

Any Security Document does not create legal, valid, binding and enforceable security over the assets charged under that Security Document or the ranking or priority of such security is adversely affected.

 

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29.12

Cessation of business

Any Obligor suspends or ceases to carry on (or threatens to suspend or cease to carry on) all or a material part of its business.

 

29.13

Expropriation

The authority or ability of any Obligor to conduct its business is limited or wholly or substantially curtailed by any seizure, expropriation, nationalisation, intervention, restriction or other action by or on behalf of any governmental, regulatory or other authority or other person in relation to any Obligor or any of its assets.

 

29.14

Repudiation and rescission of Finance Documents

An Obligor (or any other relevant party) repudiates or purports to repudiate a Finance Document or evidences an intention to rescind or purports to rescind a Finance Document.

 

29.15

Litigation

Any litigation, alternative dispute resolution, arbitration or administrative proceeding is taking place, or threatened against any Group Member or any of its assets, rights or revenues exceeding $10,000,000 which, if adversely determined, might have a Material Adverse Effect.

 

29.16

Material Adverse Effect

Any Environmental Incident or other event or circumstance or series of events (including any change of law) occurs which the Majority Lenders reasonably believe has, or is reasonably likely to have, a Material Adverse Effect.

 

29.17

Security enforceable

Any Security Interest (other than a Permitted Lien) in respect of Charged Property becomes enforceable.

 

29.18

Arrest of Ship

Any Mortgaged Ship is arrested, confiscated, seized, taken in execution, impounded, forfeited, detained in exercise or purported exercise of any possessory lien or other claim and the relevant Owner fails to procure the release of such Ship within a period of 28 days thereafter (or such longer period as may be approved) or, in the case of any seizure or detention of such Ship as a result of piracy, within a period of 365 days thereafter.

 

29.19

Ship registration

Except with approval, the registration of any Mortgaged Ship under the laws and flag of its Flag State is cancelled or terminated or, where applicable, not renewed or, if such Ship is only provisionally registered on the date of its Mortgage, such Ship is not permanently registered under such laws within 90 days of such date.

 

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29.20

Sanctions undertakings

An Obligor does not comply with any provision of clauses 19.7 (Sanctions information) or 21.13 (Sanctions).

 

29.21

Acceleration

On and at any time after the occurrence of an Event of Default which is continuing the Agent may, and shall if so directed by the Majority Lenders, by notice to the Borrowers:

 

  (a)

cancel the Total Commitments at which time they shall immediately be cancelled; and/or

 

  (b)

declare that all or part of the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, at which time they shall become immediately due and payable; and/or

 

  (c)

declare that all or part of the Loan be payable on demand, at which time it shall immediately become payable on demand by the Agent on the instructions of the Majority Lenders; and/or

 

  (d)

declare that no withdrawals be made from the Earnings Account; and/or

 

  (e)

exercise or direct the Security Agent and/or any other beneficiary of the Security Documents to exercise any or all of its rights, remedies, powers or discretions under the Finance Documents.

 

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SECTION 9 - CHANGES TO PARTIES

 

30

Changes to the Lenders

 

30.1

Assignments and transfers by the Lenders

 

  (a)

Subject to this clause 30, a Lender (the Existing Lender) may assign any of its rights to another bank or financial institution which is regularly engaged in or established for the purpose of, making, purchasing or investing in loans, securities or other financial assets (excluding a hedge fund), unless an Event of Default has occurred and is continuing, in which case the Existing Lender may assign its rights to any person (in each case, the new assignee being the New Lender).

 

  (b)

No Lender may assign any of its rights to any Group Member or a holding company acting in concert with any Group Member.

 

30.2

Conditions of assignment

 

  (a)

The consent of the Borrowers is required for an assignment by a Lender unless:

 

  (i)

the assignment is to another Lender, an Affiliate of a Lender or to another financial institution that is regularly engaged in, or established for the purpose of making, purchasing or investing in, loans, securities or other financial assets (excluding hedge funds);

 

  (ii)

an Event of Default is continuing; or

 

  (iii)

a Change of Control has occurred with the consent of the Majority Lenders.

The Agent will immediately advise the Borrowers of any assignment pursuant to this paragraph (a).

 

  (b)

The Borrowers’ consent may not be unreasonably withheld or delayed and will be deemed to have been given fifteen Business Days after the Lender has requested consent unless consent is expressly refused within that time.

 

  (c)

An assignment will only be effective:

 

  (i)

on receipt by the Agent of written confirmation from the New Lender (in form and substance satisfactory to the Agent) that the New Lender will assume the same obligations to the Borrowers and the other Finance Parties as it would have been under if it was an Original Lender;

 

  (ii)

on the New Lender entering into any documentation required for it to accede as a party to any Security Document to which the Original Lender is a party in its capacity as a Lender and, in relation to such Security Documents, completing any filing, registration or notice requirements;

 

  (iii)

if an assignment takes effect after there has been the Utilisation, the assignment of an Existing Lender’s participation in the Utilisations (if any) under the Facility shall take effect in respect of the same fraction of each such Utilisation;

 

  (iv)

on the performance by the Agent of all “know your customer” or other checks relating to any person that it is required to carry out in relation to such assignment to a New Lender, the completion of which the Agent shall promptly notify to the Lender and the New Lender;

 

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  (v)

if that Existing Lender assigns equal fractions of its Commitment and participation in the Loan and the Utilisation (if any) under the Facility;

 

  (vi)

if a relevant assignment or transfer has been approved by the Agent; and

 

  (vii)

if the Agent has received confirmation to its satisfaction that no Insolvency Event has occurred in relation to either the Existing Lender or the New Lender.

 

  (d)

Each New Lender, by executing the relevant Transfer Certificate, confirms, for the avoidance of doubt, that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with the Finance Documents on or prior to the date on which the assignment becomes effective in accordance with the Finance Documents and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender.

 

30.3

Fee

The New Lender shall, on the date upon which an assignment takes effect, pay to the Agent (for its own account) a fee of $5,000 per assignment.

 

30.4

No increased costs

 

  (a)

If:

 

  (i)

a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and

 

  (ii)

as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under Clause 12 (Tax gross up and indemnities) or Clause 13 (Increased costs),

then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.

 

30.5

Limitation of responsibility of Existing Lenders

 

  (a)

Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for:

 

  (i)

the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents;

 

  (ii)

the financial condition of any Obligor;

 

  (iii)

the performance and observance by any Obligor or any other person of its obligations under the Finance Documents or any other documents; or

 

  (iv)

the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,

and any representations or warranties implied by law are excluded.

 

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  (b)

Each New Lender confirms to the Existing Lender and the other Finance Parties that it:

 

  (c)

has made (and shall continue to make) its own independent investigation and assessment of:

 

  (i)

the financial condition and affairs of the Obligors and their related entities in connection with its participation in this Agreement; and

 

  (ii)

the application of any Basel II Regulation or Basel III Regulation to the transactions contemplated by the Finance Documents;

 

  (d)

and has not relied exclusively on any information provided to it by the Existing Lender or any other Finance Party in connection with any Finance Document;

 

  (e)

will continue to make its own independent appraisal of the application of any Basel II Regulation or Basel III Regulation to the transactions contemplated by the Finance Documents; and

 

  (f)

will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.

 

  (g)

Nothing in any Finance Document obliges an Existing Lender to:

 

  (i)

accept a re-assignment from a New Lender of any of the rights assigned under this clause 30 (Changes to the Lenders); or

 

  (ii)

support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Obligor of its obligations under the Finance Documents or by reason of the application of any Basel II Regulation or Basel III Regulation to the transactions contemplated by the Finance Documents or otherwise.

 

30.6

Procedure for transfer

 

  (a)

Subject to the conditions set out in clause 30.2 (Conditions of assignment) an assignment may be effected in accordance with clause 30.6(c) below when (a) the Agent executes an otherwise duly completed Transfer Certificate and (b) the Agent executes any document required under clause 30.2(c) which it may be necessary for it to execute in each case delivered to it by the Existing Lender and the New Lender duly executed by them and, in the case of any such other document, any other relevant person. The Agent shall, as soon as reasonably practicable after receipt by it of a Transfer Certificate and any such other document each duly completed, appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate and such other document.

 

  (b)

The Obligors and the other Finance Parties irrevocably authorise the Agent to execute any Transfer Certificate on their behalf without any consultations with them.

 

  (c)

On the Transfer Date:

 

  (i)

to the extent that in the Transfer Certificate the Existing Lender seeks to be released from its obligations under the Finance Documents, the Existing Lender shall be released from further obligations towards the Obligors and the other Finance Parties under the Finance Documents and the rights of the Obligors and the other Finance Parties against the Existing Lender under the Finance Documents shall be cancelled (being the Discharged Rights and Obligations) (but the obligations owed by the Obligors under the Finance Documents shall not be released);

 

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  (ii)

the New Lender shall assume obligations towards each of the Obligors who are a Party and/or the Obligors and the other Finance Parties shall acquire rights against the New Lender which differ from the Discharged Rights and Obligations only insofar as the New Lender has assumed and/or the Obligors and the other Finance Parties have acquired the same in place of the Existing Lender;

 

  (iii)

the other Finance Parties and the New Lender shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Existing Lender and the other Finance Parties shall each be released from further obligations to each other under the Finance Documents; and

 

  (iv)

the New Lender shall become a Party to the Finance Documents as a “Lender” for the purposes of all the Finance Documents.

 

30.7

Copy of Transfer Certificate or Increase Confirmation to Borrowers

The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate or Increase Confirmation and any other document required under clause 30.2(c), send a copy of that Transfer Certificate or Increase Confirmation and such documents to the Borrowers.

 

30.8

Security over Lenders’ Rights

In addition to the other rights provided to Lenders under this clause 30, each Lender may without consulting with or obtaining consent from an Obligor, 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 any charge, assignment or other Security Interest to secure obligations to a federal reserve or central bank except that no such charge, assignment or Security Interest shall:

 

  (a)

release a Lender from any 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

 

  (b)

require any payments to be made by an Obligor other than or in excess of, 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.

 

31

Assignments and transfers by Obligors

No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents without the prior written consent of the Lenders.

 

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SECTION 10 - THE FINANCE PARTIES

 

32

Roles of Agent, Security Agent and Arrangers

 

32.1

Appointment of the Agent

 

  (a)

Each other Finance Party (other than the Security Agent) appoints the Agent to act as its agent under and in connection with the Finance Documents.

 

  (b)

Each such other Finance Party authorises the Agent:

 

  (i)

to perform the duties, obligations and responsibilities and exercise the rights, powers, authorities and discretions specifically given to the Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions; and

 

  (ii)

to execute each of the Security Documents, and all other documents that may be approved by the Majority Lenders for execution by it.

 

  (c)

ING BANK, a branch of ING-DiBa AG, hereby exempts the Agent and the Security Agent from the restrictions pursuant to section 181 Alt. 2 Civil Code (Bürgerliches Gesetzbuch) and similar restrictions applicable to it pursuant to any other applicable law, in each case to the extent legally possible.

 

  (d)

The Agent accepts its appointment under clause 32.1(a) as trustee of the Trust Property with effect from the date of this Agreement and declares that it holds the Trust Property on trust for itself and the other Finance Parties (for so long as they are Finance Parties) on and subject to the terms of this clause 32 and the Security Documents to which it is a party.

 

32.2

Duties of the Agent

 

  (a)

The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.

 

  (b)

The Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent for that Party by any other Party.

 

  (c)

Without prejudice to clause 30.7 (Copy of Transfer Certificate or Increase Confirmation to Borrowers), clause 32.2(a) shall not apply to any Transfer Certificate or Increase Confirmation.

 

  (d)

Except where a Finance Document specifically provides otherwise, the Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party.

 

  (e)

If the Agent receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the other Finance Parties.

 

  (f)

If the Agent is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Agent or an Arranger for their own account) under this Agreement it shall promptly notify the other Finance Parties.

 

  (g)

Except as specifically provided in the Finance Documents, the Agent has no obligations of any kind to any other Party under or in connection with the Finance Documents. The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.

 

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32.3

Role of the Arrangers

Except as specifically provided in the Finance Documents, the Arrangers have no obligations of any kind to any other Party under or in connection with any Finance Document or the transactions contemplated by the Finance Documents.

 

32.4

No fiduciary duties

 

  (a)

Nothing in this Agreement constitutes an Arranger as a trustee or fiduciary of any other person except to the extent that the Agent holds the benefit of the Security Documents in trust for the other Finance Parties pursuant to clause 32.

 

  (b)

Neither the Agent nor any of the Arrangers shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account or have any obligations to the other Finance Parties beyond those expressly stated in the Finance Documents.

 

32.5

Business with the Group

The Agent and any Arranger may accept deposits from, lend money to and generally engage in any kind of banking or other business with any Obligor or other Group Member or their Affiliates.

 

32.6

Rights and discretions of the Agent

 

  (a)

The Agent may rely on:

 

  (i)

any representation, notice or document believed by it to be genuine, correct and appropriately authorised; and

 

  (ii)

any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his or her knowledge or within his or her power to verify.

 

  (b)

The Agent may assume (unless it has received notice to the contrary in its capacity as agent for the other Finance Parties) that:

 

  (i)

no Default has occurred (unless it has actual knowledge of a Default arising under clause 29.1 (Non-payment));

 

  (ii)

any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and

 

  (iii)

any notice or request made by the Borrowers (other than the Utilisation Request) is made on behalf of and with the consent and knowledge of all the Obligors.

 

  (c)

The Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts in the conduct of its obligations and responsibilities under the Finance Documents.

 

  (d)

The Agent may act in relation to the Finance Documents through its personnel and agents.

 

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  (e)

The Agent may disclose to any other Party any information it reasonably believes it has received as agent under this Agreement.

 

  (f)

Without prejudice to the generality of clause 32.6(e) above, the Agent may disclose the identity of a Defaulting Lender to the other Finance Parties and the Borrowers and shall disclose the same upon the written request of the Borrowers or the Majority Lenders.

 

  (g)

Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor any Arranger is obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach of any law or regulation or a breach of a fiduciary duty or duty of confidentiality. The Agent and any Arranger may do anything which in its opinion, is necessary or desirable to comply with any law or regulation of any jurisdiction.

 

32.7

Majority Lenders’ instructions

 

  (a)

Unless a contrary indication appears in a Finance Document, the Agent shall:

 

  (i)

exercise any right, power, authority or discretion vested in it as Agent in accordance with any instructions given to it by the Majority Lenders (or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Agent); and

 

  (ii)

not be liable for any act (or omission) if it acts (or refrains from taking any action) in accordance with an instruction of the Majority Lenders.

 

  (b)

Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders to the Agent (in relation to any right, power, authority or discretion vested in it as Agent) shall be binding on all the Finance Parties.

 

  (c)

The Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability (together with any associated VAT) which it may incur in complying with the instructions.

 

  (d)

In the absence of, or while awaiting, instructions from the Majority Lenders (or, if appropriate, the Lenders), the Agent may act (or refrain from taking action) as it considers to be in the best interest of the Finance Parties.

 

  (e)

The Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s consent in any legal or arbitration proceedings relating to any Finance Document. This clause 32.7(e) shall not apply to any legal or arbitration proceeding relating to the perfection, preservation or protection of rights under the Security Documents or enforcement of the Security Documents.

 

  (f)

Neither the Agent nor any Arranger shall be obliged to request any certificate, opinion or other information under clause 19 (Information undertakings) unless so required in writing by a Lender, in which case the Agent shall promptly make the appropriate request of the Borrowers if such request would be in accordance with the terms of this Agreement.

 

32.8

Responsibility for documentation and other matters

Neither the Agent nor the Arrangers:

 

  (a)

is responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, any Arranger, an Obligor or any other

 

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  person given in or in connection with any Finance Document or the transactions contemplated in the Finance Documents or of any representations in any Finance Document or of any copy of any document delivered under any Finance Document;

 

  (b)

is responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any Charter Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document or any Charter Document;

 

  (c)

is responsible for the application of any Basel II Regulation or Basel III Regulation to the transactions contemplated by the Finance Documents;

 

  (d)

is responsible for any loss to the Trust Property arising in consequence of the failure, depreciation or loss of any Charged Property or any investments made or retained in good faith or by reason of any other matter or thing;

 

  (e)

is obliged to account to any person for any sum or the profit element of any sum received by it for its own account;

 

  (f)

is responsible for the failure of any Obligor or any other party to perform its obligations under any Finance Document or any Charter Document or the financial condition of any such person;

 

  (g)

is responsible for ascertaining whether all deeds and documents which should have been deposited with it under or pursuant to any of the Security Documents have been so deposited;

 

  (h)

is responsible for investigating or making any enquiry into the title of any Obligor to any of the Charged Property or any of its other property or assets;

 

  (i)

is responsible for the failure to register any of the Security Documents with the Registrar of Companies or any other public office;

 

  (j)

is responsible for the failure to register any of the Security Documents in accordance with the provisions of the documents of title of any Obligor to any of the Charged Property;

 

  (k)

is responsible for the failure to take or require any Obligor to take any steps to render any of the Security Documents effective as regards property or assets outside England or Wales or to secure the creation of any ancillary charge under the laws of the jurisdiction concerned; or

 

  (l)

is responsible (save as otherwise provided in this clause 32) for taking or omitting to take any other action under or in relation to the Security Documents;

 

  (m)

is responsible on account of the failure of any other beneficiary of a Security Document to perform or discharge any of its duties or obligations under the Security Documents; or

 

  (n)

is (unless it is the same entity as the Agent) responsible on account of the failure of the Agent and/or any other beneficiary of a Security Document to perform or discharge any of its duties or obligations under the Security Documents; or

 

  (o)

for any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by any applicable law relating to insider dealing or otherwise.

 

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32.9

Exclusion of liability

 

  (a)

Without limiting clause 32.9(b) (and without prejudice to the provisions of clause 35.11 (Disruption to Payment Systems etc.), the Agent will not be liable for any action taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct.

 

  (b)

No Party (other than the Agent) may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document any officer, employee or agent of the Agent may rely on this clause subject to clause 1.3 and the provisions of the Third Parties Act.

 

  (c)

The Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent if the Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Agent for that purpose.

 

  (d)

Nothing in this Agreement shall oblige the Agent or any Arranger to carry out any “know your customer” or other checks in relation to any person on behalf of any Lender and each Lender confirms to the Agent and the Arrangers that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or any Arranger.

 

32.10

Lenders’ indemnity to the Agent

Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent, within three Business Days of demand, against:

 

  (a)

any Losses for negligence or any other category of liability whatsoever incurred by such Lenders’ Representative in the circumstances contemplated pursuant to clause 35.11 (Disruption to payment systems etc) notwithstanding the Agent’s negligence, gross negligence, or any other category of liability whatsoever but not including any claim based on the fraud of the Agent); and

 

  (b)

any other Losses (otherwise than by reason of the Agent’s gross negligence or wilful misconduct) including the costs of any person engaged in accordance with clause 32.6(c) (Rights and discretions of the Agent) and any Receiver in acting as its agent under the Finance Documents

in each case incurred by the Agent in acting as such under the Finance Documents (unless the Agent has been reimbursed by an Obligor pursuant to a Finance Document or out of the Trust Property).

 

32.11

Resignation of the Agent

 

  (a)

The Agent may resign and appoint one of its Affiliates as successor by giving notice to the Lenders and the Borrowers.

 

  (b)

Alternatively the Agent may resign by giving notice to the other Finance Parties and the Borrowers, in which case the Majority Lenders (after consultation with the Borrowers) may appoint a successor Agent.

 

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  (c)

If the Majority Lenders have not appointed a successor Agent in accordance with clause 32.11(b) above within 30 days after notice of resignation was given, the Agent (after consultation with the Borrowers) may appoint a successor Agent.

 

  (d)

The retiring Agent shall, either at the Lenders’ expense if it has been required to resign pursuant to clause 32.11(g) or otherwise at its own cost, make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents.

 

  (e)

The Agent’s resignation notice shall only take effect upon the appointment of a successor.

 

  (f)

Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this clause 32. Its successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.

 

  (g)

After consultation with the Borrowers, the Majority Lenders may, by notice to the Agent, require it to resign in accordance with clause 32.11(a). In this event, the Agent shall resign in accordance with clause 32.11(a).

 

  (h)

At any time after the appointment of a successor, the retiring Agent shall execute all acts, deeds and documents reasonably required by its successor to transfer to it (or its nominee, as it may direct) any property, assets and rights previously vested in the retiring Agent pursuant to the Security Documents and which shall not have vested in its successor by operation of law. All such acts, deeds and documents shall be done or, as the case may be, executed at the cost of the retiring Agent (except where the Agent is retiring pursuant to clause 32.11(g) in which case such costs shall be borne by the Lenders (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero).

 

  (i)

The Agent shall resign in accordance with clause 32.11(b) above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to paragraph 32.11(c) above) if on or after the date which is three months before the earliest FATCA Application Date relating to any payment to the Agent under the Finance Documents, either:

 

  (i)

the Agent fails to respond to a request under clause 12.8 (FATCA Information) and the Borrowers or a Lender reasonably believes that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;

 

  (ii)

the information supplied by the Agent pursuant to clause 12.8 (FATCA Information) indicates that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or

 

  (iii)

the Agent notifies the Borrowers and the Lenders that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;

and (in each case) the Borrowers or a Lender reasonably believes that a Party will be required to make a FATCA Deduction that would not be required if the Agent were a FATCA Exempt Party, and the Borrowers or that Lender, by notice to the Agent, requires it to resign.

 

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32.12

Confidentiality

 

  (a)

In acting as agent for the Finance Parties, the Agent shall be regarded as acting through its department, division or team directly responsible for the management of the Finance Documents which shall be treated as a separate entity from any other of its divisions, departments or teams.

 

  (b)

If information is received by another division or department of the Agent, it may be treated as confidential to that division or department and the Agent shall not be deemed to have notice of it.

 

  (c)

Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent, nor any Arranger is obliged to disclose to any other person (i) any confidential information or (ii) any other information if the disclosure would or might in its reasonable opinion constitute a breach of any law or a breach of a fiduciary duty.

 

32.13

Relationship with the Lenders

 

  (a)

The Agent may treat the person shown in its records as Lender at the opening of business (in the place of its principal office as notified to the Finance Parties from time to time) as the Lender acting through its Facility Office:

 

  (i)

entitled to or liable for any payment due under any Finance Document on that day; and

 

  (ii)

entitled to receive and act upon any notice, request, document or communication or make any decision or determination under any Finance Document made or delivered on that day,

unless it has received not less than five Business Days prior notice from that Lender (to the contrary in accordance with the terms of this Agreement.

 

  (b)

Each Lender shall supply the Agent with any information that the Agent may reasonably specify as being necessary or desirable to enable the Agent to perform its functions as Agent, including, but not limited to, any information which the Agent may require to comply with “know your customer checks” or similar identification procedures.

 

32.14

Credit appraisal by the Lenders

Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to each other Finance Party that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:

 

  (a)

the financial condition, status and nature of each Obligor and other Group Member;

 

  (b)

the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any Charter Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or any Charter Document;

 

  (c)

the application of any Basel II Regulation or Basel III Regulation to the transactions contemplated by the Finance Documents;

 

  (d)

whether any Finance Party has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any

 

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  Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;

 

  (e)

the adequacy, accuracy and/or completeness of any information provided by the Agent, any Party or by any other person under or in connection with any Finance Document or, any Charter Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or any Charter Document; and

 

  (f)

the right of title of any person to, or the value or sufficiency of, any part of the Charged Property, the priority of the Security Documents or the existence of any Security Interest affecting the Charged Property.

 

32.15

Reference Banks

If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Agent shall (in consultation with the Borrowers) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank.

 

32.16

Deduction from amounts payable by the Agent

If any Party owes an amount to the Agent under the Finance Documents the Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.

 

32.17

Security Agent

 

  (a)

Each other Finance Party appoints the Security Agent to act as its agent and (to the extent permitted under any applicable law) trustee under and in connection with the Security Documents and confirms that the Security Agent shall have a lien on the Security Documents and the proceeds of the enforcement of those Security Documents for all moneys payable to the beneficiaries of those Security Documents.

 

  (b)

Each other Finance Party authorises the Security Agent:

 

  (i)

to perform the duties, obligations and responsibilities and to exercise the rights, powers, authorities and discretions specifically given to the Security Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions; and

 

  (ii)

to execute each of the Security Documents and all other documents that may be approved by the Agent and/or the Majority Lenders for execution by it.

 

  (c)

The Security Agent accepts its appointment under this clause 32.17 (Security Agent) as trustee of the Trust Property with effect from the date of this Agreement and declares that it holds the Trust Property on trust for itself, the other Finance Parties (for so long as they are Finance Parties) on and subject to the terms set out in clauses 32.17 - 32.25 (inclusive) and the Security Documents to which it is a party.

 

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32.18

Application of certain clauses to Security Agent

 

  (a)

Clauses 32.6 (Rights and discretions of the Agent), 32.8 (Responsibility for documentation and other matters), 32.9 (Exclusion of liability), 32.10 (Lenders’ indemnity to the Agent), 32.11 (Resignation of the Agent), 32.13 (Relationship with the Lenders), 32.14 (Credit appraisal by the Lenders), 43 (Confidentiality) and 32.16 (Deduction from amounts payable by the Agent) shall each extend so as to apply to the Security Agent in its capacity as such and for that purpose each reference to the “Agent” in these clauses shall extend to include in addition a reference to the “Security Agent” in its capacity as such and, in clause 32.6 (Rights and discretions of the Agent), references to the Lenders and a group of Lenders shall refer to the Agent.

 

  (b)

In addition, clause 32.11 (Resignation of the Agent) shall, for the purposes of its application to the Security Agent pursuant to clause 32.18(a), have the following additional sub-clause:

At any time after the appointment of a successor, the retiring Security Agent shall do and execute all acts, deeds and documents reasonably required by its successor to transfer to it (or its nominee, as it may direct) any property, assets and rights previously vested in the retiring Security Agent pursuant to the Security Documents and which shall not have vested in its successor by operation of law. All such acts, deeds and documents shall be done or, as the case may be, executed at the cost of the retiring Security Agent (except where the Security Agent is retiring under clause 32.11 (Resignation of the Agent) as extended to it by clause 32.18(a), in which case such costs shall be borne by the Lenders (in proportion (if no part of the Loan is then outstanding) to their shares of the Total Commitments or (at any other time) to their participations in the Loan).

 

32.19

Instructions to Security Agent

 

  (a)

The Security Agent shall:

 

  (i)

unless a contrary indication appears in a Finance Document, exercise or refrain from exercising any right, power, authority or discretion vested in it as Security Agent in accordance with any instructions given to it by the Agent; and

 

  (ii)

not be liable for any act (or omission) if it acts (or refrains from acting) in accordance with paragraph (i) above.

 

  (b)

The Security Agent shall be entitled to request instructions, or clarification of any instruction, from the Agent as to whether, and in what manner, it should exercise or refrain from exercising any right, power, authority or discretion and the Security Agent may refrain from acting unless and until it receives those instructions or that clarification.

 

  (c)

Unless a contrary indication appears in a Finance Document, any instructions given to the Security Agent by the Agent shall override any conflicting instructions given by any other Parties and will be binding on all Finance Parties.

 

  (d)

The Security Agent may refrain from acting in accordance with any instructions of the Agent until it has received any indemnification and/or security that it may in its discretion require (which may be greater in extent than that contained in the Finance Documents and which may include payment in advance) for any cost, loss or liability which it may incur in complying with those instructions.

 

  (e)

In the absence of instructions, the Security Agent may act (or refrain from acting) as it considers to be in the best interest of the Lenders.

 

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  (f)

The Security Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s) in any legal or arbitration proceedings relating to any Finance Document. This clause 32.19(f) shall not apply to any legal or arbitration proceeding relating to the perfection, preservation or protection of rights under the Security Documents or enforcement of the Security Documents.

 

32.20

Order of application

 

  (a)

The Security Agent agrees to apply the Trust Property and each other beneficiary of the Security Documents agrees to apply all moneys received by it in the exercise of its rights under the Security Documents in accordance with the following respective claims:

 

  (i)

first, as to a sum equivalent to the amounts payable to the Security Agent under the Finance Documents (excluding any amounts received by the Security Agent pursuant to clause 32.10 (Lenders’ indemnity to the Agent) as extended to the Security Agent pursuant to clause 32.18 (Application of certain clauses to Security Agent), for the Security Agent absolutely;

 

  (ii)

secondly, as to a sum equivalent to the aggregate amount then due and owing to the other Finance Parties under the Finance Documents, for those Finance Parties absolutely for application between them in accordance with clause 35.5 (Partial payments), and pro-rata to the amounts owing to them under the Finance Documents;

 

  (iii)

thirdly, until such time as the Security Agent is satisfied that all obligations owed to the Finance Parties have been irrevocably and unconditionally discharged in full, held by the Security Agent on a suspense account for payment of any further amounts owing to the Finance Parties under the Finance Documents and further application in accordance with this clause 32.20(a) as and when any such amounts later fall due;

 

  (iv)

fourthly, to such other persons (if any) as are legally entitled thereto in priority to the Obligors; and

 

  (v)

fifthly, as to the balance (if any), for the Obligors by or from whom or from whose assets the relevant amounts were paid, received or recovered or other person entitled to them.

 

  (b)

The Security Agent and each other beneficiary of the Security Documents shall make each application as soon as is practicable after the relevant moneys are received by, or otherwise become available to, it save that (without prejudice to any other provision contained in any of the Security Documents) the Security Agent (acting on the instructions of the Agent), any other beneficiary of the Security Documents or any receiver or administrator may credit any moneys received by it to a suspense account for so long and in such manner as the Security Agent, such other beneficiary of the Security Documents or such receiver or administrator may from time to time determine with a view to preserving the rights of the Finance Parties or any of them to prove for the whole of their respective claims against the Borrowers or any other person liable.

 

  (c)

The Security Agent and/or any other beneficiary of the Security Documents shall obtain a good discharge in respect of the amounts expressed to be due to the other Finance Parties as referred to in this clause 32.20 by distributing the same in accordance with clause 35 (Payment mechanics).

 

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32.21

Powers and duties of the Security Agent as trustee of the security

In its capacity as trustee in relation to the Trust Property, the Agent:

 

  (a)

shall, without prejudice to any of the powers, discretions and immunities conferred upon trustees by law (and to the extent not inconsistent with the provisions of this Agreement or any of the Security Documents), have all the same powers and discretions as a natural person acting as the beneficial owner of such property and/or as are conferred upon the Security Agent by this Agreement and/or any Security Document but so that the Security Agent may only exercise such powers and discretions to the extent that it is authorised to do so by the provisions of this Agreement;

 

  (b)

shall (subject to clause 32.20 (Order of application)) be entitled (in its own name or in the names of nominees) to invest moneys from time to time forming part of the Trust Property or otherwise held by it as a consequence of any enforcement of the security constituted by any Finance Document which, in the reasonable opinion of the Security Agent, it would not be practicable to distribute immediately, by placing the same on deposit in the name or under the control of the Security Agent as the Security Agent may think fit without being under any duty to diversify the same and the Security Agent shall not be responsible for any loss due to interest rate or exchange rate fluctuations except for any loss arising from the Security Agent’s gross negligence or wilful misconduct;

 

  (c)

may, in the conduct of its obligations under and in respect of the Security Documents (otherwise than in relation to its right to make any declaration, determination or decision), instead of acting personally, employ and pay any agent (whether being a lawyer or any other person) to transact or concur in transacting any business and to do or concur in doing any acts required to be done by the Security Agent (including the receipt and payment of money) and on the basis that (i) any such agent engaged in any profession or business shall be entitled to be paid all usual professional and other charges for business transacted and acts done by him or any partner or employee of his or her in connection with such employment and (ii) the Security Agent shall not be bound to supervise, or be responsible for any loss incurred by reason of any act or omission of, any such agent if the Security Agent shall have exercised reasonable care in the selection of such agent; and

 

  (d)

may place all deeds and other documents relating to the Trust Property which are from time to time deposited with it pursuant to the Security Documents in any safe deposit, safe or receptacle selected by the Security Agent exercising reasonable care or with any firm of solicitors or company whose business includes undertaking the safe custody of documents selected by the Security Agent exercising reasonable care and may make any such arrangements as it thinks fit for allowing Obligors access to, or its solicitors or auditors possession of, such documents when necessary or convenient and the Security Agent shall not be responsible for any loss incurred in connection with any such deposit, access or possession if it has exercised reasonable care in the selection of a safe deposit, safe, receptacle or firm of solicitors or company (save that it shall take reasonable steps to pursue any person who may be liable to it in connection with such loss).

 

32.22

All enforcement action through the Security Agent

 

  (a)

None of the other Finance Parties shall have any independent power to enforce any of those Security Documents which are executed in favour of the Security Agent only or to exercise any rights, discretions or powers or to grant any consents or releases under or pursuant to such Security Documents or otherwise have direct recourse to the security and/or guarantees constituted by such Security Documents except through the Security Agent.

 

  (b)

None of the other Finance Parties shall have any independent power to enforce any of those Security Documents which are executed in their favour or to exercise any rights, discretions or powers or to grant any consents or releases under or pursuant to such

 

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  Security Documents or otherwise have direct recourse to the security and/or guarantees constituted by such Security Documents except through the Security Agent. If any Finance Party (other than the Security Agent) is a party to any Security Document it shall promptly upon being requested by the Agent to do so grant a power of attorney or other sufficient authority to the Security Agent to enable the Security Agent to exercise any rights, discretions or powers or to grant any consents or releases under such Security Document.

 

32.23

Co-operation to achieve agreed priorities of application

The other Finance Parties shall co-operate with each other and with the Security Agent and any receiver or administrator under the Security Documents in realising the property and assets subject to the Security Documents and in ensuring that the net proceeds realised under the Security Documents after deduction of the expenses of realisation are applied in accordance with clause 32.20 (Order of application).

 

32.24

Indemnity from Trust Property

 

  (a)

In respect of all liabilities, costs or expenses for which the Obligors are liable under this Agreement, the Security Agent and each Affiliate of the Security Agent and each officer or employee of the Agent or its Affiliate (each a Relevant Person) shall be entitled to be indemnified out of the Trust Property in respect of all liabilities, damages, costs, claims, charges or expenses whatsoever properly incurred or suffered by such Relevant Person:

 

  (i)

in the execution or exercise or bona fide purported execution or exercise of the trusts, rights, powers, authorities, discretions and duties created or conferred by or pursuant to the Finance Documents;

 

  (ii)

as a result of any breach by an Obligor of any of its obligations under any Finance Document;

 

  (iii)

in respect of any Environmental Claim made or asserted against a Relevant Person which would not have arisen if the Finance Documents had not been executed; and

 

  (iv)

in respect of any matter or thing done or omitted in any way in accordance with the terms of the Finance Documents relating to the Trust Property or the provisions of any of the Finance Documents.

 

  (b)

The rights conferred by this clause 32.24 are without prejudice to any right to indemnity by law given to trustees generally and to any provision of the Finance Documents entitling the Security Agent or any other person to an indemnity in respect of, and/or reimbursement of, any liabilities, costs or expenses incurred or suffered by it in connection with any of the Finance Documents or the performance of any duties under any of the Finance Documents. Nothing contained in this clause 32.24 shall entitle the Security Agent or any other person to be indemnified in respect of any liabilities, damages, costs, claims, charges or expenses to the extent that the same arise from such person’s own gross negligence or wilful misconduct.

 

32.25

Finance Parties to provide information

The other Finance Parties shall provide the Security Agent with such written information as it may reasonably require for the purposes of carrying out its duties and obligations under the Security Documents and, in particular, with such necessary directions in writing so as to enable the Security Agent to make the calculations and applications contemplated by clause 32.20 (Order of application) above and to apply amounts received under, and the proceeds of realisation of, the Security Documents as contemplated by the Security Documents, clause 35.5 (Partial payments) and clause 32.20 (Order of application).

 

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32.26

Release to facilitate enforcement and realisation

Each Finance Party acknowledges that pursuant to any enforcement action by the Security Agent (or a Receiver) carried out on the instructions of the Agent it may be desirable for the purpose of such enforcement and/or maximising the realisation of the Charged Property being enforced against, that any rights or claims of or by the Security Agent (for the benefit of the Finance Parties) and/or any Finance Parties against any Obligor and/or any Security Interest over any assets of any Obligor (in each case) as contained in or created by any Finance Document, other than such rights or claims or security being enforced, be released in order to facilitate such enforcement action and/or realisation and, notwithstanding any other provision of the Finance Documents, each Finance Party hereby irrevocably authorises the Security Agent (acting on the instructions of the Agent) to grant any such releases to the extent necessary to fully effect such enforcement action and realisation including, without limitation, to the extent necessary for such purposes to execute release documents in the name of and on behalf of the Finance Parties. Where the relevant enforcement is by way of disposal of membership interests in an Owner, the requisite release shall include releases of all claims (including under guarantees) of the Finance Parties and/or the Security Agent against such Owner and of all Security Interests over the assets of such Owner.

 

32.27

Undertaking to pay

Each Obligor which is a Party undertakes with the Security Agent on behalf of the Finance Parties that it will, on demand by the Security Agent, pay to the Security Agent all money from time to time owing, and discharge all other obligations from time to time incurred, by it under or in connection with the Finance Documents.

 

32.28

Additional trustees

The Security Agent shall have power by notice in writing to the other Finance Parties and the Borrowers to appoint any person approved by the Borrowers (such approval not to be unreasonably withheld or delayed) either to act as separate trustee or as co-trustee jointly with the Security Agent:

 

  (a)

if the Security Agent reasonably considers such appointment to be in the best interests of the Finance Parties;

 

  (b)

for the purpose of conforming with any legal requirement, restriction or condition in any jurisdiction in which any particular act is to be performed; or

 

  (c)

for the purpose of obtaining a judgment in any jurisdiction or the enforcement in any jurisdiction against any person of a judgment already obtained,

and any person so appointed shall (subject to the provisions of this Agreement) have such rights (including as to reasonable remuneration), powers, duties and obligations as shall be conferred or imposed by the instrument of appointment. The Security Agent shall have power to remove any person so appointed. At the request of the Security Agent, the other parties to this Agreement shall forthwith execute all such documents and do all such things as may be required to perfect such appointment or removal and each such party irrevocably authorises the Security Agent in its name and on its behalf to do the same. Such a person shall accede to this Agreement as a Security Agent to the extent necessary to carry out their role on terms satisfactory to the Security Agent and (subject always to the provisions of this Agreement) have such trusts, powers, authorities, liabilities and discretions (not exceeding those conferred on the Security Agent by this Agreement and the other Finance Documents) and such duties and obligations as shall be conferred or imposed by the instrument of appointment (being no less

 

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onerous than would have applied to the Security Agent but for the appointment). The Security Agent shall not be bound to supervise, or be responsible for any loss incurred by reason of any act or omission of, any such person if the Security Agent shall have exercised reasonable care in the selection of such person.

 

32.29

Non-recognition of trust

It is agreed by all the parties to this Agreement that:

 

  (a)

in relation to any jurisdiction the courts of which would not recognise or give effect to the trusts expressed to be constituted by this clause 32, the relationship of the Security Agent and the other Finance Parties shall be construed as one of principal and agent, but to the extent permissible under the laws of such jurisdiction, all the other provisions of this Agreement shall have full force and effect between the parties to this Agreement; and

 

  (b)

the provisions of this clause 32 insofar as they relate to the Security Agent in its capacity as trustee for the Finance Parties and the relationship between themselves and the Security Agent as their trustee may be amended by agreement between the other Finance Parties and the Security Agent. The Security Agent may amend all documents necessary to effect the alteration of the relationship between the Security Agent and the other Finance Parties and each such other party irrevocably authorises the Security Agent in its name and on its behalf to execute all documents necessary to effect such amendments.

 

33

Conduct of business by the Finance Parties

 

33.1

Finance Parties tax affairs

No provision of this Agreement will:

 

  (a)

interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;

 

  (b)

oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or

 

  (c)

oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.

 

33.2

Finance Parties acting together

Notwithstanding clause 2.3 (Finance Parties’ rights and obligations), if the Agent makes a declaration under clause 29.21 (Acceleration) the Agent shall, in the names of all the Finance Parties, take such action on behalf of the Finance Parties and conduct such negotiations with the Borrowers and any Group Members and generally administer the Facility in accordance with the wishes of the Majority Lenders. All the Finance Parties shall be bound by the provisions of this clause and no Finance Party shall be entitled to take action independently against any Obligor or any of its assets without the prior consent of the Majority Lenders.

This clause shall not override clause 32 (Roles of Agent, Security Agent and Arrangers) as it applies to the Security Agent.

 

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33.3

Majority Lenders

 

  (a)

Where any Finance Document provides for any matter to be determined by reference to the opinion of, or to be subject to the consent, approval or request of, the Majority Lenders or for any action to be taken on the instructions of the Majority Lenders (a majority decision), such majority decision shall (as between the Lenders) only be regarded as having been validly given or issued by the Majority Lenders if all the Lenders shall have received prior notice of the matter on which such majority decision is required and the relevant majority of Lenders shall have given or issued such majority decision. However (as between any Obligor and the Finance Parties) the relevant Obligor shall be entitled (and bound) to assume that such notice shall have been duly received by each Lender and that the relevant majority shall have been obtained to constitute Majority Lenders when notified to this effect by the Agent whether or not this is the case.

 

  (b)

If, within ten Business Days of the Agent despatching to each Lender a notice requesting instructions (or confirmation of instructions) from the Lenders or the agreement of the Lenders to any amendment, modification, waiver, variation or excuse of performance for the purposes of, or in relation to, any of the Finance Documents, the Agent has not received a reply specifically giving or confirming or refusing to give or confirm the relevant instructions or, as the case may be, approving or refusing to approve the proposed amendment, modification, waiver, variation or excuse of performance, then (irrespective of whether such Lender responds at a later date) the Agent shall treat any Lender which has not so responded as having indicated a desire to be bound by the wishes of 60 per cent. of those Lenders (measured in terms of the total Commitments of those Lenders) which have so responded.

 

  (c)

For the purposes of clause 33.3(b), any Lender which notifies the Agent of a wish or intention to abstain on any particular issue shall be treated as if it had not responded.

 

  (d)

Clauses 33.3(b) and 33.3(c) shall not apply in relation to those matters referred to in, or the subject of, clause 41.2 (Exceptions).

 

33.4

Conflicts

 

  (a)

The Borrowers acknowledge that any Arranger and its parent undertaking, subsidiary undertakings and fellow subsidiary undertakings (together an Arranger Group) may be providing debt finance, equity capital or other services (including financial advisory services) to other persons with which the Borrowers may have conflicting interests in respect of the Facility or otherwise.

 

  (b)

No member of an Arranger Group shall use confidential information gained from any Obligor by virtue of the Facility or its relationships with any Obligor in connection with their performance of services for other persons. This shall not, however, affect any obligations that any member of an Arranger Group has as Agent in respect of the Finance Documents. The Borrowers also acknowledge that no member of an Arranger Group has any obligation to use or furnish to any Obligor information obtained from other persons for their benefit.

 

  (c)

The terms parent undertaking, subsidiary undertaking and fellow subsidiary undertaking when used in this clause have the meaning given to them in sections 1161 and 1162 of the Companies Act 2006.

 

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34

Sharing among the Finance Parties

 

34.1

Payments to Finance Parties

If a Finance Party (a Recovering Finance Party) receives or recovers any amount from an Obligor other than in accordance with clause 35 (Payment mechanics) (a Recovered Amount) and applies that amount to a payment due under the Finance Documents then:

 

  (a)

the Recovering Finance Party shall, within three Business Days, notify details of the receipt or recovery, to the Agent;

 

  (b)

the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Agent and distributed in accordance with clause 35 (Payment mechanics), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and

 

  (c)

the Recovering Finance Party shall, within three Business Days of demand by the Agent, pay to the Agent an amount (the Sharing Payment) equal to such receipt or recovery less any amount which the Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with clause 35.5 (Partial payments).

 

34.2

Redistribution of payments

The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Finance Party) (the Sharing Finance Parties) in accordance with clause 35.5 (Partial payments) towards the obligations of that Obligor to the Sharing Finance Parties.

 

34.3

Recovering Finance Party’s rights

On a distribution by the Agent under clause 34.2 (Redistribution of payments) of a payment received by a Recovering Finance Party from an Obligor, as between the relevant Obligor and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated as not having been paid by that Obligor.

 

34.4

Reversal of redistribution

If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:

 

  (a)

each Sharing Finance Party shall, upon request of the Agent, pay to the Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the Redistributed Amount); and

 

  (b)

as between the relevant Obligor and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by that Obligor.

 

34.5

Exceptions

 

  (a)

This clause 34 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this clause, have a valid and enforceable claim against the relevant Obligor.

 

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  (b)

A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings in accordance with the terms of this Agreement, if:

 

  (i)

it notified that other Finance Party of the legal or arbitration proceedings; and

 

  (ii)

that other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings.

 

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SECTION 11 - ADMINISTRATION

 

35

Payment mechanics

 

35.1

Payments to the Agent

 

  (a)

On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.

 

  (b)

Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Agent specifies.

 

35.2

Distributions by the Agent

Each payment received by the Agent under the Finance Documents for another Party shall, subject to clause 35.3 (Distributions to an Obligor) and clause 35.4 (Clawback) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five Business Days’ notice with a bank specified by that Party in the principal financial centre of the country of that currency.

 

35.3

Distributions to an Obligor

The Agent may (with the consent of the Obligor or in accordance with clause 36 (Set-off)) apply any amount received by it for that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from that Obligor under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.

 

35.4

Clawback

 

  (a)

Where a sum is to be paid to the Agent under the Finance Documents for another Party, the Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum.

 

  (b)

If the Agent pays an amount to another Party and it proves to be the case that the Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Agent shall on demand refund the same to the Agent together with interest on that amount from the date of payment to the date of receipt by the Agent, calculated by the Agent to reflect its cost of funds.

 

35.5

Partial payments

 

  (a)

If the Agent receives a payment for application against amounts due under the Finance Documents that is insufficient to discharge all the amounts then due and payable by an Obligor under those Finance Documents, the Agent shall apply that payment towards the obligations of that Obligor under those Finance Documents in the following order:

 

  (i)

first, in or towards payment pro rata of any unpaid fees, costs and expenses (ignoring any fees payable under clause 11 (Fees)) of the Agent, the Security Agent or the Arrangers under those Finance Documents;

 

112


  (ii)

secondly, pro rata in or towards payment to the Lenders pro rata of any amount owing to the Lenders under clause 32.10 (Lenders’ indemnity to the Agent) (including but not limited to any amount resulting from the indemnity to the Security Agent under clause 32.18 (Application of certain clauses to the Security Agent);

 

  (iii)

thirdly, pro-rata in or towards payment to the Lenders pro rata of any accrued interest, fee or commission or other amounts due to them but unpaid under the Finance Documents;

 

  (iv)

fourthly, in or towards payment to the Lenders pro rata of any principal which is due but unpaid under the Finance Documents; and

 

  (v)

fifthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents.

 

  (b)

The Agent shall, if so directed by all the Lenders, vary the order set out in paragraphs (ii) to (v) of clause 35.5(a).

 

  (c)

Clauses 35.5(a) and 35.5(b) above will override any appropriation made by an Obligor.

 

35.6

No set-off by Obligors

All payments to be made by an Obligor under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.

 

35.7

Business Days

 

  (a)

Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).

 

  (b)

During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date.

 

35.8

Payments on demand

For the purposes of clause 29.1 and subject to the Agent’s right to demand interest under clause 8.3, payments on demand shall be treated as paid when due if paid within three Business Days of demand.

 

35.9

Currency of account

 

  (a)

Subject to clauses 35.9(b) to 35.9(c), dollars is the currency of account and payment for any sum due from an Obligor under any Finance Document.

 

  (b)

A repayment of all or part of the Loan or an Unpaid Sum and each payment of interest shall be made in dollars on its due date.

 

  (c)

Each payment in respect of the amount of any costs, expenses or Taxes or other losses shall be made in dollars and, if they were incurred in a currency other than dollars, the amount payable under the Finance Documents shall be the equivalent in dollars of the relevant amount in such other currency on the date on which it was incurred.

 

  (d)

All moneys received or held by the Security Agent or by a Receiver under a Security Document in a currency other than dollars may be sold for dollars and the Obligor which

 

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  executed that Security Document shall indemnify the Security Agent against the full cost in relation to the sale. Neither the Security Agent nor such Receiver will have any liability to that Obligor in respect of any loss resulting from any fluctuation in exchange rates after the sale.

 

35.10

Change of currency

 

  (a)

Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:

 

  (i)

any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Agent (after consultation with the Borrowers); and

 

  (ii)

any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent (acting reasonably).

 

  (b)

If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Borrowers) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the London interbank market and otherwise to reflect the change in currency.

 

35.11

Disruption to Payment Systems etc.

If either the Agent determines (in its discretion) that a Payment Disruption Event has occurred or the Agent is notified by the Borrowers that a Payment Disruption Event has occurred:

 

  (a)

the Agent may, and shall if requested to do so by the Borrowers, consult with the Borrowers with a view to agreeing with the Borrowers such changes to the operation or administration of the Facility as the Agent may deem necessary in the circumstances;

 

  (b)

the Agent shall not be obliged to consult with the Borrowers in relation to any changes mentioned in paragraph (a) above if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes;

 

  (c)

the Agent may consult with the Finance Parties in relation to any changes mentioned in paragraph (a) above but shall not be obliged to do so if, in its opinion, it is not practicable to do so in the circumstances;

 

  (d)

any such changes agreed upon by the Agent and the Borrowers shall (whether or not it is finally determined that a Payment Disruption Event has occurred) be binding upon the Parties as an amendment to (or, as the case may be, waiver of) the terms of the Finance Documents notwithstanding the provisions of clause 41 (Amendments and grant of waivers);

 

  (e)

the Agent shall not be liable for any damages, costs or losses whatsoever (including, without limitation for negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) arising as a result of its taking, or failing to take, any actions pursuant to or in connection with this clause 35.11; and

 

  (f)

the Agent shall notify the Finance Parties of all changes agreed pursuant to paragraph (d) above.

 

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36

Set-off

A Finance Party may set off any matured obligation due from an Obligor under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to that Obligor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

 

37

Notices

 

37.1

Communications in writing

Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter.

 

37.2

Addresses

The address, and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Obligor or Finance Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:

 

  (a)

in the case of any Obligor which is a Party, that identified with its name in Part 1 of Schedule 1 (The original parties);

 

  (b)

in the case of any Obligor which is not a Party, that identified in any Finance Document to which it is a party;

 

  (c)

in the case of the Agent, the Security Agent and any other original Finance Party that identified with its name in Part 1 of Schedule 1 (The original parties); and

 

  (d)

in the case of each Lender or other Finance Party, that notified in writing to the Agent on or prior to the date on which it becomes a Party in the relevant capacity,

or, in each case, any substitute address, fax number, or department or officer as an Obligor or Finance Party may notify to the Agent (or the Agent may notify to the other Parties, if a change is made by the Agent) by not less than five Business Days’ notice.

 

37.3

Delivery

 

  (a)

Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:

 

  (i)

if by way of fax, when received in legible form; or

 

  (ii)

if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address;

and, if a particular department or officer is specified as part of its address details provided under clause 37.2 (Addresses), if addressed to that department or officer.

 

  (b)

Any communication or document to be made or delivered to the Agent or the Security Agent will be effective only when actually received by the Agent or the Security Agent and then only if it is expressly marked for the attention of the department or officer identified in Part 1 of Schedule 1 (The original parties) (or any substitute department or officer as the Agent or the Security Agent shall specify for this purpose).

 

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  (c)

All notices from or to an Obligor shall be sent through the Agent.

 

  (d)

Any communication or document made or delivered to the Borrowers in accordance with this clause will be deemed to have been made or delivered to each of the Obligors.

 

37.4

Notification of address and fax number

Promptly upon receipt of notification of an address and fax number or change of address or fax number pursuant to clause 37.2 (Addresses) or changing its own address or fax number, the Agent shall notify the other Parties.

 

37.5

Electronic communication

 

  (a)

Any communication to be made between the Agent and a Lender or an Obligor under or in connection with the Finance Documents may be made by electronic mail or other electronic means (including by way of the Agent’s Debtdomain system), if the Agent and the relevant Lender or such Obligor:

 

  (i)

agree that, unless and until notified to the contrary, this is to be an accepted form of communication;

 

  (ii)

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

 

  (iii)

notify each other of any change to their address or any other such information supplied by them.

 

  (b)

Any electronic communication made between the Agent and a Lender or an Obligor will be effective only when actually received in readable form and in the case of any electronic communication made by a Lender or an Obligor to the Agent or the Security Agent only if it is addressed in such a manner as the Agent or the Security Agent shall specify for this purpose.

 

  (c)

Any electronic communication which becomes effective, in accordance with clause 37.5(b) above, after 5:00 p.m. in the place of receipt shall be deemed only to become effective on the following day.

 

37.6

English language

 

  (a)

Any notice given under or in connection with any Finance Document shall be in English.

 

  (b)

All other documents provided under or in connection with any Finance Document shall be:

 

  (i)

in English; or

 

  (ii)

if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

 

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38

Calculations and certificates

 

38.1

Accounts

In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.

 

38.2

Certificates and determinations

Any certification or determination by the Agent of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.

 

38.3

Day count convention

Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Interbank Market differs, in accordance with that market practice.

 

39

Partial invalidity

If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

 

40

Remedies and waivers

No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under a Finance Document shall operate as a waiver of any such right or remedy or constitute an election to affirm any of the Finance Documents. No election to affirm any of the Finance Documents on the part of any Finance Party shall be effective unless it is in writing. No single or partial exercise of any right or remedy shall prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in the Finance Documents are cumulative and not exclusive of any rights or remedies provided by law.

 

41

Amendments and grant of waivers

 

41.1

Required consents

 

  (a)

Subject to clause 41.2 (Exceptions), any term of the Finance Documents may be amended or waived with the written consent of the Agent (acting on the instructions of the Majority Lenders and, if it affects the rights and obligations of the Agent or the Security Agent, the consent of the Agent or the Security Agent) and any such amendment or waiver agreed or given by the Agent will be binding on the other Finance Parties.

 

  (b)

The Agent may (or in the case of the Security Documents, instruct the Security Agent to) effect, on behalf of any Finance Party, any amendment or waiver permitted by this clause.

 

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41.2

Exceptions

 

  (a)

An amendment, waiver or discharge or release that has the effect of changing or which relates to:

 

  (i)

the definition of “Majority Lenders” in clause 1.1 (Definitions);

 

  (ii)

the definition of “Availability Period” in clause 1.1 (Definitions);

 

  (iii)

the definition of “Flag State” in clause 1.1 (Definitions);

 

  (iv)

an extension to the date of payment of any amount under the Finance Documents;

 

  (v)

a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fees or commission payable or the rate at which they are calculated;

 

  (vi)

an increase in, or an extension of, any Commitment;

 

  (vii)

a change to the Borrowers or any other Obligor;

 

  (viii)

any provision which expressly requires the consent or approval of all the Lenders;

 

  (ix)

clause 2.3 (Finance Parties’ rights and obligations), clause 30 (Changes to the Lenders), clause 34.1 (Payments to Finance Parties) or this clause 41;

 

  (x)

the order of distribution under clause 35.5 (Partial payments);

 

  (xi)

the order of distribution under clause 32.20 (Order of application);

 

  (xii)

this clause 41.2(a);

 

  (xiii)

the currency in which any amount is payable under any Finance Document;

 

  (xiv)

the nature or scope of the Charged Property or the manner in which the proceeds of enforcement of the Security Documents are distributed;

 

  (xv)

the nature or scope of the guarantee and indemnity granted under clause 17 (Guarantee and Indemnity); or

 

  (xvi)

the circumstances in which the security constituted by the Security Documents are permitted or required to be released under any of the Finance Documents,

shall not be made without the prior consent of all the Lenders.

 

  (b)

An amendment or waiver which relates to the rights or obligations of the Agent, the Security Agent or the Arrangers in their respective capacities as such (and not just as a Lender) may not be effected without the consent of the Agent, the Security Agent or the Arrangers (as the case may be).

 

  (c)

Notwithstanding clauses 41.1 and 41.2(a) to 43.2(c) (inclusive), the Agent may make technical amendments to the Finance Documents arising out of manifest errors on the face of the Finance Documents, where such amendments would not prejudice or otherwise be adverse to the interests of any Finance Party without any reference or consent of the Finance Parties.

 

118


41.3

Replacement of Screen Rate

Subject to clause 41.2 (Exceptions), if a Screen Rate Replacement Event has occurred in relation to any Screen Rate for a currency which can be selected for the Loan, any amendment or waiver which relates to:

 

  (a)

providing for the use of a Replacement Benchmark in relation to that currency in place of or in addition to that Screen Rate; and

 

  (b)

 

  (i)

aligning any provision of any Finance Document to the use of that Replacement Benchmark;

 

  (ii)

enabling that Replacement Benchmark to be used for the calculation of interest under this Agreement (including, without limitation, any consequential changes required to enable that Replacement Benchmark to be used for the purposes of this Agreement);

 

  (iii)

implementing market conventions applicable to that Replacement Benchmark;

 

  (iv)

providing for appropriate fallback (and market disruption) provisions for that Replacement Benchmark; or

 

  (v)

adjusting the pricing to reduce or eliminate, to the extent reasonably practicable, any transfer of economic value from one Party to another as a result of the application of that Replacement Benchmark (and if any adjustment or method for calculating any adjustment has been formally designated, nominated or recommended by the Relevant Nominating Body, the adjustment shall be determined on the basis of that designation, nomination or recommendation),

may be made with the consent of the Agent (acting on the instructions of the Majority Lenders and the Borrowers).

For the purposes of this clause 41.3:

Relevant Nominating Body means any applicable central bank, regulator or other supervisory authority or a group of them, or any working group or committee sponsored or chaired by, or constituted at the request of, any of them or the Financial Stability Board.

Replacement Benchmark means a benchmark rate which is:

 

  (a)

formally designated, nominated or recommended as the replacement for a Screen Rate by:

 

  (i)

the administrator of that Screen Rate; or

 

  (ii)

any Relevant Nominating Body,

and if replacements have, at the relevant time, been formally designated, nominated or recommended under both paragraphs, the “Replacement Benchmark” will be the replacement under paragraph (ii) above;

 

  (b)

in the opinion of the Majority Lenders and the Borrowers, generally accepted in the international or any relevant domestic syndicated loan markets as the appropriate successor to a Screen Rate; or

 

119


  (c)

in the opinion of the Majority Lenders and the Borrowers, an appropriate successor to a Screen Rate.

Screen Rate Replacement Event means, in relation to a Screen Rate:

 

  (a)

the methodology, formula or other means of determining that Screen Rate has, in the opinion of the Majority Lenders, and the Borrowers materially changed;

 

  (b)

 

  (i)

 

  (A)

the administrator of that Screen Rate or its supervisor publicly announces that such administrator is insolvent; or

 

  (B)

information is published in any order, decree, notice, petition or filing, however described, of or filed with a court, tribunal, exchange, regulatory authority or similar administrative, regulatory or judicial body which reasonably confirms that the administrator of that Screen Rate is insolvent,

provided that, in each case, at that time, there is no successor administrator to continue to provide that Screen Rate;

 

  (ii)

the administrator of that Screen Rate publicly announces that it has ceased or will cease, to provide that Screen Rate permanently or indefinitely and, at that time, there is no successor administrator to continue to provide that Screen Rate;

 

  (iii)

the supervisor of the administrator of that Screen Rate publicly announces that such Screen Rate has been or will be permanently or indefinitely discontinued; or

 

  (iv)

the administrator of that Screen Rate or its supervisor announces that that Screen Rate may no longer be used; or

 

  (c)

in the opinion of the Majority Lenders and the Borrowers, that Screen Rate is otherwise no longer appropriate for the purposes of calculating interest under this Agreement.

 

41.4

Releases

Except with the approval of all of the Lenders or as is expressly permitted or required by the Finance Documents, the Agent shall not have authority to authorise the Security Agent to release:

 

  (a)

any Charged Property from the security constituted by any Security Document; or

 

  (b)

any Obligor from any of its guarantee or other obligations under any Finance Document.

 

41.5

Disenfranchisement of Defaulting Lenders

 

  (a)

For so long as a Defaulting Lender has any undrawn Commitments, in ascertaining the Majority Lenders or whether any given percentage (including, for the avoidance of doubt, unanimity) of the Total Commitments has been obtained to approve any request for a consent, waiver, amendment or other vote under the Finance Documents, that Defaulting Lender’s Commitments will be reduced by the amount of its undrawn Commitments.

 

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  (b)

For the purposes of this clause 41.5, the Agent may assume that the following Lenders are Defaulting Lenders:

 

  (c)

any Lender which has notified the Agent that it has become a Defaulting Lender; and

 

  (d)

any Lender in relation to which it is aware that any of the events or circumstances referred to in paragraphs (a), (b) or (c) of the definition of Defaulting Lender has occurred,

unless it has received notice to the contrary from the Lender concerned (together with any supporting evidence reasonably requested by the Agent) or the Agent is otherwise aware that the Lender has ceased to be a Defaulting Lender.

 

41.6

Replacement of a Defaulting Lender

 

  (a)

The Borrowers may, at any time a Lender has become and continues to be a Defaulting Lender, by giving 20 Business Days’ prior written notice to the Agent and such Lender replace such Lender by requiring such Lender to (and to the extent permitted by law such Lender shall) assign pursuant to clause 30 (Changes to the Lenders) 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 Borrowers, and which is acceptable to the Agent (acting reasonably) and which confirms its willingness to assume and does assume all the obligations or all the relevant obligations of the transferring Lender (including the assumption of the transferring Lender’s participations or unfunded participations (as the case may be) 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 Loan and all accrued interest, Break Costs and other amounts payable in relation thereto under the Finance Documents.

 

  (b)

Any assignment by a Defaulting Lender pursuant to this clause shall be subject to the following conditions:

 

  (i)

the Borrowers shall have no right to replace the Agent;

 

  (ii)

neither the Agent nor the Defaulting Lender shall have any obligation to the Borrowers to find a Replacement Lender;

 

  (iii)

the transfer must take place no later than 14 days after the notice referred to in clause 41.6(a) above; and

 

  (iv)

in no event shall the Defaulting Lender be required to pay or surrender to the Replacement Lender any of the fees received by the Defaulting Lender pursuant to the Finance Documents.

 

42

Counterparts

Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.

 

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43

Confidentiality

 

43.1

Confidential Information

Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by clause 43.2 (Disclosure of Confidential Information), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.

 

43.2

Disclosure of Confidential Information

Any Finance Party may disclose:

 

  (a)

to any of its Affiliates and any of its or their officers, directors, employees, professional advisers, auditors, insurers, insurance advisors, insurance brokers, partners and Representatives such Confidential Information as that Finance Party shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this clause 43.2(a) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information;

 

  (b)

to any person:

 

  (i)

to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents or which succeeds (or which may potentially succeed) it as Agent or Security Agent, and, in each case, to any of that person’s Affiliates, Representatives and professional advisers;

 

  (ii)

with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and/or one or more Obligors and to any of that person’s Affiliates, Representatives and professional advisers;

 

  (iii)

appointed by any Finance Party or by a person to whom clause 43.2(b)(i) or 43.2(b)(ii) applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf (including, without limitation, any person appointed under clause 32.13 (Relationship with the Lenders));

 

  (iv)

who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in clause 43.2(b)(i) or 43.2(b)(ii);

 

  (v)

to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;

 

  (vi)

to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes;

 

  (vii)

to whom or for whose benefit that Finance Party charges, assigns or otherwise creates security (or may do so) pursuant to clause 30.8 (Security over Lenders’ rights);

 

  (viii)

who is a Party; or

 

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  (ix)

with the consent of the Borrowers,

in each case, such Confidential Information as that Finance Party shall consider appropriate; and

 

  (c)

to any person appointed by that Finance Party or by a person to whom clauses 43.2(b)(i) or 43.2(b)(ii) applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this clause 43.2(c) if the service provider to whom the Confidential Information is to be given has entered into a confidentiality agreement substantially in the form of the LMA Master Confidentiality Undertaking for Use With Administration/Settlement Service Providers or such other form of confidentiality undertaking agreed between the Borrowers and the relevant Finance Party;

 

43.3

Entire agreement

This clause 43 (Confidentiality) constitutes the entire agreement between the Parties in relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information.

 

43.4

Inside information

Each of the Finance Parties acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the Finance Parties undertakes not to use any Confidential Information for any unlawful purpose.

 

43.5

Notification of disclosure

Each of the Finance Parties agrees (to the extent permitted by applicable law) to inform the Borrowers:

 

  (a)

of the circumstances of any disclosure of Confidential Information made pursuant to clause 43.2 (Disclosure of Confidential Information) except where such disclosure is made to any of the persons referred to in that clause during the ordinary course of its supervisory or regulatory function; and

 

  (b)

upon becoming aware that Confidential Information has been disclosed in breach of this clause 43 (Confidentiality).

 

43.6

Continuing obligations

The obligations in this clause 43 (Confidentiality) are continuing and, in particular, shall survive and remain binding on each Finance Party for a period of twelve months from the earlier of:

 

  (a)

the date on which all amounts payable by the Obligors under or in connection with this Agreement have been paid in full and all Commitments have been cancelled or otherwise cease to be available; and

 

  (b)

the date on which such Finance Party otherwise ceases to be a Finance Party.

 

123


SECTION 12 - GOVERNING LAW AND ENFORCEMENT

 

44

Governing law

This Agreement and any non-contractual obligations connected with it are governed by English law.

 

45

Enforcement

 

45.1

Jurisdiction of English courts

 

  (a)

The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement or any non-contractual obligations connected with it (including a dispute regarding the existence, validity or termination of this Agreement) (a Dispute).

 

  (b)

The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

 

  (c)

This clause 45.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions.

 

45.2

Service of process

Without prejudice to any other mode of service allowed under any relevant law, each Obligor which is a Party:

 

  (a)

irrevocably appoints the person named in Part 1 of Schedule 1 (The original parties) as that Obligor’s English process agent as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document;

 

  (b)

agrees that failure by a process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned; and

 

  (c)

if any person appointed as process agent for an Obligor is unable for any reason to act as agent for service of process, that Obligor must immediately (and in any event within ten days of such event taking place) appoint another agent on terms acceptable to the Agent. Failing this, the Agent may appoint another agent for this purpose.

This Agreement has been entered into on the date stated at the beginning of this Agreement.

 

124


Schedule 1

The parties

Part 1 – The original parties

Borrowers

 

Name:

  

Navigator Atlas L.L.C.

Jurisdiction of formation

  

Republic of the Marshall Islands

Registration number (or equivalent, if any)

  

962342

English process agent

  

NGT Services (UK) Limited

Registered office

  

Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands

Address for service of notices

  

C/O NGT Services Limited

The Verde

10 Bressenden Place

London SW1E 5DH

Attention: Niall Nolan

Name:

  

Navigator Europa L.L.C.

Jurisdiction of formation

  

Republic of the Marshall Islands

Registration number (or equivalent, if any)

  

962341

English process agent

  

NGT Services (UK) Limited

Registered office

  

Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands

Address for service of notices

  

C/O NGT Services Limited

The Verde

10 Bressenden Place

London SW1E 5DH

Attention: Niall Nolan

 

125


Name:

  

Navigator Oberon L.L.C.

Jurisdiction of formation

  

Republic of the Marshall Islands

Registration number (or equivalent, if any)

  

962339

English process agent

  

NGT Services (UK) Limited

Registered office

  

Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands

Address for service of notices

  

C/O NGT Services Limited

The Verde

10 Bressenden Place

London SW1E 5DH

Attention: Niall Nolan

Name:

  

Navigator Triton L.L.C.

Jurisdiction of formation

  

Republic of the Marshall Islands

Registration number (or equivalent, if any)

  

962340

English process agent

  

NGT Services (UK) Limited

Registered office

  

Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands

Address for service of notices

  

C/O NGT Services Limited

The Verde

10 Bressenden Place

London SW1E 5DH

Attention: Niall Nolan

 

126


The Guarantors

 

Name of Parent and Guarantor

  

Navigator Gas L.L.C.

Jurisdiction of incorporation

  

Republic of the Marshall Islands

Registration number (or equivalent, if any)

  

961263

English process agent

  

NGT Services (UK) Limited

Registered office

  

Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands

Address for service of notices

  

C/O NGT Services Limited

10 Bressenden Place

London SW1E 5DH

England

Attention: Niall Nolan

Name of Ultimate Parent and Guarantor

  

Navigator Holdings Ltd

Jurisdiction of incorporation

  

Republic of the Marshall Islands

Registration number (or equivalent, if any)

  

29140

English process agent

  

NGT Services (UK) Limited

Registered office

  

Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands

Address for service of notices

  

C/O NGT Services Limited

10 Bressenden Place

London SW1E 5DH

England

Attention: Niall Nolan

 

127


The Original Lenders and their Commitments

 

Name

  

Address and fax number

  

Commitment ($)

Crédit Agricole Corporate and Investment Bank   

12 Place des États-Unis

CS 70052

92457 Montrouge Cedex

France

 

Attention: Clémentine Costil / Jean-Baptiste Branchu

 

Email:

clementine.costil@ca-cib.com

jeanbaptiste.branchu@ca-cib.com

daniel.quirk@ca-cib.com

luca.zabeo@ca-cib.com

justin.lande@ca-cib.com

  

$35,666,666.68

ING Bank, a branch of ING-DiBa AG   

ING BANK a branch of ING-DiBa AG

Hamburger Allee 1

60486 Frankfurt am Main

Germany

 

Credit matters:

Attn: Bart Doets

Email: Bart.Doets@ing.de

Tel No.: +49 69 272 226 2360

 

Attn : Francois Lagoutte

Email : francois.lagoutte@ing.de

Tel : +49 692722262006

 

with copy to:

Paul Thom

ING Bank N.V., London Branch

8-10 Moorgate

London EC2R 6DA

Email: Paul.Thom@ing.com

Fax No.: +44 207 7676634

 

Operational matters

Loan Administration team,

Email: SP_CB-DE-ING-LOAN-ADMINISTRATION@ing.de

Tel :+49 69 27 222 62 -312 / -313 / -361

  

$35,666,666.66

 

128


Name

  

Address and fax number

  

Commitment ($)

Skandinaviska Enskilda Banken AB (publ)   

Contact for Credit Matters (financial reports, press releases, etc.):

 

Name: Peder Garmefelt and Malcolm Stonehouse

Address: SEB, One Carter Lane, London EC4V 5AN

 

Telephone no: +44 20 7246 4062 /+44 20 7246 4310

Facsimile no: +44 20 7588 0929

E-mail: peder.garmefelt@seb.se

malcolm.stonehouse@seb.co.uk

 

With a copy to:

Name: Ina Kuliese

Address: SEB

One Carter Lane, London EC4V 5AN

Telephone no: +44 20 7246 4069

E-mail: ina.kuliese@seb.co.uk

 

Contact for Operational Matters (drawdown requests, fees, etc.):

 

Department: SEB Structured Credit Operations

Address: Stjärntorget 4, 106 40 Stockholm, Sweden

Facsimile no: +46 8 611 0384

E-mail: sco@seb.se

   $35,666,666.66
      $107,000,000

 

129


The Agent

 

Name

  

Crédit Agricole Corporate and Investment Bank

Facility Office, address, fax number and attention details for notices and account details for payments   

Address:         12 Place des États-Unis

CS 70052

92457 Montrouge Cedex

France

  

Attention:

  

Clémentine Costil / Jean-Baptiste Branchu

  

Email:

  

clementine.costil@ca-cib.com

     

jeanbaptiste.branchu@ca-cib.com

     

daniel.quirk@ca-cib.com

     

luca.zabeo@ca-cib.com

     

justin.lande@ca-cib.com

  

Account details for payments:

  
  

Pay to:

  

JP Morgan Chase Bank New York

  

Swift No:

Account:

  

CHASUS33

786419036

  

For Account of:

  

Credit Agricole CIB

  

Swift No:

  

BSUIFRPP

  

Account:

  

00.117.313.255

 

130


The Security Agent

 

Name

  

Crédit Agricole Corporate and Investment Bank

Facility Office, address, fax number and attention details for notices and account details for payments   

Address:         12 Place des États-Unis

CS 70052

92457 Montrouge Cedex

France

  

Attention:

  

Clémentine Costil / Jean-Baptiste Branchu

  

Email:

  

clementine.costil@ca-cib.com

     

jeanbaptiste.branchu@ca-cib.com

   Account details for payments:   
   Pay to:   

JP Morgan Chase Bank New York

  

Swift No:

Account:

  

CHASUS33

786419036

  

For Account of:

   Credit Agricole CIB
  

Swift No:

  

BSUIFRPP

  

Account:

  

00.117.313.255

 

131


Schedule 2

Ship information

 

Name

   Navigator Atlas

Official Number

   16396

Owner:

   Navigator Atlas L.L.C.

Flag State:

   Liberia

Classification:

   ☐☐100 A5 IW ERS BWM(D1) BWN(D2) NLS Liquefied Gas Carrier Type-2G ☐☐MC AUT RI CM-PS

Classification Society:

   DNV-GL

Major Casualty Amount

   $2,000,000

Name

   Navigator Europa

Official Number

   16397

Owner:

   Navigator Europa L.L.C.

Flag State:

   Liberia

Classification:

   ☐☐100 A5 IW ERS BWM(D1) NLS Liquefied Gas Carrier Type-2G ☐☐MC AUT RI CM-PS

Classification Society:

   DNV-GL

Major Casualty Amount

   $2,000,000

Name

   Navigator Oberon

Official Number

   16398

Owner:

   Navigator Oberon L.L.C.

Flag State:

   Liberia

Classification:

   ☐☐100 A5 IW ERS BWM(D1) NLS Liquefied Gas Carrier Type-2G ☐☐MC AUT RI CM-PS

Classification Society:

   DNV-GL

Major Casualty Amount

   $2,000,000

 

132


Name

   Navigator Triton

Official Number

   16399

Owner:

   Navigator Triton L.L.C.

Flag State:

   Liberia

Classification:

   ☐☐100 A5 IW ERS BWM(D1)BWM(D2) NLS Liquefied Gas Carrier Type-2G ☐☐MC AUT RI CM-PS

Classification Society:

   DNV-GL

Major Casualty Amount

   $2,000,000

 

133


Schedule 3

Conditions precedent

Part 1

Conditions precedent to the Utilisation Request

 

1

Obligors’ corporate documents

 

  (a)

A copy of the Constitutional Documents of each Obligor.

 

  (b)

A copy of a resolution of the sole member of each Obligor (or in the case of the Ultimate Parent, the board of directors or any committee of such board empowered to approve and authorise the following matters):

 

  (i)

approving the terms of, and the transactions contemplated by, the Finance Documents or any Charter (Relevant Documents) to which it is a party and resolving that it execute the Relevant Documents;

 

  (ii)

authorising a specified person or persons to execute the Relevant Documents on its behalf; and

 

  (iii)

authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Relevant Documents to which it is a party.

 

  (c)

If applicable, a copy of a resolution of the board of directors of the relevant company, establishing any committee referred to in paragraph (b) above and conferring authority on that committee.

 

  (d)

If required, a copy of the passport of each person authorised by the resolution referred to in paragraph (b) above.

 

  (e)

A certificate of the Ultimate Parent (signed by a director) confirming that borrowing or guaranteeing or securing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on any Obligor to be exceeded.

 

  (f)

A copy of any power of attorney under which any person is to execute any of the Relevant Documents on behalf of any Obligor.

 

  (g)

A certificate of an authorised signatory of the Ultimate Parent certifying that each copy document relating to it specified in this Part of this Schedule is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement and that any such resolutions or power of attorney have not been revoked.

 

  (h)

For each Obligor, a certificate of goodstanding from the registrar of corporations in the jurisdiction of its incorporation or organisation.

 

2

Legal opinions

 

  (a)

A legal opinion of Norton Rose Fulbright LLP, London addressed to the Agent on matters of English law, substantially in the form approved by the Agent (acting on the instructions of the Lenders) prior to signing this Agreement.

 

  (b)

A legal opinion of the legal advisers to the Agent in each jurisdiction in which an Obligor is incorporated or, as the case may be, formed and/or which is or is to be the Flag State of a Mortgaged Ship, each substantially in the form approved by the Agent (acting on the instructions of the Lenders).

 

134


3

Other documents and evidence

 

  (a)

Evidence that any process agent referred to in clause 45.2 (Service of process) or any equivalent provision of any other Finance Document entered into on or before the first Utilisation Date has accepted its appointment.

 

  (b)

A copy of any other authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrowers accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.

 

  (c)

The Original Financial Statements.

 

  (d)

Evidence that the fees, commissions, costs and expenses then due to any Finance Party from the Borrowers pursuant to clause 11 (Fees) and clause 16 (Costs and expenses) have been paid or will be paid by the first Utilisation Date.

 

4

Earnings Account

Evidence that the Earnings Account has been opened and established, that the Account Security in respect of the Earnings Account has been executed and delivered by the Account Holder in favour of the Security Agent and that any notice required to be given to an Account Bank under that Account Security has been given to it and acknowledged by it in the manner required by that Account Security and that an amount has been credited to it.

 

5

“Know your customer” information

Such documentation and information as any Finance Party may reasonably request through the Agent to comply with “know your customer” or similar identification procedures under all laws and regulations applicable to that Finance Party.

 

6

Structure of the Borrowers and Owners

Evidence in form and substance satisfactory to the Agent of the Borrower’s and the Owners’ ownership and financial structure.

 

7

Material Adverse Effect

Confirmation in a form and substance satisfactory to the Agent that:

 

  (a)

since 31 December 2018 nothing has occurred in relation to any Obligor which had, or could reasonably be expected to have, a Material Adverse Effect; and

 

  (b)

there is no litigation pending or threatened against any Obligor which has, or could reasonably be expected to have, a Material Adverse Effect.

 

8

No Conflict

Confirmation, in a form and substance satisfactory to the Agent that this Agreement and the transactions contemplated in connection with it do not and will not cause any conflict with, or any default under, any material agreement to which the Obligors are party to.

 

135


9

Consents and Approvals

 

  (a)

A certificate from an officer of the Borrowers that no consents, authorisations, licences or approvals are necessary for the Borrowers to authorise or are required by the Borrowers in connection with the borrowing by the Borrowers of the Loan pursuant to this Agreement or the execution, delivery and performance of the Borrowers’ Security Documents; and

 

  (b)

a certificate from an officer of each Obligor (other than the Borrowers) that no consents, authorisations, licences or approvals are necessary for such Obligor to guarantee and/or grant security for the borrowing by the Borrowers of the Commitment pursuant to this Agreement and execute, deliver and perform the Security Documents insofar as such Obligor is a party thereto.

 

136


Part 2

Ship and security conditions precedent

 

1

Corporate documents

 

  (a)

A certificate of an authorised signatory of the relevant Owner certifying that each copy document relating to it specified in Part 1 of this Schedule remains correct, complete and in full force and effect as at a date no earlier than a date approved for this purpose and that any resolutions or power of attorney referred to in Part 1 of this Schedule in relation to it have not been revoked or amended.

 

  (b)

A certificate of an authorised signatory of each other Obligor which is party to any of the Security Documents required to be executed at or before the Utilisation certifying that each copy document relating to it specified in Part 1 of this Schedule remains correct, complete and in full force and effect as at a date no earlier than a date approved for this purpose and that any resolutions or power of attorney referred to in Part 1 of this Schedule in relation to it have not been revoked or amended.

 

  (c)

For the Borrowers, a certificate of goodstanding from:

 

  (i)

the registrar of corporations in the jurisdiction of its incorporation or organisation; and

 

  (ii)

the Ministry of Foreign Affairs in the Republic of Liberia certifying the Borrower as a Liberian Foreign Maritime Entity or such equivalent certification (to extent available) from the appropriate government entity of the Flag State of the relevant Ship.

 

2

Existing Loan Agreement

Evidence that at the time of the Utilisation, the existing indebtedness incurred pursuant to the Existing Loan Agreement by the Borrowers in respect of the purchase of the Ships will be repaid in full and the security granted in respect of the Ships will be discharged, release and/or reassigned (as applicable).

 

3

Delivery and registration of Ship

 

  (a)

Evidence that each Ship:

 

  (i)

is legally and beneficially owned by the relevant Owner and permanently registered in the name of the relevant Owner through the relevant Registry as a ship under the laws and flag of the relevant Flag State;

 

  (ii)

is operationally seaworthy and in every way fit for service;

 

  (iii)

is classed with the relevant Classification free of all requirements and recommendations of the relevant Classification Society;

 

  (iv)

is insured in the manner required by the Finance Documents;

 

  (v)

has been delivered, and accepted for service, under its Charter (if any);

 

  (vi)

is free of any other charter commitment which would require approval under the Finance Documents; and

 

  (vii)

is free from registered liens and encumbrances other than the relevant Mortgage.

 

137


4

Mortgage registration

Evidence that the Mortgage in respect of the relevant Ship has been provisionally registered with first preferred status against the relevant Ship through the relevant Registry under the laws and flag of the relevant Flag State.

 

5

Insurance

In relation to the relevant Ship’s Insurances:

 

  (a)

an opinion from insurance consultants appointed by the Agent on such Insurances in a form and substance satisfactory to the Agent;

 

  (b)

evidence that such Insurances have been placed in accordance with clause 24 (Insurance); and

 

  (c)

evidence that approved brokers, insurers and/or associations have issued or will issue letters of undertaking in favour of the Security Agent in an approved form in relation to the Insurances.

 

6

ISM and ISPS Code

Copies of:

 

  (a)

the document of compliance issued in accordance with the ISM Code to the person who is the operator of the relevant Ship for the purposes of that code;

 

  (b)

the safety management certificate in respect of such Ship issued in accordance with the ISM Code;

 

  (c)

the international ship security certificate in respect of such Ship issued under the ISPS Code; and

 

  (d)

if so requested by the Agent, any other certificates issued under any applicable code required to be observed by such Ship or in relation to its operation under any applicable law.

 

7

Charter

 

  (a)

A copy, certified by an approved person to be a true and complete copy, of any Charter in relation to the relevant Ship.

 

  (b)

If a Charter Assignment is then required in relation to the relevant Ship pursuant to the Finance Documents the Borrowers shall procure (using reasonable commercial efforts) such evidence as the Agent may require as to the due incorporation of the relevant Charterer and any other party to the Charter Documents (other than an Obligor).

 

8

Fees and expenses

Evidence that the fees, commissions, costs and expenses that are due from the Borrowers pursuant to clause 11 (Fees) and clause 16 (Costs and expenses) have been paid or will be paid by the relevant Utilisation Date.

 

9

Environmental matters

Evidence of each Ship’s certificate of financial responsibility and vessel response plan required under United States law and evidence of their approval by the appropriate United States government entity and (if requested by the Agent) an environmental report in respect of the relevant Ship from an approved person.

 

138


10

Management Agreement

Where any Managers (other than any internal Manager) have been approved in accordance with clause 22.4 (Manager), a copy, certified by an approved person to be a true and complete copy, of the agreement between the relevant Owner and the relevant Manager relating to the appointment of the Manager.

 

11

Value of Security

Valuations (dated not more than 20 days before the Utilisation Date) of all the Ships, prepared by two (2) Approved Valuers, made on the basis of, and in accordance with clause 25 (Minimum security value), in each case made at the cost and expense of the Borrowers showing the Borrowers are in compliance with clauses 5.3(b) and 25.12.

 

12

Security

 

  (a)

The Share Security in respect of each of the Borrowers duly executed by the Parent together with all letters, transfers, certificates and other documents required to be delivered under the Share Security.

 

  (b)

The Subordination Agreement duly executed by the relevant Group Members.

 

  (c)

The Mortgage and the General Assignment in respect of each Ship.

 

  (d)

Any Charter Assignment then required in respect of the relevant Ship pursuant to the Finance Documents duly executed by the relevant Owner.

 

  (e)

Manager’s Undertakings in respect of each Ship duly executed by the relevant manager.

 

  (f)

Duly executed notices of assignment and acknowledgements of those notices as required by any of the above Security Documents.

 

13

Legal Opinions

 

  (a)

To the extent not previously provided pursuant to Schedule 3, Part 1, a legal opinion of Norton Rose Fulbright LLP, London addressed to the Agent on matters of English law, substantially in the form approved by the Agent (acting on the instructions of the Lenders) prior to signing this Agreement.

 

  (b)

To the extent not previously provided pursuant to Schedule 3, Part 1, a legal opinion of the legal advisers to the Agent in each jurisdiction in which an Obligor is incorporated or formed and/or which is or is to be the Flag State of a Mortgaged Ship, each substantially in the form approved by the Agent (acting on the instructions of the Lenders).

 

139


Schedule 4

Utilisation Request

 

From:    [Borrowers]
To:    [name of Agent] as Agent (for and on behalf of the Finance Parties)
Dated:    [●]
Dear Sirs   

$107,000,000

Facility Agreement dated [] 2019 (the Agreement)

 

1

We refer to the Agreement. This is the Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.

 

2

We wish to borrow the Loan on the following terms:

 

  Proposed Utilisation Date:    [●] (or, if that is not a Business Day, the next Business Day)
  Amount:    $ [●]

 

3

We confirm that each condition specified in clause 4.4 (Further conditions precedent) is satisfied on the date of this Utilisation Request.

 

4

The purpose of this Loan is to refinance part of the Existing Loan Agreement and for general corporate and working capital purposes and should be credited to [●] [specify account].

 

5

This Utilisation Request is irrevocable.

 

6

All of the representations and warranties set out in clause 18 (Representations) are correct at the date of this Utilisation Request.

 

Yours faithfully

 

authorised signatory for
[BORROWERS]

 

140


Schedule 5

Form of Transfer Certificate

 

To:

[●] as Agent (for and on behalf of the Finance Parties)

 

From:

[single Existing Lender: [The Existing Lender] (the Existing Lender)] [multiple Existing Lenders: [Existing Lender] [and/,] [Existing Lender] [and [Existing Lender]] (together, the Existing Lenders)] and [The New Lender] (the New Lender)

Dated:

$107,000,000 Facility Agreement dated [] (the Agreement)

 

1

We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.

 

2

We refer to clause 30.6 (Procedure for transfer):

 

  (a)

[multiple Existing Lenders: Each of the] [single Existing Lender: The] Existing Lender[multiple Existing Lenders: s] and the New Lender agree to the Existing Lender[multiple Existing Lenders: s] assigning to the New Lender all or part of the Existing [single Existing Lender: Lender’s] [multiple Existing Lenders: Lenders’ respective] Commitment rights and assuming the Existing [single Existing Lender: Lender’s] [multiple Existing Lenders: Lenders’ respective] obligations referred to in the Schedule in accordance with clause 30.6 (Procedure for transfer) and [multiple Existing Lenders: each of the] [single Existing Lender: the] Existing Lender[multiple Existing Lenders: s] assigns and agrees to assign such rights to the New Lender with effect from the Transfer Date.

 

  (b)

The proposed Transfer Date is [·].

 

  (c)

The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of clause 37.2 (Addresses) are set out in the Schedule.

 

3

The New Lender expressly acknowledges the limitations on [multiple Existing Lenders: each of] the Existing [single Existing Lender: Lender’s] [multiple Existing Lenders: Lenders’ respective] obligations set out in clause 30.5(c).

 

4

This Transfer Certificate may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate.

 

5

This Transfer Certificate and any non-contractual obligations connected with it are governed by English law.

 

141


The Schedule

Commitment/rights to be assigned and obligations to be assumed

[insert relevant details for each Existing Lender, in particular (having regard to clause 30.2(c))]

Facility Office address, fax number

and attention details for notices and account details for payments

[insert relevant details]

 

[Existing Lender]    [[Existing Lender]    [[Existing Lender]    [New Lender]
By:    By:]    By:]    By:

This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed to be as stated above.

[Agent]

By:

 

142


Schedule 6

Form of Compliance Certificate

 

To:    [●] as Agent (for and on behalf of the Finance Parties)
From:    Navigator Holdings Ltd
Dated:    [●]

Dear Sirs

$107,000,000

Facility Agreement dated [] (the Agreement)

 

1

[I/We] refer to the Agreement. This is a Compliance Certificate. Terms defined in the Agreement have the same meaning when used in this Compliance Certificate unless given a different meaning in this Compliance Certificate.

 

2

[I/We] confirm that with respect to the latest financial quarter of the Group ending on [●]:

 

  (a)

Cash and cash equivalents was at all times equal to or greater than (i) $35,000,000 and (ii) 5% of the Total Indebtedness; and

 

  (b)

the ratio of Total Stockholders’ Equity to Total Assets was not less than 30%.

 

3

[I/We] confirm that Security Value is $[], calculated pursuant to valuations dated [●] and such date is not older than 30 days from the date of this Compliance Certificate].

 

4

[I/We confirm that no Default is continuing.] [If this statement cannot be made, the certificate should identify any Default that is continuing and the steps, if any, being taken to remedy it.]

 

5

All the representations and warranties set out in clause 18 (Representations) are correct at the date of this Certificate.

Signed by:

 

 

[Chief Financial Officer] of Navigator Holdings Ltd

 

143


Schedule 7

Form of Increase Confirmation

 

To:    [name of Agent] as Agent (for and on behalf of the Finance Parties)
         and
         Navigator Gas L.L.C.
From:    [the Increase Lender] (the Increase Lender)
Dated:    [●]

$107,000,000

Facility Agreement dated [] (the Agreement)

 

1

We refer to the Agreement. This is an Increase Confirmation. Terms defined in the Agreement have the same meaning in this Increase Confirmation unless given a different meaning in this Increase Confirmation.

 

2

We refer to clause 2.2 (Increase).

 

3

The Increase Lender agrees to assume and will assume all of the obligations corresponding to the Commitment specified in the Schedule (the Relevant Commitment) as if it was an Original Lender under the Agreement.

 

4

The proposed date on which the increase in relation to the Increase Lender and the Relevant Commitment is to take effect (the Increase Date) is [●].

 

5

On the Increase Date, the Increase Lender becomes party to the Finance Documents as a Lender.

 

6

The Facility Office and address, fax number and attention details for notices to the Increase Lender for the purposes of clause 37.2 (Addresses) are set out in the Schedule.

 

7

The Increase Lender expressly acknowledges the limitations on the Lenders’ obligations referred to in clause 2.2(g).

 

8

This Increase Confirmation may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Increase Confirmation.

 

9

This Increase Confirmation and any non-contractual obligations arising out of or in connection with it are governed by English law.

This Agreement has been entered into on the date stated at the beginning of this Agreement.

 

144


The Schedule

Relevant Commitment/rights and obligations to be assumed by the Increase Lender

[insert relevant details]

[Facility office address, fax number and attention details for notices and account details for payments]

[Increase Lender]

By:

This Increase Confirmation is accepted as an Increase Confirmation for the purposes of the Agreement by the Agent and the Increase Date is confirmed as [●].

Agent (on behalf of itself and the other Finance Parties)

By:

Navigator Gas L.L.C.

By:

Navigator Holdings Ltd

By:

 

145


SIGNATURES

 

THE BORROWERS     

SIGNED by

   )   EMILY WOOD

for and on behalf of

   )   ATTORNEY-IN-FACT
NAVIGATOR ATLAS L.L.C.    )  

pursuant to a power of attorney

   )  

dated 21/03/19

   )  
     /s/ Emily Wood
        

 

Authorised signatory

SIGNED by

   )   EMILY WOOD

for and on behalf of

   )   ATTORNEY-IN-FACT
NAVIGATOR EUROPA L.L.C.    )  

pursuant to a power of attorney

   )  

dated 21/03/19

   )  
     /s/ Emily Wood
        

 

Authorised signatory

SIGNED by

   )   EMILY WOOD

for and on behalf of

   )   ATTORNEY-IN-FACT
NAVIGATOR OBERON L.L.C.    )  

pursuant to a power of attorney

   )  

dated 21/03/19

   )  
     /s/ Emily Wood
        

 

Authorised signatory

SIGNED by

   )   EMILY WOOD

for and on behalf of

   )   ATTORNEY-IN-FACT
NAVIGATOR TRITON L.L.C.    )  

pursuant to a power of attorney

   )  

dated 21/03/19

   )  
     /s/ Emily Wood
        

 

Authorised signatory

 

146


THE GUARANTORS

 

SIGNED by

   )   EMILY WOOD

for and on behalf of

   )   ATTORNEY-IN-FACT
NAVIGATOR GAS L.L.C.    )  

pursuant to a power of attorney

   )  

dated 21/03/19

   )  
     /s/ Emily Wood
    

 

Authorised signatory

    

SIGNED by

   )   EMILY WOOD

for and on behalf of

   )   ATTORNEY-IN-FACT
NAVIGATOR HOLDINGS LTD    )  

pursuant to a power of attorney

   )  

dated 21/03/19

   )  
     /s/ Emily Wood
    

 

Authorised signatory

 

147


THE MANDATED LEAD ARRANGERS       

SIGNED by

   )   MATTHEW BAMBURY

for and on behalf of

   )   ATTORNEY-IN-FACT
CRÉDIT AGRICOLE CORPORATE AND    )  
INVESTMENT BANK    )  
    

/s/ Matthew Bambury

     Authorised signatory  
      

SIGNED by

   )   HUGO KANTERS   GERLACH JACOBS

for and on behalf of

   )   MANAGING DIRECTOR   MANAGING DIRECTOR
ING BANK, A BRANCH OF ING-DIBA AG    )    
    

/s/ Hugo Kanters

 

/s/ Gerlach Jacobs

     Authorised signatory  
      

SIGNED by

   )   MATTHEW BAMBURY

for and on behalf of

   )   ATTORNEY-IN-FACT
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)    )  
    

/s/ Matthew Bambury

     Authorised signatory  
      
THE LENDERS       

SIGNED by

   )   MATTHEW BAMBURY

for and on behalf of

   )   ATTORNEY-IN-FACT
CRÉDIT AGRICOLE CORPORATE AND    )  
INVESTMENT BANK    )  
    

/s/ Matthew Bambury

     Authorised signatory  
      

SIGNED by

   )   HUGO KANTERS   GERLACH JACOBS

for and on behalf of

   )   MANAGING DIRECTOR   MANAGING DIRECTOR
ING BANK, A BRANCH OF ING-DIBA AG    )    
    

/s/ Hugo Kanters

 

/s/ Gerlach Jacobs

     Authorised signatory  
      

SIGNED by

   )   MATTHEW BAMBURY

for and on behalf of

   )   ATTORNEY-IN-FACT
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)    )  
    

/s/ Matthew Bambury

     Authorised signatory  

 

148


THE AGENT     

SIGNED by

   )   MATTHEW BAMBURY

for and on behalf of

   )   ATTORNEY-IN-FACT
CRÉDIT AGRICOLE CORPORATE AND    )  
INVESTMENT BANK    )  
    

/s/ Matthew Bambury

     Authorised signatory
    
THE SECURITY AGENT     

SIGNED by

   )   MATTHEW BAMBURY

for and on behalf of

   )   ATTORNEY-IN-FACT
CRÉDIT AGRICOLE CORPORATE AND    )  
INVESTMENT BANK    )  
    

/s/ Matthew Bambury

     Authorised signatory

 

149

EX-4.15

Exhibit 4.15

 

 

 

CREDIT AGREEMENT

Dated as of March 29, 2019

among

Navigator Ethylene Terminals LLC,

as Borrower

ING CAPITAL LLC,

as Administrative Agent

and

The Lenders Party Hereto

 

 

ING CAPITAL LLC

and

SG AMERICAS SECURITIES, LLC,

as Joint Lead Arrangers and Joint Bookrunners

 

 

 


TABLE OF CONTENTS

 

Page

 

ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS

     1  

1.01

  Defined Terms      1  

1.02

  Other Interpretive Provisions      36  

1.03

  Accounting Terms      37  

1.04

  Rounding      37  

1.05

  Times of Day; Rates      37  

ARTICLE II. THE COMMITMENTS AND BORROWINGS

     38  

2.01

  The Loans      38  

2.02

  DSR Letters of Credit      38  

2.03

  Borrowings, Conversions and Continuations of Loans      43  

2.04

  Termination or Reduction of Commitments      44  

2.05

  Prepayments      45  

2.06

  Terms of Prepayments      48  

2.07

  Termination of Commitments      48  

2.08

  Repayment of Loans      49  

2.09

  Interest      49  

2.10

  Fees      49  

2.11

  Computation of Interest and Fees      50  

2.12

  Evidence of Indebtedness      50  

2.13

  Payments Generally; Administrative Agent’s Clawback      51  

2.14

  Sharing of Payments by Lenders      52  

2.15

  Defaulting Lenders      53  

2.16

  Conversion      54  

ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY

     56  

3.01

  Taxes      56  

3.02

  Illegality      61  

3.03

  Inability to Determine Rates      61  

3.04

  Increased Costs; Reserves on LIBO Rate Loans      62  

3.05

  Compensation for Losses      63  

3.06

  Mitigation Obligations; Replacement of Lenders      64  

3.07

  Survival      64  

3.08

  Effect of Benchmark Discontinuance Event      65  

ARTICLE IV. CONDITIONS PRECEDENT

     66  

4.01

  Conditions Precedent to the Closing Date      65  

4.02

  Conditions to Borrowings of Term Loans after the Closing Date      71  

4.03

  Conditions to Commitment Availability Increases      74  

4.04

  Conditions to Issuance of each DSR Letter of Credit      75  


ARTICLE V. REPRESENTATIONS AND WARRANTIES

     75  

5.01

  Existence, Qualification and Power.      75  

5.02

  Authorization; No Contravention      75  

5.03

  Governmental Authorization; Other Consents      76  

5.04

  Binding Effect      77  

5.05

  Financial Statements; No Material Adverse Effect      77  

5.06

  Litigation      78  

5.07

  Indebtedness      78  

5.08

  Nature of Borrower; Ownership of Property; Liens; Investments      78  

5.09

  Environmental Compliance      79  

5.10

  Taxes      79  

5.11

  Margin Regulations; Investment Company Act      80  

5.12

  Disclosure      80  

5.13

  Compliance with Laws      81  

5.14

  Solvency      81  

5.15

  OFAC; FCPA; USA Patriot Act      81  

5.16

  Intellectual Property.      82  

5.17

  Material Project Documents.      82  

5.18

  Required Insurance.      83  

5.19

  Condemnation.      83  

5.20

  Conversion Date.      83  

5.21

  Project Accounts.      83  

5.22

  Ownership.      84  

5.23

  ERISA.      84  

5.24

  No Force Majeure      84  

5.25

  Pari Passu      84  

5.26

  Labor Matters      84  

5.27

  Operating Arrangements      84  

ARTICLE VI. AFFIRMATIVE COVENANTS

     85  

6.01

  Financial Statements      85  

6.02

  Certificates; Other Information      85  

6.03

  Notices      88  

6.04

  Payment of Obligations      89  

6.05

  Preservation of Existence, Etc.      89  

6.06

  Material Project Documents.      89  

6.07

  Compliance with Laws      90  

6.08

  Project Construction; Maintenance of Property.      90  

6.09

  Insurance.      90  

6.10

  Maintenance of Governmental Authorizations.      91  

6.11

  Operation of the Project.      91  

6.12

  Books and Records      91  

6.13

  Inspection Rights      92  

6.14

  Use of Proceeds      92  

6.15

  Collateral Matters      93  

 

ii


6.16

  Project Company LLC Agreement and Fundamental Matter Approval.    93

6.17

  Lenders’ Reliability Test.    93

6.18

  Further Assurances.    94

6.19

  Information Regarding Collateral    94

6.20

  Anti-Corruption Laws    94

6.21

  Distribution of Available Cash.    94

6.22

  Secured Hedge Agreements.    94

6.23

  Separateness.    95

6.24

  Delivery of Additional Project Documents.    95

6.25

  Pre-Existing Bank Account    95

6.26

  Payment of Fees    95

6.27

  Project Accounts.    96

ARTICLE VII. NEGATIVE COVENANTS

   96

7.01

  Liens    96

7.02

  Indebtedness    96

7.03

  Investments.    97

7.04

  Fundamental Changes    97

7.05

  Dispositions    98

7.06

  Restricted Payments    98

7.07

  Conduct of Business    100

7.08

  Transactions with Affiliates    100

7.09

  Burdensome Agreements    100

7.10

  Financial Covenant    100

7.11

  Amendments of Organization Documents    100

7.12

  Change in Fiscal Year    100

7.13

  Amendment, Etc. of Material Project Documents, and Indebtedness    100

7.14

  ERISA    101

7.15

  Swaps.    101

7.16

  Sale and Leasebacks.    101

7.17

  Other Accounts.    101

7.18

  Tax Status.    101

7.19

  Applicable Governmental Authorizations.    102

7.20

  Acceptance.    102

7.21

  Sanctions; Anti-Corruption Use of Proceeds.    102

ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES

   103

8.01

  Events of Default    103

8.02

  Remedies upon Event of Default    106

8.03

  Application of Funds    106

8.04

  Equity Cure Right    107

ARTICLE IX. ADMINISTRATIVE AGENT

   108

9.01

  Appointment and Authority    108

 

iii


9.02

  Rights as a Lender      108  

9.03

  Exculpatory Provisions      108  

9.04

  Reliance by Administrative Agent      110  

9.05

  Delegation of Duties      110  

9.06

  Resignation of the Administrative Agent      110  

9.07

  Non-Reliance on Administrative Agent and Other Lenders      111  

9.08

  No Other Duties, Etc.      111  

9.09

  Administrative Agent May File Proofs of Claim; Credit Bidding      112  

ARTICLE X. MISCELLANEOUS

     112  

10.01

  Amendments, Etc.      112  

10.02

  Notices; Effectiveness; Electronic Communications      114  

10.03

  No Waiver; Cumulative Remedies; Enforcement      116  

10.04

  Expenses; Indemnity; Damage Waiver      117  

10.05

  Payments Set Aside      119  

10.06

  Successors and Assigns      119  

10.07

  Treatment of Certain Information; Confidentiality      123  

10.08

  Right of Setoff      124  

10.09

  Interest Rate Limitation      124  

10.10

  Counterparts; Integration; Effectiveness      125  

10.11

  Severability      125  

10.12

  Replacement of Lenders      125  

10.13

  Governing Law; Jurisdiction; Etc.      126  

10.14

  WAIVER OF JURY TRIAL      127  

10.15

  No Advisory or Fiduciary Responsibility      127  

10.16

  Electronic Execution of Assignments and Certain Other Documents      128  

10.17

  USA PATRIOT Act      128  

10.18

  Acknowledgment and Consent to Bail-In of EEA Financial Institution      129  

10.19

  Non-Recourse      129  

 

iv


SCHEDULES
1.01(A)    Target Debt Balance
1.01(B)    Lenders’ Reliability Test
1.01(C)    Amortization Schedule
2.01    Commitments
5.03    Applicable Governmental Authorizations
6.09    Required Insurance
10.02    Administrative Agent’s Office, Certain Addresses for Notices

 

EXHIBITS
Form of
A-1    Committed Loan Notice
A-2    Notice of Conversion/Continuation
A-3    Notice of Issuance
B    Note
C    Compliance Certificate
D    Assignment and Assumption
E    Borrower’s Construction Drawdown Certificate
F    Lenders’ Technical and Environmental Consultant’s Certificate
G    Forms of United States Tax Compliance Certificates
H    Solvency Certificate
I-1    Lenders’ Technical and Environmental Consultant’s Conversion Certificate
I-2    Borrower’s Conversion Certificate
J    Knowledge Parties
K    Form of DSR Letter of Credit
L    Subordination Terms

 

v


CREDIT AGREEMENT

This CREDIT AGREEMENT (“Agreement”) is entered into as of March 29, 2019, among NAVIGATOR ETHYLENE TERMINALS LLC, a Delaware limited liability company (the “Borrower”), each lender from time to time party hereto, each Issuing Lender from time to time party hereto, and ING CAPITAL LLC, as Administrative Agent.

PRELIMINARY STATEMENTS:

WHEREAS, the Borrower has entered into a joint venture with Enterprise Products Operating LLC (“Enterprise”) pursuant to the Amended and Restated Limited Liability Company Agreement of Enterprise Navigator Ethylene Terminal LLC (“Project Company”) to develop, construct and operate a new one million tons per annum ethylene export facility located in Morgan’s Point, Harris County, Texas (the “Project”).

WHEREAS, the Borrower will use the proceeds of the Term Loans to (i) make a capital contribution from the Borrower to the Project Company to be used solely for payment of Project Costs, (ii) pay Debt Service during construction, (iii) pay financing costs associated with the Transaction, and (iv) fund the Debt Service Reserve Account in an amount up to the Debt Service Reserve Required Amount.

WHEREAS, the Borrower will use the Issuing Commitments for issuances of DSR Letters of Credit.

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:

Acceptable Bank” means (a) a bank or other financial institution whose long-term unsecured and unguaranteed debt meets two or more of the following ratings: (i) at least A- (or the equivalent) by S&P, (ii) at least A3 (or the equivalent) by Moody’s or (iii) at least A- (or the equivalent) by Fitch and (b) with respect to the Issuance of a DSR Letter of Credit, ING Capital LLC.

Additional Offtake Agreement” means any Terminal Services Agreement for Export of Ethylene entered into by the Project Company following the Closing Date.

Additional Project Document” means each contract, instrument or agreement related to the construction, testing, maintenance, repair, operation or use of, or sales of product from, the Project entered into by the Project Company and any other Person subsequent to the Closing Date, which, in each case, involves revenues or expenses to the Project Company in excess of $1,000,000 per annum or $3,000,000 in the aggregate; provided that all related contracts, agreements, letters of intent, instruments and understandings entered into substantially concurrently with the same counterparty shall be considered one contract for purposes of this definition; provided, further, that


no contract, instrument or agreement shall constitute an Additional Project Document if it is: (a) entered into by the Project Company to provide for a committed term of one year or less, so long as such contract, instrument or agreement does not result in any violation of any material term or provision of the Commitment Offtake Agreements or the Terminal Service Agreement, (b)(I) entered into by the Project Company (A) in the ordinary course of business in connection with the furnishing of goods or the performance of services or (B) in the course of performing its obligations under any contract, instrument or agreement or undertaking of the sort described in clause (a) and (II) can be readily replaced by other contracts, instruments or agreements having substantially similar terms and conditions, (c) a Permitted Swap Contract or (d) entered into in connection with (I) the incurrence of permitted Indebtedness in accordance with Section 7.02 or (II) Disposition permitted hereunder, except that any such contract, instrument or agreement that would otherwise not constitute an Additional Project Document by reason of clauses (a) or (b) of the foregoing proviso shall be an Additional Project Document if the transaction or series of related transactions contemplated thereby commits the Project Company to spend more than $1,000,000 per annum.

Administrative Agent” means ING Capital LLC in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.

Administrative Questionnaire” means an Administrative Questionnaire in substantially the form approved by the Administrative Agent.

Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

Agent Parties” has the meaning specified in Section 10.02(c).

Aggregate Commitment” means $82,500,000.

Aggregate Term Loan Commitment” means $75,000,000.

Agreement” means this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 10.01.

Applicable Governmental Authorization” means, at any time, those Governmental Authorizations that are material and necessary at such time to the development, construction or operation of the Project to construct, test, operate, maintain, repair, own or use the Project as contemplated by the Transaction Documents and the Material Project Documents, to enter into any Transaction Document or any Material Project Document or to consummate any transaction contemplated thereby.

 

2


Applicable Percentage” means, as to any Lender at any time, (a) with respect to the Term Loan Commitment, the percentage that such Lender’s Term Loan Commitment then constitutes of the Aggregate Term Loan Commitment, (b) with respect to the Letter of Credit Loan Commitment, the percentage that such Lender’s Letter of Credit Loan Commitment then constitutes of the aggregate Letter of Credit Loan Commitment and (c) with respect to the Commitments collectively, the percentage that such Lender’s Term Loan Commitment and Letter of Credit Loan Commitment then constitutes of the Aggregate Commitment. The initial Applicable Percentage of each Lender in respect of the Term Loan Commitment and the Aggregate Commitment is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

Applicable Rate” means, in respect of the Loans, (a) during the period commencing on the Closing Date and ending on the day immediately prior to the Conversion Date, a percentage equal to 1.50% per annum for Base Rate Loans and 2.50% per annum for LIBO Rate Loans, (b) during the period commencing on the Conversion Date and ending on the third anniversary of the Conversion Date, a percentage equal to 1.75% per annum for Base Rate Loans and 2.75% per annum for LIBO Rate Loans, and (c) during the period commencing on the day immediately following the third anniversary of the Closing Date and ending on the Maturity Date, a percentage equal to 2.00% per annum for Base Rate Loans and 3.00% per annum for LIBO Rate Loans.

Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

Arrangers” means, collectively, ING Capital LLC and SG Americas Securities, LLC, in their capacities as joint lead arrangers and joint bookrunners.

Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit D or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent.

Availability Period” means the Term Loan Availability Period or the Letter of Credit Availability Period (as the context requires).

Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

Bankruptcy Code” means Title 11 of the United States Code.

Bankruptcy Event” has the meaning specified in Section 8.01(f).

Base Rate” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1% (b) the rate of interest quoted in the print edition of The Wall Street Journal, Money Rates Section as the “prime rate” (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks), as in effect from time to time and as determined by the Administrative Agent, and (c) the LIBO Rate plus 1.00%.

 

3


Base Rate Loan” means a Loan that bears interest based on the Base Rate.

Benchmark Discontinuance Event” means the occurrence of one or more of the following events with respect to the LIBO Rate:

(a) a public statement or publication of information by or on behalf of the administrator of the LIBO Rate announcing that such administrator has ceased or will cease to provide the LIBO Rate, permanently or indefinitely, provided that, at the time of the statement or publication, there is no successor administrator that will continue to provide the LIBO Rate;

(b) a public statement or publication of information by the regulatory supervisor for the administrator of the LIBO Rate, the U.S. Federal Reserve System, an insolvency official with jurisdiction over the administrator for the LIBO Rate, a resolution authority with jurisdiction over the administrator for the LIBO Rate or a court or an entity with similar insolvency or resolution authority over the administrator for the LIBO Rate, which states that the administrator of the LIBO Rate has ceased or will cease to provide the LIBO Rate permanently or indefinitely, provided that, at the time of the statement or publication, there is no successor administrator that will continue to provide the LIBO Rate;

(c) a LIBO Rate is not published by the administrator of the LIBO Rate for five consecutive Business Days and such failure is not the result of a temporary moratorium, embargo or disruption declared by the administrator of the LIBO Rate or by the regulatory supervisor for the administrator of the LIBO Rate;

(d) a public statement or publication of information by the administrator of the LIBO Rate that it has invoked or will invoke, permanently or indefinitely, its insufficient submissions policy; or

(e) a public statement by the regulatory supervisor for the administrator of the LIBO Rate or any Governmental Authority having jurisdiction over the Administrative Agent announcing that the LIBO Rate is no longer representative or may no longer be used.

Benchmark Replacement Date” means (a) for purposes of clauses (a) and (b) of the definition of Benchmark Discontinuance Event, the later of (i) the date of such public statement or publication of information and (ii) the date on which the administrator of the LIBO Rate permanently or indefinitely ceases to provide the LIBO Rate, (b) for purposes of clause (c) of the definition of Benchmark Discontinuance Event, the first Business Day following such five consecutive Business Days, (c) for purposes of clause (d) of the definition of Benchmark Discontinuance Event, the later of (i) the date of such public statement or publication of information and (ii) the date such insufficient submissions policy is invoked, and (d) for purposes of clause (e) of the definition of Benchmark Discontinuance Event, the later of (i) the date of such public statement and (ii) the date as of which the LIBO Rate may no longer be used (or, if applicable, is no longer representative).

 

4


Benchmark Transition Determination” means:

(a) (i) the determination of the Administrative Agent (which determination shall be conclusive absent manifest error) or (ii) the notification by the Borrower or Required Lenders to the Administrative Agent (with, in the case of the Required Lenders, a copy to the Borrower) that the Borrower or Required Lenders, as applicable, have determined that one or more Benchmark Discontinuance Events has occurred with respect to the LIBO Rate; or

(b) (i) the determination of the Administrative Agent (which determination shall be conclusive absent manifest error) or (ii) the notification by the Required Lenders to the Administrative Agent (with a copy to the Borrower) that the Required Lenders have determined that syndicated loans being executed at such time, or that include language similar to that contained in Section 3.08, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace the LIBO Rate, and the Administrative Agent has, or the Required Lenders have, as applicable, elected in its or their discretion to make a Benchmark Transition Determination by written notice to the Borrower and the Lenders or to the Administrative Agent, Borrower and Lenders, respectively.

Benchmark Transition Start Date” means (a) for purposes of a Benchmark Discontinuance Event pursuant to clause (a) of the definition of Benchmark Transition Determination, the earlier of (i) the applicable Benchmark Replacement Date and (ii) if such Benchmark Discontinuance Event is a statement or publication of a prospective event, the 90th day prior to the expected date of such event as of such statement or publication (or if the expected date of such prospective event is fewer than 90 days after such statement or publication of information, the date of such statement or publication of information) and (b) for purposes of clause (b) of the definition of Benchmark Transition Determination, the date specified by the Administrative Agent or the Required Lenders, as applicable, by notice to the Borrower, the Administrative Agent (in the case of such notice by the Required Lenders) and the Lenders.

Benchmark Unavailability Period” means the period (a) beginning at the time that either (i) a Benchmark Replacement Date has occurred or (ii) a LIBO Rate is not published by the administrator of the LIBO Rate, if, at any such time, either (1) no amendment to this Agreement setting forth a Replacement Benchmark has been made effective or (2) in the determination of the Administrative Agent, adequate and reasonable means do not exist for determining the Replacement Benchmark that has replaced the LIBO Rate pursuant to a then-effective amendment to this Agreement and (b) ending at the time that either (i) both (1) an amendment to this Agreement setting forth a Replacement Benchmark has been made effective and (2) in the determination of the Administrative Agent, adequate and reasonable means exist for determining the Replacement Benchmark that has replaced the LIBO Rate pursuant to a then-effective amendment to this Agreement or (ii) solely with respect to a period beginning pursuant to clause (a)(ii) of this definition, a LIBO Rate is published by the administrator of the LIBO Rate.

Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.

 

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Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.

Borrower” has the meaning specified in the introductory paragraph hereto.

Borrower Materials” has the meaning specified in Section 6.02.

Borrower Required Insurance” has the meaning specified in Section 6.09(c).

Borrowing” means a group of Term Loans of the same Type and, in the case of LIBO Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.

Borrowing Date” has the meaning specified in Section 4.02.

Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state of New York and, if such day relates to any LIBO Rate Loan, means any such day that is also a London Banking Day.

Cash Equivalents” means any of the following types of Investments, to the extent owned by the Borrower free and clear of all Liens (other than Permitted Liens):

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from a Credit Rating Agency;

(c) investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $1,000,000,000;

(d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and

(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA and Aaa (or equivalent rating) by at least two Credit Rating Agencies and (iii) have portfolio assets of at least $1,000,000,000.

 

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Cash Flow Available for Debt Service” means, with respect to any period, an amount equal to (a) the amount of Revenue deposited (or, with respect to any future period, reasonably projected in good faith consistent with the assumptions underlying the Financial Model, to be deposited) into the Revenue Account during such period minus (b) all amounts paid (or, with respect to any future period, reasonably projected in good faith consistent with the assumptions underlying the Financial Model, to be paid) during such period pursuant to clauses (A) and (B) of Section 3.03(b)(i) of the Depositary Agreement.

Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

Change of Control” means (i) prior to the first anniversary of the Conversion Date, any reduction in the Borrower’s direct ownership of the Equity Interests in the Project Company below 50% or (ii) prior to the first anniversary of the Conversion Date, the Sponsor fails to own and control, directly or indirectly, 100% of the Equity Interests in the Borrower.

Closing Date” means the date on which the conditions set forth in Section 4.01 are satisfied (or waived by the Administrative Agent with the consent of all Lenders).

Closing Date Financial Statements” means the financial statements delivered to the Administrative Agent pursuant to Section 4.01(b)(iii).

Code” means the Internal Revenue Code of 1986, as amended.

Collateral” means all of the “Collateral” or other similar term referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.

Collateral Agent” means The Bank of New York Mellon, and includes each other Person appointed as the successor Collateral Agent pursuant to the Intercreditor Agreement.

Collateral Documents” means, collectively, the Security Agreement, the Pledge Agreement, the Depositary Agreement and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

 

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Commitment” means the Term Loan Commitment or the Letter of Credit Loan Commitment (as the context requires).

Commitment Availability” means the quantum of debt that provides a Projected Debt Service Coverage Ratio of at least 1.15x at each Repayment Date through the Maturity Date based on Contracted Cash Flows under the Commitment Offtake Agreements then in effect, with a balloon payment that can be fully repaid from Contracted Cash Flows under the Commitment Offtake Agreements then in effect expected to be received from the Maturity Date through the remaining tenor of such Commitment Offtake Agreements as demonstrated by an updated Financial Model reviewed by the Lenders’ Technical and Environmental Consultant and approved by each Lender (such approval not to be unreasonably withheld) and delivered to the Administrative Agent together with a certificate of a Responsible Officer of the Borrower stating that such projections and supporting documents were prepared in good faith by the Borrower and are based upon assumptions which the Borrower considers to be reasonable. The Commitment Availability as of the Closing Date has been set by the Administrative Agent and the Lenders and acknowledged by the Borrower as $23,000,000.

Commitment Fee Rate” means, as of any date of determination, a percentage equal to 35% of the Applicable Rate for LIBO Rate Loans

Commitment Fees” has the meaning specified in Section 2.10(c).

Commitment Offtake Agreements” means the Marubeni TSA, the Flint Hills TSA and each Increase Commitment Offtake Agreement.

Committed Loan Notice” means a notice of a borrowing of Loans, which notice shall be substantially in the form of Exhibit A-1 or such other form as may be approved by the Administrative Agent (including any form on an electronic platform or electronic transmission system as shall be approved by the Administrative Agent), appropriately completed and signed by a Responsible Officer of the Borrower.

Completion Reserve Account” has the meaning specified in the Depositary Agreement.

Compliance Certificate” means a certificate substantially in the form of Exhibit C.

Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

Construction Account” has the meaning specified in the Depositary Agreement.

Construction Budget and Schedule” means a reasonably detailed schedule of the development and construction of the Project, a detailed total budget for the development and construction of the Project and an indicative monthly schedule for contemplated Construction Period Capital Contributions to be made under the Project Company LLC Agreement, each as prepared by or on behalf of the Project Company, delivered on or before the Closing Date, and containing a detailed description of Project Costs incurred and expected to be incurred, in each case, for the period commencing on the date of such Construction Budget and Schedule through the expected date of Final Completion.

 

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Construction Drawdown Certificate” means a certificate substantially in the form of Exhibit E.

Construction Management Agreement” means (a) the Construction Agreement, dated as of January 30, 2018, between Enterprise and the Project Company or (b) any subsequent agreement entered into pursuant to Section 6.2 of the Project Company LLC Agreement.

Construction Manager” means the Material Project Party to the Construction Management Agreement.

Construction Period Capital Contributions” has the meaning specified in the Project Company LLC Agreement.

Construction Report” means any report delivered pursuant to Section 6.02(f), which shall set forth in reasonable detail: (i) estimated dates on which Mechanical Completion, Final Completion and In-Service Date shall be achieved; (ii) the Borrower’s then-current estimate of anticipated Project Costs through Final Completion as compared to the Construction Budget and Schedule and reasons for material variances, and in the event of a material variance, the reasons therefor, and such other information reasonably requested by the Lenders; (iii) any occurrence of which the Borrower or Lenders’ Technical and Environmental Consultant is aware that could reasonably be expected to (A) increase the total aggregate Project Costs above those set forth in the Construction Budget and Schedule or the Construction Budget (as defined in the Project Company LLC Agreement), (B) delay Final Completion beyond the Date Certain or (C) have a Material Adverse Effect; (iv) if Final Completion is not anticipated to occur on or before the Date Certain, the reasons therefor (and a schedule recovery plan); (v) the status of construction of the Project, including progress under each of the EPC Contracts (and a description of any material defects or deficiencies with respect thereto) and the proposed construction schedule for the following ninety (90) days, including a description, as compared with the Construction Budget and Schedule of engineering, procurement, construction, commissioning, and testing status (including actual percentage complete versus planned percentage complete, document status, significant activities accomplished and planned and a summary of milestones planned and actually completed); (vi) the status of the Applicable Governmental Authorizations necessary for the Project, including the dates of applications submitted or to be submitted and the anticipated dates of actions by Governmental Authorities with respect to such Applicable Governmental Authorizations; and (vii) a listing of reportable environmental, health and safety incidents as well as any unplanned related impacts, events, accidents or issues that occurred during the report period and the compliance with Environmental Laws.

Contracted Cash Flows” means the aggregate of the product of Quarterly Quantity then in effect under each Commitment Offtake Agreement and the Terminal Fee then in effect under such Commitment Offtake Agreement.

 

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Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

Conversion Date” has the meaning specified in Section 2.16.

Credit Rating Agencies” means S&P, Moody’s and Fitch.

Cure Amount” has the meaning assigned to such term in Section 8.04.

Cure Right” has the meaning assigned to such term in Section 8.04.

Date Certain” means December 31, 2020.

Debtor Relief Laws” means the Bankruptcy Code, as now or hereafter in effect, or any successor statute, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

Debt Service” means, for any period, the sum of (a) all agent fees, depositary bank fees, commitment fees, letter of credit fees and all similar fees owed in connection with the Obligations, in each case, scheduled to become due and payable during such period, (b) interest on the Obligations scheduled to become due and payable during such period, (c) principal payments of the Obligations scheduled to become due and payable during such period, and (d) ordinary course settlement amounts and termination payments payable by the Borrower under Permitted Swap Contracts (without duplication of interest amounts payable under this Agreement), in each case net of amounts received by the Borrower thereunder during the relevant period.

Debt Service Coverage Ratio” means, with respect to any period, the ratio of: (a) Cash Flow Available for Debt Service during such period to (b) Debt Service during such period.

Debt Service Reserve Account” has the meaning assigned to such term in the Depositary Agreement.

Debt Service Reserve Required Amount” has the meaning assigned to such term in the Depositary Agreement.

Debt to Equity Ratio” means: (a) for the purposes of Section 4.02(g), the ratio of (i) the aggregate principal amount of Loans outstanding as of the date of the proposed Borrowing (after giving effect to such Borrowing) to (ii) the aggregate amount of Equity Contributions on or prior to the date of the first Borrowing of the Term Loans plus all Pre-Conversion Revenues received by the Borrower on or prior to the date of the proposed Borrowing and (b) for the purposes of Sections 2.05(b)(x) and 2.16(u), the ratio of (i) the sum of the aggregate principal amount of Loans outstanding as of the Conversion Date (after giving effect to any prepayment made pursuant to Section 2.05(b)(x)) to (ii) the aggregate amount of Equity Contributions on or prior to the date of the first Borrowing of the Term Loans plus all Pre-Conversion Revenues received by the Borrower.

 

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Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

Default Rate” means an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate applicable to Base Rate Loans plus (iii) 2% per annum; provided that, with respect to a LIBO Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum.

Defaulting Lender” means any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two (2) Business Days of the date when due, (b) has notified the Borrower or the Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that, such Lender shall cease to be a Defaulting lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, other than via an Undisclosed Administration, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-in Action; provided that, a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Borrower and each other Lender promptly following such determination.

 

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Depositary Agreement” has the meaning specified in Section 4.01(a)(iv).

Depositary Bank” has the meaning specified the Depositary Agreement.

Designated Jurisdiction” means any country or territory to the extent that such country or territory itself is the subject of country-wide or territory-wide Sanctions (currently, Cuba, Iran, Sudan, Syria, North Korea, and the Crimea region of Ukraine).

Disbursement Date” has the meaning specified in Section 2.02(g).

Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

Disruption Event” means either or both of:

(a) a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the transactions contemplated by the Loan Documents, which disruption is not caused by, and is beyond the control of, any of the Parties; or

(b) the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

(i) from performing its payment obligations under the Loan Documents; or

(ii) from communicating with other Parties in accordance with the terms of the Loan Documents,

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.

Dollar” and “$” mean lawful money of the United States.

DSR Letter of Credit” means any letter of credit issued or continued by any Issuing Lender to the Collateral Agent, as beneficiary, to fund the Debt Service Reserve Account and substantially in the form of Exhibit K.

EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent;

 

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EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

Eligible Assignee” means any Eligible Person (subject to such consents, if any, as may be required under Section 10.06(b)(iii)) other than (a) the Sponsor, any Loan Party or any of their Affiliates, (b) any natural Person or (c) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (c).

Eligible Person” means any bank, financial institution, multilateral agency, development financial institution, trust, Approved Fund, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act) or any Lender or any Affiliate of a Lender or any other entity or Person, that in each case is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (including credit derivatives) in the ordinary course of business; provided that, in the case of trusts and funds that are not Approved Funds, such entity shall be experienced in the financing of energy and natural resource projects.

Enterprise” has the meaning specified in the Preliminary Statements.

Environment” means ambient air, indoor air, surface water, groundwater, drinking water, soil, surface and subsurface strata, and natural resources such as wetlands, flora and fauna.

Environmental Laws” means any and all applicable Laws relating to pollution or the protection of the Environment or human health (to the extent related to exposure to Hazardous Materials) or worker safety, including those relating to Hazardous Materials.

Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Environmental Permit” means any Governmental Authorization required under any Environmental Law.

EPC Contracts” means the Liquefaction EPC Contract and the Storage Tank EPC Contract.

 

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EPC Contractors” means the Material Project Parties who are counterparties to the EPC Contracts.

Equator Principles” means the principles named “The Equator Principles – A financial industry benchmark for determining, assessing and managing environmental and social risk in projects” adopted by various financial institutions in the form dated June 2013.

Equity Contributions” means amounts that the Borrower has demonstrated were contributed to the Project Company pursuant to a Call Notice that has been delivered to the Administrative Agent.

Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination, but excluding debt convertible into or exchangeable for equity.

Equity Interest Disposition Prepayment Amount” has the meaning specified in Section 2.05(b)(viii).

Equity Percentage” means the ownership share in the Project Company of the Borrower, as established in Exhibit C of the Project Company LLC Agreement and updated from time to time.

ERISA” means the United States Employee Retirement Income Security Act of 1974.

ERISA Affiliate” means any Person, trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code) or Section 4001(b) of ERISA.

ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) the failure by the Borrower or any ERISA Affiliate to meet all applicable requirements under the Pension Funding Rules or the filing of an application for the waiver of the minimum funding standards under the Pension Funding Rules; (c) the incurrence by the Borrower or any ERISA Affiliate of any liability pursuant to Section 4063 or 4064 of ERISA or a cessation of operations with respect to a Pension Plan within the meaning of Section 4062(e) of ERISA; (d) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization or insolvent (within the meaning of Title IV of ERISA); (e) the filing of a notice of intent to terminate a Pension Plan under, or the treatment of a Pension Plan amendment as a termination under, Section 4041 of ERISA; (f) the institution by the PBGC of proceedings to terminate a Pension Plan; (g) any event or condition that constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to

 

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administer, any Pension Plan; (h) the determination that any Pension Plan is in at-risk status (within the meaning of Section 430 of the Code or Section 303 of ERISA) or that a Multiemployer Plan is in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 of ERISA); (i) the imposition or incurrence of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate; (j) the engagement by the Borrower or any ERISA Affiliate in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; (k) the imposition of a lien upon the Borrower pursuant to Section 430(k) of the Code or Section 303(k) of ERISA; or (l) the making of an amendment to a Pension Plan that could result in the posting of bond or security under Section 436(f)(1) of the Code.

Event of Default” has the meaning specified in Section 8.01.

Event of Loss” means a single insured event or a related series of insured events causing any loss of, destruction of or damage to, or any condemnation or other taking of (including by eminent domain), all or any portion of the property or assets of the Project Company giving rise to an insurance claim or payment of Net Cash Proceeds in excess of $1,000,000.

Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 10.12) or (ii) such Lender changes its Lending Office, except in each case to the extent that pursuant to Section 3.01(a)(ii), amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.01(e) and (d) any Taxes imposed pursuant to FATCA.

FASB ASC” means the Accounting Standards Codification of the Financial Accounting Standards Board.

FATCA” means:

(a) Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official written interpretations thereof and any written agreements entered into pursuant to Section 1474(b)(1) of the Code; or

(b) any treaty, law, regulation or other official written guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the United States and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or

 

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(c) any written agreement pursuant to the implementation of paragraphs (a) or (b) above with the IRS, the U.S. government or any governmental or taxation authority in any other jurisdiction.

Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that, (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent.

Fee Letters” means, collectively, (i) the fee letters, dated as of the date hereof, between the Borrower and each of the Lenders and (ii) the fee letter, dated as of the date hereof, between the Borrower and the Administrative Agent.

Fee Payment Date” means (a) each March 31, June 30, September 30 and December 31, (b) the last day of the Availability Period and (c) the Maturity Date; provided that, if a Fee Payment Date is on a day other than a Business Day, the payment shall be due on the next succeeding Business Day.

Financial Covenant” means the covenant set forth in Section 7.10.

Final Completion” has the meaning assigned to such term in the Liquefaction EPC Contract.

Financial Model” means the financial model forecasting the revenues and expenditures of the Project for time periods, and based upon assumptions and methodology agreed upon by the Borrower and the Lenders (including the terms of the Commitment Offtake Agreements and the report of the Market Consultant delivered pursuant to Section 4.01(b)(v)) on the Closing Date, as attached as Exhibit O, updated as required pursuant to the definitions of “Projected Debt Service Coverage Ratio” and “Commitment Availability” and Sections 2.05(b)(viii), 2.16(s) and 4.03(b).

First Repayment Date” means the date that is the earlier of (i) the first March 31, June 30, September 30 or December 31 to occur at least ninety (90) days after the Conversion Date and (ii) March 31, 2021.

Fitch” means Fitch Ratings, and any successor thereto.

Flint Hills TSA” means the Terminal Services Agreement for Export of Ethylene, dated as of January 25, 2018, by and between Flint Hills Resources LP and Enterprise Products Operating LLC.

 

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Foreign Lender” means a Lender that is not a U.S. Person.

FRB” means the Board of Governors of the Federal Reserve System of the United States.

Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supranational bodies such as the European Union or the European Central Bank).

Governmental Authorization” means any and all franchises, licenses, leases, permits, clearances, determinations, consents, filings, consultations (to the extent required under applicable Environmental Law), rights of way, approvals, notifications, certifications, registrations, authorizations, exemptions, qualifications and other rights, privileges and approvals with, from or issued by or to a Governmental Authority under any Law (including any Environmental Law).

Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness of the payment or performance of such Indebtedness, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness of any other Person, whether or not such Indebtedness is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.

 

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Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, natural gas, natural gas liquids, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, toxic mold and all other substances, wastes, chemicals, pollutants, contaminants or compounds of any nature in any form regulated pursuant to, or as to which liability may be imposed by, any Environmental Law.

Hedge Bank” means any Person that, at the time it enters into a Permitted Swap Contract, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Permitted Swap Contract.

Holdings” means Navigator Terminal Invest Limited, a private company limited by shares incorporated in England and Wales.

ICA” means the portions of the Interstate Commerce Act applicable to oil pipeline regulation, as published in 49 App. U.S.C. § 1, et seq. (1988).

Impacted Loans” has the meaning assigned to such term in Section 3.03.

Increase Commitment Offtake Agreement” means any Additional Offtake Agreement that (a) has a minimum tenor of five (5) years, (b) has commercial terms no less favorable than those in the Marubeni TSA and Flint Hills TSA, in each case, taken as a whole, (c) is with a creditworthy counterparty (as determined at the reasonable discretion of the Required Lenders) and (d) has been used to support an increase to the Commitment Availability.

Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c) net obligations of such Person under any Swap Contract;

(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 90 days after the date on which such trade account was created);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

 

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(f) all obligations to pay rent or other amounts under a lease required to be capitalized for financial reporting purposes (and the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP);

(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

Indemnified Taxes” means (a) Taxes other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.

Indemnitees” has the meaning specified in Section 10.04(b).

Indemnity Payments” means all indemnity or similar payments payable to the Borrower under any of the Material Project Documents to which the Borrower is party.

Indirect Project Company Obligations” has the meaning specified in Section 5.23.

Information” has the meaning specified in Section 10.07.

In-Service Date” has the meaning assigned to the term “Ethylene Terminal Complex In-Service Date” (or other similar term) in the Commitment Offtake Agreements.

Insurance Consultant” means Aon Risk Services, or a successor insurance consulting firm of nationally recognized standing reasonably acceptable to the Administrative Agent (acting at the direction of the Required Lenders).

Insurance Consultant Report” means Ethylene Terminal Insurance Requirements Insurance Due Diligence, dated March 27, 2019, updated as required pursuant to Section 6.09.

Intercreditor Agreement” means the Collateral Agency and Intercreditor Agreement, dated as of the Closing Date, among the Borrower, the Administrative Agent, the Collateral Agent and each other Person that becomes a party thereto in accordance with its terms.

 

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Interest Payment Date” means, (a) as to any LIBO Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided that, if any Interest Period for a LIBO Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last day of each March, June, September and December, and the Maturity Date.

Interest Period” means, as to each LIBO Rate Loan, the period commencing on the date such LIBO Rate Loan is disbursed or converted to or continued as a LIBO Rate Loan and ending on the date one, three or six months thereafter (in each case, subject to availability), as selected by the Borrower in its Committed Loan Notice; provided that:

(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a LIBO Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii) any Interest Period pertaining to a LIBO Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(iii) no Interest Period shall extend beyond the Maturity Date.

Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of Indebtedness of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

IRS” means the United States Internal Revenue Service.

Issue” means, with respect to any DSR Letter of Credit, to issue, extend the expiration date of (whether automatically or otherwise), increase the face amount of, or reduce or eliminate any scheduled decrease in the face amount of, such DSR Letter of Credit, or to cause any Person to do any of the foregoing. The terms “Issued” and “Issuance” have correlative meanings.

Issuing Commitment” means, for each Issuing Lender, the commitment to Issue DSR Letters of Credit in accordance with the terms of this Agreement, expressed as such Issuing Lender’s maximum Letter of Credit Exposure at any time, as such commitment may be reduced or increased from time to time pursuant to the terms of this Agreement. The initial amount of each Issuing Lender’s Issuing Commitment is set forth on Schedule 2.01.

Issuing Lender” means each Lender identified on Schedule 2.01 as an Issuing Lender, in each case in its capacity as an issuer of DSR Letters of Credit hereunder and each other Person that acquires the rights and obligations of any Issuing Lender in accordance with Section 9.04.

 

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Knowledge” means, with respect to any of the Loan Parties, the Project Company or the Sponsor, the actual knowledge of any Person holding any of the positions (or successor position to any such position) set forth in Exhibit J hereto; provided that each such Person shall be deemed to have knowledge of all events, conditions and circumstances described in any notice delivered to the Borrower pursuant to the terms of this Agreement or any other Loan Document.

Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, common law, regulations, rules, ordinances, codes and administrative or judicial precedents or authorities, and all applicable administrative orders, directed duties, requests and Governmental Authorizations.

Lease Agreement” means the Lease and Agreement, dated as of January 30, 2018, by and between Enterprise Products Operating LLC, as landlord, and the Project Company, as tenant.

Lender” means each Term Lender or each Issuing Lender (as the context requires); provided that Sections 10.06 and 10.12 shall apply only to Term Lenders.

Lenders’ Reliability Test” means the test designed to demonstrate the operational capabilities of the Project, per the testing procedures established and set forth on Schedule 1.01(B).

Lenders’ Technical and Environmental Consultant” means Arup USA Inc., or a successor engineering firm of nationally recognized standing reasonably acceptable to the Administrative Agent (acting at the direction of the Required Lenders).

Lenders’ Technical and Environmental Consultant’s Certificate” means the certificate of the Lenders’ Technical and Environmental Consultant in the form of Exhibit F delivered in connection with each Borrowing.

Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent, which office may include any Affiliate of such Lender or any domestic or foreign branch of such Lender or such Affiliate. Unless the context otherwise requires each reference to a Lender shall include its applicable Lending Office.

Letter of Credit Availability Period” means the period from and including the Conversion Date to but excluding the earlier of (a) the Maturity Date and (b) the date of the termination of the Letter of Credit Loan Commitments pursuant to the terms of this Agreement.

Letter of Credit Disbursement” means a payment made by any Issuing Lender pursuant to a DSR Letter of Credit.

Letter of Credit Documents” means each DSR Letter of Credit and, if required by the applicable Issuing Lender, the application for each DSR Letter of Credit.

Letter of Credit Exposure” means, with respect to any Issuing Lender, at any time, the sum of (a) the aggregate undrawn amount of any DSR Letter of Credit at such time issued by such Issuing Lender plus (b) the aggregate amount of all Letter of Credit Disbursements of such Issuing Lender that have not yet been reimbursed (through Letter of Credit Loans or otherwise) by or on behalf of the Borrower at such time.

 

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Letter of Credit Fee” has the meaning assigned to such term in Section 2.10(d).

Letter of Credit Loan” means a Loan made by the Issuing Lenders in respect of a Letter of Credit Disbursement pursuant to Section 2.02(h).

Letter of Credit Loan Commitment” means with respect to each Issuing Lender, the commitment, if any, of such Issuing Lender to make Letter of Credit Loans following a Letter of Credit Disbursement, expressed as an amount representing the maximum aggregate amount that such Lender agrees to make available as its Letter of Credit Loans, as such commitment may be reduced or increased from time to time pursuant to the terms of this Agreement. The initial amount of each Issuing Lender’s Letter of Credit Loan Commitment is set forth on Schedule 2.01. The initial aggregate amount of all the Issuing Lenders’ Letter of Credit Loan Commitments is $7,500,000.

LIBO Rate” means:

(a) for any Interest Period with respect to a LIBO Rate Loan, the rate per annum equal to the London Interbank Offered Rate (“LIBOR”) or a comparable or successor rate (which comparable or successor rate is approved by the Administrative Agent in its reasonable discretion), as published on the applicable Bloomberg screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time in its reasonable discretion) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; and

(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to LIBOR, at or about 11:00 a.m., London time determined two Business Days prior to such date for U.S. Dollar deposits with a term of one month commencing that day;

provided that, (i) to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the “LIBO Rate” shall be the sum of (x) the relevant Applicable Rate and (y) the Base Rate (not including clause (c) of the definition thereof) and (ii)(x) to the extent a comparable or successor rate is approved by the Administrative Agent in connection herewith, the approved rate shall be applied in a manner consistent with market practice and (y) to the extent such market practice is not administratively feasible for the Administrative Agent, such approved rate shall be applied in a manner as otherwise reasonably determined by the Administrative Agent. In no event shall the LIBO Rate be deemed to be less than zero.

LIBO Rate Loan” means a Loan that bears interest at a rate based on clause (a) of the definition of “LIBO Rate.”

 

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Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, easement, right-of-way or other encumbrance on title to real property, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

Liquefaction EPC Contract” means the Lump Sum Turnkey Engineering, Procurement and Construction Agreement, dated as of July 10, 2018, by and between the Project Company and BPC Morgan’s Point.

Loan” means a Term Loan or an Letter of Credit Loan (as the context requires).

Loan Documents” means, collectively, (a) this Agreement, (b) the Notes, (c) the Collateral Documents, (d) the DSR Letters of Credit and (e) the Fee Letters.

Loan Parties” means, collectively, the Borrower and Holdings.

London Banking Day” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

Market Consultant” means Nexant, Inc., or a successor ethylene market consulting firm of nationally recognized standing reasonably acceptable to the Administrative Agent (acting at the direction of the Required Lenders).

Market Consultant Report” means Enterprise Navigator Ethylene Terminal, dated March 2019.

Marubeni TSA” means the Terminal Services Agreement for Export of Ethylene, dated as of January 27, 2018, by and between Marubeni America Corporations and Enterprise Products Operating LLC.

Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the results of operations, assets, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document, or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

Material Project Documents” means each of the EPC Contracts, the Construction Management Agreement, the Operating Agreement, the Marubeni TSA, the Flint Hills TSA, the Lease Agreement, the Transportation Services Agreement, the Terminal Service Agreement, any Increase Commitment Offtake Agreement, and Replacement Project Document, any Additional Project Document and any guarantees related to the foregoing.

Material Project Party” means each Person, other than the Project Company, party to any of the Material Project Documents, each Person, other than the Project Company, party to an Additional Project Document and, in the event that the Material Project Document to which any such Person is or was a party has been replaced with a Replacement Project Document, the Person (other than the Project Company) party to such Replacement Project Document.

 

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Maturity Date” means the earliest to occur of (a) the date that is five (5) years from the Conversion Date, (b) December 31, 2025 and (c) the date of acceleration of the Loans under Section 8.02.

Mechanical Completion” means “Mechanical Completion” as such term is defined in the Liquefaction EPC Contract and the Storage Tank EPC Contract.

Moody’s” means Moody’s Investors Service, Inc., and any successor thereto.

Multiemployer Plan” has the meaning set forth in Section 4001(a)(3) of ERISA.

Net Cash Proceeds” means:

(a) in the case of any Disposition, the aggregate cash amount received by the Project Company in respect of such Disposition, net of reasonable costs and expenses incurred by the Project Company in connection with the enforcement, negotiation, consummation, settlement, proceedings, administration or other activity related to such Disposition (including reasonable broker, legal and accounting fees, expenses and commissions paid or payable as a result thereof) and net of any stamp, transfer, recording or similar taxes payable in connection with such Disposition;

(b) in the case of any Event of Loss, the aggregate cash amount received by the Borrower or the Project Company in respect of such Event of Loss (exclusive, in each case, of the proceeds of liability insurance, delay in start-up insurance and business interruption insurance and other payments for interruption of operations), net of reasonable costs and expenses incurred by the Borrower or the Project Company in connection with the enforcement, negotiation, consummation, settlement, proceedings, administration or other activity related to the receipt or collection of such amount (including reasonable legal and accounting fees and expenses paid or payable as a result thereof); and

(c) with respect to the incurrence or issuance of any Indebtedness by the Borrower, the excess of (i) the sum of the cash received in connection with such incurrence or issuance over (ii) the underwriting discounts and commissions, and other reasonable out-of-pocket fees, costs and expenses, incurred by the Borrower in connection therewith.

Non-Consenting Lender” means any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 10.01 and (b) has been approved by the Required Lenders.

Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.

 

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Non-Material Document” means each contract, instrument or agreement related to the construction, testing, maintenance, repair, operation or work of, or sales of product from, the Project entered into by the Project Company subsequent to the Closing Date that is not, an Additional Project Document.

Non-Recourse Persons” has the meaning assigned to such term in Section 10.19.

Note” means a promissory note made by the Borrower in favor of a Lender, evidencing Loans made by such Lender, substantially in the form of Exhibit B.

Notice of Conversion/Continuation” has the meaning assigned to such term in Section 2.03(c).

Notice of Issuance” means a request by the Borrower for an Issuance of DSR Letters of Credit in accordance with Section 2.02.

Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Secured Hedge Agreement, in each case, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.

Offtake Agreements” means the (a) Marubeni TSA, (b) Flint Hills TSA and (c) Additional Offtake Agreements.

Operating Agreement” means (a) the Operating Agreement, dated as of January 30, 2018, between the Project Company and the Operator relating to the operation, maintenance and decommissioning of the Project or (b) any subsequent agreement entered into pursuant to Section 6.1 of the Project Company LLC Agreement.

Operating Budget” has the meaning specified for the term “Budget” in the Operating Agreement.

Operating Local Account” has the meaning specified the Depositary Agreement.

Operator” means Enterprise Products Operating LLC.

Organizational Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

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Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Documents).

Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.06).

Owner Parties” means, collectively, the Loan Parties and the Project Company.

Participant” has the meaning specified in Section 10.06(d).

Participant Register” has the meaning specified in Section 10.06(d).

Pension Funding Rules” means the rules of the Code and ERISA regarding minimum funding standards and minimum required contributions (including any installment payment thereof) to Pension Plans and Multiemployer Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Sections 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.

Pension Plan” means any defined benefit pension plan subject to Title IV of ERISA or Section 412 or 430 of the Code.

Performance Liquidated Damages” means the proceeds of any performance liquidated damages or buy-down amounts received by the Project Company pursuant to, or in connection with, any Material Project Document.

Permitted HoldCo Liens” means:

(a) the Liens created pursuant to the Collateral Documents;

(b) Liens imposed by any Governmental Authority for any Tax to the extent not yet past due or being contested in good faith and by appropriate proceedings, so long as reserves consistent with GAAP have been established on the applicable Loan Party’s books; and

 

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(c) Liens arising out of judgments or awards that do not otherwise constitute an Event of Default so long as an appeal or proceeding for review is being prosecuted in good faith and for the payment of which reserves consistent with GAAP have been established on the applicable Loan Party’s books, or bonds or other security acceptable to the Administrative Agent (acting at the direction of the Required Lenders) have been provided or are fully covered by insurance.

Permitted Liens” means (a) in the case of the Project Company, Permitted Project Company Liens and (b) in the case of the Loan Parties, Permitted HoldCo Liens.

Permitted Project Company Liens” means:

(a) Liens imposed by any Governmental Authority for any Tax to the extent not yet past due or being contested in good faith and by appropriate proceedings, so long as reserves consistent with GAAP have been established on the Project Company’s books;

(b) mechanics’, warehousemen’s, carriers’, workers’, repairers’, landlords’, and other similar liens arising or incurred in the ordinary course of business, either for amounts not yet past due or for amounts being contested in good faith and by appropriate proceedings, so long as (i) such proceedings shall not involve any substantial danger of the sale, forfeiture or loss of any material part of the Project, as the case may be, title thereto or any interest therein, or (ii) a bond or other security (A) in an amount sufficient to repay the underlying obligation and cover any penalties or enforcement costs, (B) from a sufficiently creditworthy counterparty and (C) in a form effective for release under applicable law has been posted or provided in such a manner and amount as to assure that any amounts determined to be due will be promptly paid in full when such contest is determined, or other Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, trade contracts, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money) that do not in the aggregate materially impair the use or the value of the Property or assets of the Project Company;

(c) Liens arising out of judgments or awards that do not otherwise constitute an Event of Default so long as an appeal or proceeding for review is being prosecuted in good faith and for the payment of which reserves consistent with GAAP have been established on the Project Company’s books, or bonds or other security acceptable to the Administrative Agent (acting at the direction of the Required Lenders) have been provided or are fully covered by insurance;

(d) Liens, deposits or pledges to secure mandatory statutory obligations or performance of bids, tenders, the Project Company’s obligations under the Material Project Documents (other than for the repayment of borrowed money) or leases, or in the ordinary course of its business, not to exceed $1,000,000 million in the aggregate at any time;

 

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(e) Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations incurred in the ordinary course of business;

(f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of the Project Company for the purpose of roads, pipelines and transmission lines, transportation lines, distribution lines or for the joint or common use of real estate, rights of way, facilities and equipment, that do not secure any monetary obligations and which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by the Project Company or materially impair the value of such Property subject thereto;

(g) encumbrances consisting of deed restrictions, zoning restrictions, and other similar restrictions on the use of the Property of the Project Company, none of which, in the aggregate, materially impairs the use of such property by the Project Company in the operation of its business or materially detracts from the value of such properties, and none of which, in the aggregate, is or shall be violated in any material respect by existing proposed operations;

(h) purported Liens evidenced by the filing of UCC financing statements solely as a precautionary measure in connection with operating leases of personal property;

(i) licenses of intellectual property, software and other intangible property, none of which, in the aggregate, materially impair the operation of the business of the Project Company;

(j) Liens expressly contemplated under the Material Project Documents or any Additional Project Documents; and

(k) Liens on assets (real or personal) of the Project Company to secure obligations not in excess of $1,000,000 in the aggregate.

Permitted Swap Contract” means an interest rate Swap Contract intended to hedge the Borrower’s exposure to changes in interest rates on the Loans.

Permitted Tax Distributions” means:

(a) for any taxable period in which the Borrower is a member of a consolidated, combined or similar income tax group of which a direct or indirect parent of Borrower is the common parent (a “Tax Group”), distributions by Borrower to such direct or indirect parent of Borrower to pay federal, foreign, state and local income Taxes of such Tax Group that are attributable to the taxable income of the Borrower; provided that, for each taxable period, the amount of such payments made in respect of such taxable period in the aggregate shall not exceed the amount that the Borrower would have been required to pay as a stand-alone Tax Group, reduced by any portion of such income Taxes directly paid by the Borrower; or

 

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(b) with respect to any taxable year (or portion thereof) with respect to which the Borrower is a partnership or disregarded entity for U.S. federal, state and/or local income tax purposes, distributions to the Borrower’s direct owner(s) to the extent necessary to enable the direct or indirect owners of the Borrower to pay their actual U.S. federal, state and local income tax liability attributable to the net taxable income of the Borrower for such taxable year (or portion thereof), which net taxable income shall be determined by taking into account any basis adjustments under Section 743(b) of the Code allocable to the Borrower or an entity of which the Borrower is considered a branch for U.S. federal income tax purposes, as applicable, and reduced by any cumulative net taxable loss with respect to all prior taxable years (or portions thereof) beginning after the date hereof (determined as if all such periods were one period) to the extent such cumulative net taxable loss is of a character (ordinary or capital) that would permit such loss to be deducted against the income of the taxable year in question (or portion thereof).

Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Platform” has the meaning specified in Section 6.02.

Pledge Agreement” means the Pledge Agreement, dated as of the Closing Date, by and between Holdings and the Administrative Agent.

Pre-Conversion Revenues” means payments received by the Project Company under any Offtake Agreement prior to the Conversion Date.

Pre-Existing Bank Account” the bank account in the name of the Borrower with Nordea Bank Abp, New York branch.

Project” has the meaning specified in the Preliminary Statements.

Project Accounts” means all the accounts in the Borrower’s name under the Depositary Agreement.

Project Company” has the meaning specified in the Preliminary Statements.

Project Company LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Project Company, effective as of January 30, 2018, among the Borrower, Enterprise and the Project Company.

Project Company Required Insurance” has the meaning specified in Section 6.09(a).

Project Costs” the aggregate capital, development, construction, engineering, procurement, installation, start-up and testing costs in respect of the Project and all other costs relating to the construction, development, engineering, procurement, testing, commissioning and start-up requirements of the Project, including interest payable by the Borrower during construction, fees, expenses, funding of the Debt Service Reserve Account and total contingency amount, such contingency amount as recommended by the Lenders’ Technical and Environmental Consultant.

 

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Projected Debt Service Coverage Ratio” means, with respect to any forecasted period, based on projections using the assumptions in the Financial Model but updated to reflect known operating and other conditions as of the time of such calculation, the ratio of: (a) Cash Flow Available for Debt Service during such period to (b) Debt Service during such period.

Prudent Industry Practice” means any of the practices, methods and acts engaged in or approved by a significant portion of the ethylene industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Prudent Industry Practice is not intended to be any one of a number of the optimum practices, methods, or acts to the exclusion of all others, but rather to be acceptable practices, methods, or acts generally accepted in the industry.

Public Lender” has the meaning specified in Section 6.02.

Quarterly Quantity” has the meaning given to such term or other similar term in the applicable Commitment Offtake Agreement.

Recipient” means the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party hereunder.

Register” has the meaning specified in Section 10.06(c).

Reimbursement Obligation” has the meaning specified in Section 2.02(f)(i).

Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Person’s Affiliates.

Release” means any release, spill, emission, discharge, deposit, disposal, leaking, pumping, pouring, dumping, emptying, injection, migration or leaching into or through the Environment, or into, from or through any building, structure or facility.

Relevant Governmental Body” means the Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board and/or the Federal Reserve Bank of New York or any successor thereto.

Repayment Date” means the last day of each March, June, September and December commencing upon the First Repayment Date and ending on the Maturity Date.

Replacement Benchmark” has the meaning assigned to such term in Section 3.08.

Replacement Benchmark Conforming Changes” means, with respect to any proposed Replacement Benchmark, any conforming changes to the definition of “Adjusted Base Rate,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest and other administrative matters as may be appropriate, in the discretion of the Administrative Agent in consultation with the Borrower, to reflect the adoption of such

 

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Replacement Benchmark and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of the Replacement Benchmark exists, in such other manner of administration as the Administrative Agent determines is reasonably necessary in connection with the administration of this Agreement).

Replacement Benchmark Spread” means, with respect to any replacement of the LIBO Rate with an alternate benchmark rate for each applicable Interest Period, a spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as may be agreed between the Administrative Agent and the Borrower, in each case giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such adjustments, which may include any selection, endorsement or recommendation by the Relevant Governmental Body with respect to such facilities for the applicable alternate benchmark rate.

Replacement Project Document” means any contract, agreement or other instrument entered into in accordance with Section 6.06 in replacement of an existing Material Project Document (a) with (i) substantially similar or terms more economically favorable to the Project Company than the Material Project Document it replaces, (ii) substantially similar or more favorable non-economic terms (taken as a whole) than the Material Project Document it replaces, as confirmed by the Administrative Agent (acting in consultation with the Lenders’ Technical and Environmental Consultant) (such confirmation not to be unreasonably withheld, conditioned or delayed) and (iii) a replacement Material Project Party of a comparable or better standing than the Material Project Party it replaces, as confirmed by the Administrative Agent (such confirmation not to be unreasonably withheld, conditioned or delayed) or (b) otherwise satisfactory to the Required Lenders.

Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived. “Required Completion Reserve Amount” has the meaning assigned to such term in the Depositary Agreement.

Required Equity Contribution Amount” means an amount equal to (i) $164,901,425 minus (ii) the sum of (x) $23,000,000 representing the Commitment Availability as of the Closing Date and (y) any increase to the Commitment Availability.

Required Hedge Amount” means at least seventy-five percent (75%), but no more than one hundred percent (100%) subject to Section 2.03(d), of the aggregate notional principal amount of the Term Loans projected to be outstanding through the expected Maturity Date, as adjusted at each update of the Financial Model, to be provided under the Secured Hedge Agreements in accordance with Section 6.22, on a pro rata basis to each Lender’s Term Loan Commitment as of the Closing Date.

Required Insurance” means the Project Company Required Insurance and the Borrower Required Insurance.

 

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Required Lenders” means, at any time, Lenders holding more than 50% of the sum of (a) the aggregate unused Term Loan Commitments at such time, (b) the aggregate principal amount of all Term Loans outstanding at such time and (c) the aggregate Letter of Credit Exposure at such time; provided that, the unused Term Loan Commitments of, the portion of the outstanding Term Loans held or deemed held by, and the Letter of Credit Exposure of any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

Responsible Financial Officer” means, with respect to the Borrower, a Responsible Officer that is the principal financial officer of Sponsor or any of its Affiliates.

Responsible Officer” means: (a) with respect to any Person that is a corporation, the chairman, president, senior vice president, vice president, chief executive officer, chief financial officer, chief operating officer, treasurer, assistant treasurer, attorney-in-fact, secretary, assistant secretary or other duly appointed officer of such Person, (b) with respect to any Person that is a partnership, the chairman, president, managing director, senior vice president, vice president, chief executive officer, chief financial officer, chief operating officer, treasurer, assistant treasurer, attorney-in-fact, secretary, assistant secretary or other duly appointed officer of such Person or a general partner of such Person and (c) with respect to any Person that is a limited liability company, the chairman, president, managing director, senior vice president, chief executive officer, chief financial officer, chief operating officer, vice president, treasurer, assistant treasurer, attorney-in-fact, secretary, assistant secretary, financial planning & analysis manager or other duly appointed officer of such Person or the manager, the managing member or a duly appointed officer of such Person.

Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to any Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment.

Revenue” is defined in the Depositary Agreement.

Revenue Account” is defined in the Depositary Agreement.

S&P” means Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.

Sanction(s)” means any sanction administered or enforced by the United States Government (including OFAC), the United Nations Security Council, the European Union, or Her Majesty’s Treasury.

Scheduled Repayment Amount” means, with respect to the Loans, on each Repayment Date commencing with the First Repayment Date, the amount corresponding to such Repayment Date set forth on the Amortization Schedule set forth on Schedule 1.01(C), as updated from time to time in connection with any adjustment to the Commitment Availability.

 

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SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

Secured Hedge Agreement” means any Permitted Swap Contract that is entered into by and between any Loan Party and any Hedge Bank.

Secured Parties” means, collectively, the Administrative Agent, the Lenders, the Hedge Banks, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

Security Agreement” has the meaning specified in Section 4.01(a)(iii).

Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is both (i) greater than the total amount of liabilities, including contingent liabilities of such Person and (ii) greater than the amount that will be required to pay the probable liquidity of such Person’s then existing indebtedness if they become absolute and matured, (c) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (d) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

Sponsor” means Navigator Holdings Ltd.

Storage Tank EPC Contract” means the Engineering, Procurement and Construction Agreement, dated as of July 17, 2018, by and between the Project Company and Matrix Services Inc.

Subject Party” means any Owner Party and any Material Project Party other than the counterparty to an EPC Contract after the warranty period under such EPC Contract has expired or the counterparty to the Construction Management Agreement after the date of “Final Acceptance” (as such term is defined in the Construction Management Agreement).

Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.

 

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Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts.

Target Debt Balance” means for each Repayment Date, the amount set forth opposite such Repayment Date on Schedule 1.01(A), as updated upon any increase in the Commitment Availability.

Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

Technical and Environmental Due Diligence Report” means the report produced by the Lenders’ Technical and Environmental Consultant, dated as of February 15, 2019.

Term Lender” means a Lender with a Term Loan Commitment or an outstanding Term Loan.

Term Loan” and “Term Loans” have the meanings specified in Section 2.01.

Term Loan Availability Period” means the period commencing on the Closing Date and ending on the earliest of (a) the date the Term Loan Commitments are fully utilized or cancelled pursuant to this Agreement, (b) the date of acceleration of the Loans under Section 8.02, (c) the Conversion Date or (d) the Date Certain.

Term Loan Commitment” means with respect to each Lender, the commitment of such Lender to make Loans, as set forth opposite the name of such Lender in the column entitled “Term Loan Commitment” in Schedule 2.01, or if such Lender has entered into one or more Assignment and Assumptions, set forth opposite the name of such Lender in the Register maintained by the Administrative Agent pursuant to Section 10.06(c) as such Lender’s Term Loan Commitment, as the same may be reduced in accordance with Section 2.04.

 

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Term SOFR” means the forward-looking term SOFR rate, for a term equal to the applicable Interest Period, that is selected, endorsed or recommended as the replacement for the LIBO Rate by the Relevant Governmental Body in each case as displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion.

Terminal Fee” means the rate applied to calculate the “Terminal Fee” or other such similar term under the applicable Commitment Offtake Agreement.

Terminal Service Agreement” means the Terminal Service Agreement, dated as of January 30, 2018, between the Project Company and Enterprise Products Operating LLC.

Termination Payment” means a Cash payment by a counterparty to a Material Project Document, resulting from (a) the termination or cancellation of, or the reduction of overall future payments, taken as a whole, payable to the Project Company under such Material Project Document, or (b) the reduction of the term of such Material Project Document.

Threshold Amount” means $1,500,000.

Transaction” means, collectively, (a) the entering into by the Loan Parties of the Loan Documents and other Transaction Documents to which they are or are intended to be a party, (b) the borrowing of the Loans, (c) the granting of the Liens contemplated by the Collateral Documents, (d) making capital contributions to the Project Company to be used for the design, construction, operation and maintenance of the Project and (d) the payment of the fees and expenses incurred in connection with the consummation of the foregoing.

Transaction Documents” means collectively the Project Company LLC Agreement and the Loan Documents.

Transportation Services Agreement” means the Transportation Services Agreement, dated as of January 30, 2018, between the Project Company and HSC Pipeline Partnership, LLC

Type” means, with respect to a Loan, its character as a Base Rate Loan or a LIBO Rate Loan.

UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

Undisclosed Administration” means, in relation to a Lender or its direct or indirect parent company, the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian, or other similar official by a supervisory authority or regulator under or based on the law in the country where such Lender or such parent company is subject to home jurisdiction, if applicable law requires that such appointment not be disclosed.

 

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United States” and “U.S.” mean the United States of America.

U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.

U.S. Tax Compliance Certificate” has the meaning specified in Section 3.01(e)(ii)(B)(3).

USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 10756, as amended or modified from time to time.

Withholding Agent” means the Borrower and the Administrative Agent, as relevant.

Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto,” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”

 

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(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

(d) Any reference herein or any other Loan Document to a merger, transfer, consolidation, amalgamation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the unwinding of such a division or allocation), as if it were a merger, transfer, consolidation, amalgamation, assignment, sale or transfer or similar term, as applicable to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder and under any other Loan Document (and each division of any limited liability company that is a Subsidiary, Affiliate, joint venture or any other like term shall also constitute such a Person or entity).

1.03 Accounting Terms.

(a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.

(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05 Times of Day; Rates. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).

 

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The Administrative Agent does not warrant, nor accept responsibility, nor shall the Administrative Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition of “LIBO Rate” or with respect to any comparable or successor rate thereto.

ARTICLE II.

THE COMMITMENTS AND BORROWINGS

2.01 The Loans. Subject to the terms and conditions hereof, each Term Lender severally agrees to make loans (each a “Term Loan” and, collectively, the “Term Loans”) to the Borrower from time to time during the Term Loan Availability Period in an aggregate principal amount not exceeding its Applicable Percentage of the Aggregate Term Loan Commitments, such Term Loans to be used for the purposes set forth in Section 6.14; provided that, after giving effect to the making of any Term Loans, the aggregate outstanding principal amount of all Term Loans shall not exceed the lesser of (a) the Aggregate Term Loan Commitment or (b) the Commitment Availability. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed.

2.02 DSR Letters of Credit.

(a) DSR Letters of Credit. Subject to the terms and conditions set forth herein, the Borrower may request any Issuing Lender to Issue a DSR Letter of Credit at any time and from time to time during the Letter of Credit Availability Period.

(b) Notice of Issuance, Amendment, Renewal or Extension. To request the Issuance of a DSR Letter of Credit, the Borrower shall deliver (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Lender) to an Issuing Lender selected by it and the Administrative Agent (no later than three Business Days prior to the requested date of Issuance) a Notice of Issuance in the form of Exhibit A-3 requesting the Issuance of a DSR Letter of Credit, and specifying the date of Issuance (which shall be a Business Day and shall comply with this Section 2.02), the date on which such DSR Letter of Credit is to expire (which shall comply with clause (d) of this Section 2.02), the amount of such DSR Letter of Credit and such other information as shall be reasonably necessary to prepare or Issue such DSR Letter of Credit; provided that no such Notice of Issuance shall be required in respect of an automatic extension of the expiry date of any DSR Letter of Credit pursuant to the terms and conditions of such DSR Letter of Credit. Subject to a final expiration date as specified in clause (d)(ii) of this Section 2.02, each DSR Letter of Credit shall provide for the automatic extension of the expiry date thereof unless the applicable Issuing Lender gives notice in accordance with the DSR Letter of Credit that such expiry date shall not be extended, and such Issuing Lender shall give such notice to the Borrower and the Administrative Agent in a notice given not more than 60 days, but not less than 45 days, prior to the current expiry date of such DSR Letter of Credit; provided that any such notice may be sent by such Issuing Lender only if the conditions set forth in Section 4.04(b) are not satisfied as of such date or as required by the applicable Issuing Lender’s internal policies (consistently applied) or any Applicable Law applicable to such Issuing Lender; provided further that, if any DSR Letter of Credit is outstanding on the last day of the applicable Availability Period, the applicable Issuing Lender shall thereafter give such notice in accordance with the terms of such DSR Letter of Credit. If requested by the applicable Issuing Lender, the Borrower also

 

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shall submit a letter of credit application on such Issuing Lender’s standard form in connection with any request for a DSR Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, any Issuing Lender relating to any DSR Letter of Credit, the terms and conditions of this Agreement shall control.

(c) Limitations on Amounts and Uses. A DSR Letter of Credit shall be Issued only if (and upon Issuance of such DSR Letter of Credit, the Borrower shall be deemed to represent and warrant that), after giving effect to such Issuance, (i) the Issuing Lenders’ Letter of Credit Exposure shall not exceed its Issuing Commitment, and (ii) the sum of (A) the total Letter of Credit Exposures and (B) the total outstanding principal amount of Letter of Credit Loans shall not exceed the total Letter of Credit Loan Commitments. Each DSR Letter of Credit shall be Issued only to fund the Debt Service Reserve Account, as set forth in greater detail in the Depositary Agreement.

(d) Expiration Date. Each DSR Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date twelve months after the date of the issuance of such DSR Letter of Credit (or, in the case of any renewal or extension thereof, twelve months after the then-current expiration date of such DSR Letter of Credit) and (ii) the Maturity Date.

(e) [Reserved.]

(f) Reimbursement Obligations Absolute.

(i) If any Issuing Lender shall make any Letter of Credit Disbursement in respect of any applicable DSR Letter of Credit, the Borrower shall reimburse such Letter of Credit Disbursement to the applicable Issuing Lender for its own account no later than the Business Day after such Letter of Credit Disbursement, in an amount equal to the full amount of such Letter of Credit Disbursement plus accrued interest thereon from the Disbursement Date to the date of repayment of the Letter of Credit Disbursement at the rate of interest that would apply to a Base Rate Loan in accordance with Section 2.10 (each, a “Reimbursement Obligation”), which obligation of the Borrower shall be unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of such DSR Letter of Credit, or any term or provision therein, (ii) any claim, set-off right, defense or other right against a beneficiary or any transferee of any DSR Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender, any Lender or any other Person that the Borrower or any Lender may have, (iii) any draft or other document presented under such DSR Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iv) payment by the applicable Issuing Lender under such DSR Letter of Credit against presentation of a draft or other document that does not substantially comply with the terms of such DSR Letter of Credit, (v) any breach of contract or dispute among or between Borrower, an Issuing Lender, Administrative Agent, any Lender or any other Person, (vi) any non-application or misapplication by the beneficiary of a DSR Letter of Credit of the proceeds of any Letter of Credit Disbursement or any other act or omission of such beneficiary in connection with such DSR Letter of Credit, (vii) failure to preserve

 

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or protect any Collateral, any failure to perfect or preserve the perfection of any Lien thereon, or the release of any of the Collateral securing the performance or observance of the terms of this Agreement or any of the other Loan Documents, (viii) an adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Borrower, (ix) the failure of any Lender to make a Letter of Credit Loan as contemplated by clause (h) below, (x) a Default or Event of Default under this Agreement and (xi) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this 2.02(f), constitute a legal or equitable discharge of the obligations of the Borrower hereunder, provided that, in each case, payment by the Issuing Lender shall not have constituted gross negligence or willful misconduct on the part of the Issuing Lender. Notwithstanding the foregoing, failure of the Borrower to pay a Reimbursement Obligation in accordance with the immediately preceding sentence shall not constitute a Default or an Event of Default hereunder to the extent such Reimbursement Obligation converts to a Letter of Credit Loan in accordance with 2.02(h).

(ii) Neither the Administrative Agent, the Lenders nor any Issuing Lender, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any DSR Letter of Credit by any applicable Issuing Lender or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any DSR Letter of Credit (including any document required to make a drawing thereunder), any failure of the beneficiary of any DSR Letter of Credit to comply fully with any conditions required in order to be able to draw on such DSR Letter of Credit, any error in interpretation of technical terms or any consequence arising from causes beyond the control of the applicable Issuing Lender; provided that, after paying in full its obligation to reimburse Letter of Credit Disbursements as provided in this 2.02(f), the foregoing shall not be construed to excuse any Issuing Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable Law) suffered by the Borrower that are caused by such Issuing Lender’s gross negligence or willful misconduct as determined in a non-appealable judgment by a court of competent jurisdiction when determining whether drafts and other documents presented under a DSR Letter of Credit comply with the terms thereof. In furtherance of the foregoing, the parties hereto expressly agree that, in the absence of gross negligence or willful misconduct as determined in a non-appealable judgment by a court of competent jurisdiction on the part of an Issuing Lender:

(A) such Issuing Lender may accept documents that appear on their face to be in substantial compliance with the terms of an applicable DSR Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such DSR Letter of Credit;

 

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(B) such Issuing Lender shall have the right, in its sole discretion, to decline to accept such documents and to decline to make such payment if such documents are not in strict compliance with the terms of such DSR Letter of Credit; and

(C) clauses (A) and (B) above shall establish the standard of care to be exercised by an Issuing Lender when determining whether drafts and other documents presented under an applicable DSR Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by Applicable Law, any standard of care inconsistent with the foregoing).

(g) Disbursement Procedures. An Issuing Lender for any applicable DSR Letter of Credit shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for an applicable Letter of Credit Disbursement under such DSR Letter of Credit. Such Issuing Lender shall promptly after such examination notify the Administrative Agent and the Borrower by electronic communication of such demand for such Letter of Credit Disbursement and whether such Issuing Lender has made or will make such Letter of Credit Disbursement thereunder and the date (the “Disbursement Date”) of such Letter of Credit Disbursement; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse (without duplication) such Issuing Lender with respect to any such Letter of Credit Disbursement.

(h) Letter of Credit Disbursement and Borrowing. If any Issuing Lender shall make any Letter of Credit Disbursement and in the event that the Borrower does not repay any Letter of Credit Disbursement on or before the Business Day following such Letter of Credit Disbursement as provided in Section 2.02(f)(i), the Borrower shall automatically be deemed to have requested a borrowing of Letter of Credit Loans, as of the applicable Disbursement Date, in an amount equal to the Reimbursement Obligation applicable to such Letter of Credit Disbursement and such Reimbursement Obligation shall become a Letter of Credit Loan made by the applicable Issuing Lender hereunder as of the applicable Disbursement Date and shall be deemed to be a borrowing of Letter of Credit Loans hereunder on such day and bear interest in accordance with Section 2.09 from the applicable Disbursement Date. Each such Letter of Credit Loan shall initially be made as a Base Rate Loan and the Borrower shall have the right to convert such Base Rate Loan to a LIBO Rate Loan in accordance with Section 2.02. Interest accrued pursuant to this paragraph and Section 2.09 shall be for account of the applicable Issuing Lender. Each such Letter of Credit Loan shall be repaid in accordance with Section 2.08 and amounts prepaid or repaid in respect of such Letter of Credit Loans may be reborrowed.

(i) Cash Collateralization. If (i) the maturity of the Loans has been accelerated upon the occurrence of an Event of Default, (ii) an Event of Default shall occur and be continuing and the Borrower receives notice from the Administrative Agent that the Required Lenders demand the deposit of cash collateral pursuant to this paragraph or (iii) any Event of Default with respect to any Owner Party described in Section 8.01(f) shall occur, the Borrower shall immediately deposit into an account established and maintained on the books and records of the Collateral Agent, which account shall be a Securities Account in the name of the Collateral Agent and for the benefit of the Issuing Lenders, an amount in cash equal to 102% of the aggregate amount of all Letter of Credit Exposure as of such date (or any applicable amount required by Section 2.08)

 

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plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (f) of Section 8.01. Any deposit made pursuant to this 2.02(i) shall be held by the Collateral Agent as collateral for the Letter of Credit Exposure under this Agreement and shall in the case of a Letter of Credit Disbursement in respect of any DSR Letter of Credit be applied to the payment of the Borrower’s obligations in respect of the Loans arising as a result of such Letter of Credit Disbursement; provided that any failure or inability of the Collateral Agent or Administrative Agent for any reason to apply such amounts shall not in any manner relieve any Issuing Lender of its obligations under 2.02(h). Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. For this purpose the Borrower hereby grants a security interest to the Collateral Agent for the benefit of the Issuing Lenders in such collateral account and any “financial assets” (as defined in the UCC) or other property held therein. If the Borrower is required to provide an amount of cash collateral hereunder, upon the expiration or termination of each DSR Letter of Credit, the amount (to the extent not applied as aforesaid) by which the cash collateral exceeds 102% of the aggregate amount of all Letter of Credit Exposure as of such date plus any accrued and unpaid interest thereon shall be (i) first, applied to repay other obligations of the Borrower then due and payable under the Loan Documents as of such date and (ii) second, returned to the Borrower.

(j) Replacement of an Issuing Lender. (i)Any Issuing Lender may be replaced or an additional Acceptable Bank appointed as an Issuing Lender at any time by written agreement among the Borrower, a new Issuing Lender and the Administrative Agent (with notice to such replaced Issuing Lender); provided that, if the replaced Issuing Lender so requests, any DSR Letter of Credit issued by such Issuing Lender shall be replaced and cancelled prior to the removal of such Issuing Lender and all fees and other amounts owed to such removed Issuing Lender shall be paid to it; provided, further, that any Acceptable Bank that is to be appointed as a Issuing Lender pursuant to this Section 2.02(j) must also assume such Issuing Lenders Letter of Credit Loan Commitment.

(i) At any time the unsecured senior debt obligations of an Issuing Lender (other than ING Capital LLC) cease to be rated at least Baa1 by Moody’s and at least BBB+ by S&P or, if the unsecured senior debt obligations of an Issuing Lender (other than ING Capital LLC) are rated exactly Baa1 by Moody’s or BBB+ by S&P and such Issuing Lender is placed on negative credit watch by S&P or Moody’s, or such Issuing Lender is a Defaulting Lender, then such Issuing Lender may be replaced at any time by written request of the Borrower; provided that the consent of the Administrative Agent (not to be unreasonably withheld, conditioned or delayed) shall be required if an Event of Default has occurred and is continuing at the time such request is made. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Lender. At the time any such replacement shall become effective, the Borrower shall return or Cash Collateralize all issued and outstanding DSR Letters of Credit issued by the replaced Issuing Lender and, at the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Lender (to the extent required by the terms of this Agreement).

 

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(ii) From and after the effective date of any such replacement, (i) any successor Issuing Lender shall have all the rights and obligations of an Issuing Lender under this Agreement with respect to DSR Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Lender” shall be deemed to refer to such successor or to any previous Issuing Lender, or to such successor and all previous Issuing Lenders, as the context shall require. After the replacement of an Issuing Lender hereunder, the replaced Issuing Lender shall remain a party hereto to the extent that DSR Letters of Credit issued by it remain outstanding and shall continue to have all the rights and obligations of an Issuing Lender under this Agreement with respect to DSR Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional DSR Letters of Credit.

2.03 Borrowings, Conversions and Continuations of Loans.

(a) Each borrowing of Term Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which shall be given as a Committed Loan Notice. Each such Committed Loan Notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three (3) Business Days prior to the requested date of any borrowing of LIBO Rate Loans, and (ii) on the requested date of any borrowing of Base Rate Loans; provided that, no more than one (1) Committed Loan Notice may be submitted in any calendar month. Each borrowing of LIBO Rate Loans shall be in a principal amount of $2,500,000 or a whole multiple of $500,000 in excess thereof or the remaining available Commitment. Each borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or the remaining available Commitment. Each Committed Loan Notice shall specify (i) the requested date of the borrowing (which shall be a Business Day), (ii) the principal amount of Loans to be borrowed, (iii) the Type of Loans to be borrowed, (iv) if applicable, the duration of the Interest Period with respect thereto, and (v) confirmation that all conditions precedent under Section 4.02 have been satisfied as of the date of the requested borrowing. If the Borrower fails to specify a Type of Loan in a Committed Loan Notice, then the applicable Loans shall be made as (x) LIBO Rate Loans with an Interest Period of three months if the Commitment Loan Notice was delivered not later than 11:00 a.m. three (3) Business Days prior to the requested date of the borrowing or (y) Base Rate Loans otherwise. If the Borrower requests a borrowing of LIBO Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of three months.

(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each applicable Lender of the amount of its Applicable Percentage of the applicable Term Loans. Each Lender that has a Term Loan Commitment shall make the amount of its Term Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice, and upon satisfaction of the applicable conditions set forth in Article IV, the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent transferring such funds to the Construction Account established under the Depositary Agreement.

 

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(c) Each conversion of Loans from one Type to the other, and each continuation of LIBO Rate Loans, shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which shall be in substantially the form of Exhibit A-2 (any such notice, a “Notice of Conversion/Continuation”). Each such Notice of Conversion/Continuation must be received by the Administrative Agent not later than 11:00 a.m. three (3) Business Days prior to the requested date of any conversion to or continuation of LIBO Rate Loans or of any conversion of LIBO Rate Loans to Base Rate Loans. Each conversion to or continuation of LIBO Rate Loans shall be in a principal amount of $2,500,000 or a whole multiple of $500,000 in excess thereof, unless all Base Rate Loans outstanding as of such date and all LIBO Rate Loans with Interest Periods expiring immediately prior to such date are being converted or continued. Each conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof unless all LIBO Rate Loans with Interest Periods expiring immediately prior to such date are being converted. Each Notice of Conversion/Continuation shall specify (i) whether the Borrower is requesting a conversion of Loans from one Type to the other, or a continuation of LIBO Rate Loans, (ii) the requested date of the conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be converted or continued, (iv) the Type of Loans to which existing Loans are to be converted and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower requests a conversion to, or continuation of, LIBO Rate Loans in any such Notice of Conversion/Continuation, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of three months. If the Borrower fails to give a timely notice requesting a continuation of LIBO Rate Loans, such LIBO Rate Loans shall be continued with an Interest Period of three months.

(d) If no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic continuation of LIBO Rate Loans described in Section 2.02(c).

(e) Except as otherwise provided herein, a LIBO Rate Loan may be continued or converted only on the last day of an Interest Period for such LIBO Rate Loan. During the continuance of an Event of Default, no Loans may be requested as, converted to or continued as LIBO Rate Loans without the consent of the Required Lenders.

(f) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for LIBO Rate Loans upon determination of such interest rate.

(g) After giving effect to all borrowings of Loans, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than eight (8) Interest Periods in effect.

2.04 Termination or Reduction of Commitments.

(a) The Borrower shall have the right, upon not less than five (5) Business Days’ notice to the Administrative Agent, to terminate or reduce, on a pro rata basis among Lenders, the Term Loan Commitments, from time to time; provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Term Loans made on the effective date thereof, the Term Loans would exceed the Term Loan Commitments, as applicable. Any such reduction shall be in an amount equal to $2,500,000 or a whole multiple of $1,000,000 in excess thereof, and shall reduce permanently the Term Loan Commitments.

 

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(b) In connection with any reduction or termination of the Term Loan Commitments pursuant to Section 2.03(a), other than in connection with the simultaneous repayment of all Term Loans outstanding and termination of all of the Term Loan Commitments, the Borrower shall certify, with confirmation by the Lenders’ Technical and Environmental Consultant (based on the funds expended against the Construction Budget and Schedule as demonstrated in the reports provided by the Borrower pursuant to Section 6.02(f)), that, after giving effect to such reduction in the Commitments, the Equity Contributions plus amounts on deposit in the Construction Account plus any remaining available Commitments are sufficient to pay the Borrower’s share of the estimated remaining Project Costs and achieve the Conversion Date by the Date Certain.

(c) Term Loan Commitments reduced or terminated pursuant to this Section 2.04 shall not be reinstated.

(d) The Borrower shall not be permitted to reduce or terminate any Issuing Commitments or Letter of Credit Loan Commitments.

2.05 Prepayments.

(a) Optional. The Borrower may, upon written notice to the Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Administrative Agent not later than 11:00 a.m. three (3) Business Days prior to any date of prepayment; and (B) any prepayment of LIBO Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or, if less, the entire principal amount thereof then outstanding; provided that, for any partial prepayment of the Term Loans prior to the Conversion Date, the Borrower shall certify, with confirmation by the Lenders’ Technical and Environmental Consultant (based on the funds expended against the Construction Budget and Schedule as demonstrated in the reports provided by the Borrower pursuant to Section 6.02(f)), that, after giving effect to such prepayment of Term Loans, the Equity Contributions plus amounts on deposit in the Construction Account plus any remaining available Commitments are sufficient to pay the Borrower’s share of the estimated remaining Project Costs and achieve the Conversion Date by the Date Certain. Each such notice shall be executed by a Responsible Officer of the Borrower and specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if LIBO Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s ratable portion of such prepayment (based on such Lender’s Applicable Percentage of the Loans being prepaid). If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided that, any such notice may be revoked (it being understood that the Borrower shall be responsible for losses, costs and expenses in connection therewith in accordance with Section 3.05).

(b) Mandatory.

(i) Cash Sweep. On each Repayment Date, to the extent of any cash remaining in the Revenue Account after application of clauses (A) through (F) of Section 3.03(b)(i) of the Depositary Agreement, the Borrower shall prepay the Term Loans then outstanding in an amount equal to the amount by which the aggregate principal amount of the Term Loans outstanding as of such Repayment Date is greater than the then-applicable Target Debt Balance.

 

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(ii) Performance Liquidated Damages. In the event that the Project Company receives Performance Liquidated Damages pursuant to any Material Project Document, the Borrower shall prepay the Loans in an amount equal to the amount distributed to the Borrower in accordance with the Project Company LLC Agreement in respect of such Performance Liquidated Damages (which amounts received by the Borrower shall be deposited into the Prepayment Account, and withdrawn therefrom to make such mandatory prepayment, in each case, pursuant to Section 3.03(i) of the Depositary Agreement).

(iii) Loss Proceeds. In the event that the Borrower receives Net Cash Proceeds in connection with the occurrence of an Event of Loss, the Borrower shall prepay the Loans in an amount equal to the amount of such Net Cash Proceeds (which amounts received by the Borrower shall be deposited into the Prepayment Account, and withdrawn therefrom to make such mandatory prepayment, in each case, pursuant to Section 3.03(i) of the Depositary Agreement).

(iv) Termination Payments. In the event that the Project Company receives any Termination Payments, the Borrower shall prepay the Loans in an amount equal to the amount distributed to the Borrower in accordance with the Project Company LLC Agreement in respect of such Termination Payments (which amounts received by the Borrower shall be deposited into the Prepayment Account, and withdrawn therefrom to make such mandatory prepayment, in each case, pursuant to Section 3.03(i) of the Depositary Agreement).

(v) Dispositions by the Project Company. In connection with a Disposition by the Project Company not otherwise permitted by Section 7.05, the Borrower shall prepay the Loans in an amount equal to the amount distributed to the Borrower in accordance with the Project Company LLC Agreement in respect of the Net Cash Proceeds in connection with such Disposition (which amounts received by the Borrower shall be deposited into the Prepayment Account, and withdrawn therefrom to make such mandatory prepayment, in each case, pursuant to Section 3.03(i) of the Depositary Agreement). The provisions of this Section 2.05(b)(v) do not constitute a consent to the consummation of any Disposition not permitted by Section 7.05.

(vi) Debt Incurrence. Upon the incurrence or issuance by the Borrower or the Project Company of any Indebtedness (in each case, other than Indebtedness expressly permitted to be incurred or issued pursuant to Section 7.02), the Borrower shall prepay the Loans in an amount equal to all Net Cash Proceeds received by the Borrower in connection therewith (which in the case of any such Net Cash Proceeds received by the Project Company shall be the amount of such Net Cash Proceeds distributed to the Borrower under the Project Company LLC Agreement). All such Net Cash Proceeds received by the Borrower shall be deposited into the Prepayment Account, and withdrawn therefrom to make such mandatory prepayment, in each case, pursuant to Section 3.03(i) of the Depositary Agreement. The provisions of this Section 2.05(b)(vi) do not constitute a consent to the incurrence of any Indebtedness not permitted by Section 7.02.

 

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(vii) Suspended Distributions. The Borrower shall prepay the Loans to the extent and in the amount required pursuant to Section 3.03(g)(ii) of the Depositary Agreement or Section 3.03(j)(ii) of the Depositary Agreement.

(viii) Dispositions of Equity Interests in the Project Company. In connection with a Disposition by the Borrower of any Equity Interests in the Project Company, the Borrower shall (A) prepare revised base case projections delivered as part of the Financial Model on the Closing Date, in form and substance reasonably satisfactory to the Administrative Agent giving pro forma effect to such Disposition (and any corresponding reduction in projected distributions of “Available Cash” to be made to the Borrower under the Project Company LLC Agreement), (B) together with such revised base case projections, deliver a certificate of a Responsible Officer of the Borrower to the Administrative Agent certifying the amount of the Loans that would need to be prepaid in order to satisfy the Target Debt Balance based on such revised base case projections (such amount, the “Equity Interest Disposition Prepayment Amount”), such certificate to be in form and substance reasonably satisfactory to the Required Lenders, (C) prepay the Loans in an amount equal to the lesser of (x) the amount distributed to the Borrower under the Project Company LLC Agreement in respect of such Net Cash Proceeds in connection with such Disposition (which amounts shall be deposited into the Prepayment Account, and withdrawn therefrom to make such mandatory prepayment pursuant to Section 3.03(i) of the Depositary Agreement), and (y) the Equity Interests Disposition Prepayment Amount, and (D) in the event that the amount of the prepayment contemplated by the foregoing clause (C) is less than the Equity Interests Disposition Prepayment Amount, prepay the Loans in accordance with Section3.03(i) of the Depositary Agreement until such time as the aggregate prepayments contemplated by the foregoing clause (C) and by this clause (D) equals the Equity Interests Disposition Prepayment Amount. The provisions of this Section 2.05(b)(viii) do not constitute a consent to the consummation of any Disposition not permitted by the Loan Documents.

(ix) Indemnity Payments. In the event that the Borrower receives Indemnity Payments in excess of $500,000, individually or in the aggregate, pursuant to the Project Company LLC Agreement, the Borrower shall prepay the Loans in an amount equal to such Indemnity Payments, such prepayment to be made within three (3) Business Days following the Borrower’s receipt of such Indemnity Payments.

(x) Conversion Date Debt/Equity Ratio True-up. The Borrower shall prepay the Loans then outstanding, on the Conversion Date, to the extent of cash remaining in the Construction Account after application of clauses (A) through (C) of Section 3.03(a)(ii) of the Depositary Agreement, to the extent required and in an amount such that, after giving effect to such withdrawals and transfers pursuant to Section 3.03(a)(ii) of the Depositary Agreement, any Borrowings on the Conversion Date and such prepayment, the Debt to Equity Ratio (as determined pursuant to clause (b) of the definition thereof) shall be no greater than 50:50. No prepayment shall be required pursuant to the terms of this Section 2.05(b)(x) if as of the Conversion Date (after giving effect to borrowings and equity contributions made on the Conversion Date), the Debt to Equity Ratio is not greater than 50:50.

 

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Each prepayment made pursuant to clauses (b)(ii) through (b)(x) shall be applied pro rata to the Lenders and Hedge Banks first, to prepay the Term Loans, together with accrued interest thereon and any amount required by Section 3.05 (if applicable), and any Swap Termination Value required pursuant to Section 2.06(c); second, to the prepayment of the Letter of Credit Loans, together with accrued interest thereon and any amount required by Section 3.05 (if applicable); third, to Cash Collateralize any DSR Letters of Credit then outstanding and undrawn in an amount equal to in an amount equal to 102% of the Letter of Credit Exposure; and fourth, any amount remaining may be retained by the Borrower. Each such mandatory prepayment of the Loans (other than under clause (b)(ii)) shall be applied in inverse order of maturities. Each such prepayment of loans under clause (b)(ii) shall be applied pro rata to scheduled principal payments. Upon the Borrower’s prior written request, a prepayment of Borrowings of any Loans may be applied to prepay outstanding Base Rate Loans before any LIBO Rate Loans so long as such application does not affect the right any Lender would otherwise have to receive pro rata prepayments of the Loans held by such Lender.

2.06 Terms of Prepayments.

(a) Each prepayment of the outstanding Term Loans pursuant to Section 2.05 shall be applied pro rata to the principal repayment installments thereof or in inverse order of maturity, as directed by the Borrower.

(b) Upon the prepayment of any Loan (whether such prepayment is an optional prepayment or a mandatory prepayment), the Borrower shall pay to the Administrative Agent for the account of each Lender which made such Loan (i) all accrued interest to the date of such prepayment owed pursuant to the terms of this Agreement on the amount prepaid, (ii) all accrued fees to the date of such prepayment owed pursuant to the terms of this Agreement corresponding to the amount being prepaid (other than any annual administrative agent or collateral agent fees), and (iii) any additional amounts required pursuant to Section 3.05.

(c) In the event of any prepayment of Term Loans or any reduction or termination of Term Loan Commitments under this Agreement, such prepayment, reduction or termination shall be accompanied by a concurrent reduction by the Borrower of the notional amount of the Secured Hedge Agreements (including the payment of any Swap Termination Value that becomes due and payable as a result thereof) then in effect, pro rata, to the extent that such a reduction is necessary so that after such prepayment the aggregate notional amounts under such Secured Hedge Agreements would not exceed one hundred and five percent (105%) of all Term Loans outstanding.

2.07 Termination of Commitments. Each Term Lender’s remaining unused Term Loan Commitments shall be reduced to zero and thereafter terminated on the last Business Day of the Term Loan Availability Period. Each Issuing Lender’s remaining unused Letter of Credit Loan Commitments shall be reduced to zero and thereafter terminated on the last Business Day of the Letter of Credit Availability Period.

 

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2.08 Repayment of Loans. The Borrower shall repay (i) principal of the Term Loans on each Repayment Date starting with the First Repayment Date and on each Repayment Date thereafter in an amount equal to the applicable Scheduled Repayment Amount and (ii) all outstanding Term Loans on the earlier of (x) the Maturity Date and (y) the date of acceleration of the Loans pursuant to the terms of this Agreement. The Borrower shall repay (i) the outstanding principal amount of Letter of Credit Loans on each applicable Repayment Date, in accordance with Section 3.03(b)(i)(E) of the Depositary Agreement and (ii) to the extent not previously paid, all outstanding Letter of Credit Disbursements and Letter of Credit Loans on the earlier of (x) the Maturity Date and (y) the date of acceleration of the Loans pursuant to the terms of this Agreement.

2.09 Interest.

(a) Subject to the provisions of Section 2.09(b), (i) each LIBO Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the LIBO Rate for such Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

(b) (i) If an Event of Default under Section 8.01(a) shall have occurred and be continuing, interest on the amount of that payment due and unpaid shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws until the date of actual payment of that amount.

(ii) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.10 Fees.

(a) Fee Letters. On the earlier of the first borrowing of the Term Loans and the date that is thirty (30) days following the Closing Date, the Borrower shall pay the fees set forth in each of the Fee Letters. Such fees may be paid out of the proceeds of the Loans.

(b) Administrative Agency Fees. The Borrower shall pay to the Administrative Agent on the earlier of the first borrowing of the Term Loans and the date that is thirty (30) days following the Closing Date and on each other date as specified in the applicable Fee Letter, solely for the account of the Administrative Agent, the amounts payable to the Administrative Agent at the times set forth therein. Such amounts may be paid out of the proceeds of the Loans.

(c) Commitment Fees. The Borrower shall pay to the Administrative Agent for the account of each applicable Lender a commitment fee in respect of the Commitments for the period from and including the date hereof to but excluding the last day of the applicable Availability Period, computed at the Commitment Fee Rate on the average daily unused amount of the Commitments of such Lender during the period for which payment is made (the “Commitment Fees”), payable on each Fee Payment Date prior to and including the last day of the applicable Availability Period (or, if the Commitments are cancelled or expire prior to a Fee Payment Date, on the date of such cancellation or expiration). For the purposes of this Section 2.10(c), Issuance of a DSR Letter of Credit shall constitute utilization of the Letter of Credit Loan Commitment on a dollar-for-dollar basis.

 

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(d) Letter of Credit Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Issuing Lender (except as provided in Section 2.15) a fee with respect to its Issued DSR Letters of Credit (a “Letter of Credit Fee”) which shall accrue at a rate per annum equal to the Applicable Rate applicable to interest on LIBO Rate Loans, on the average daily amount of the Issuing Lender’s Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Letter of Credit Disbursements) during the period from and including the Conversion Date to but excluding the later of the date on which such Issuing Lender’s Letter of Credit Loan Commitment terminates and the date on which such Issuing Lender ceases to have any Letter of Credit Exposure. Letter of Credit Fees shall be due and payable in arrears on each Repayment Date and on the Maturity Date; provided, that any Letter of Credit Fees accruing after the date on which the Letter of Credit Loan Commitments terminate shall be payable on demand. All Letter of Credit Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

2.11 Computation of Interest and Fees. All computations of interest for Base Rate Loans (excluding Base Rate Loans determined by reference to the LIBO Rate) shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

2.12 Evidence of Indebtedness. The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note in respect of its Commitment and Loans, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.

 

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2.13 Payments Generally; Administrative Agents Clawback.

(a) General. All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 3:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage in respect of the relevant Loans (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 3:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected on computing interest or fees, as the case may be.

(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of LIBO Rate Loans (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.03 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.03) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the time at which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the applicable Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the applicable Lenders severally agrees to repay to the Administrative Agent forthwith on

 

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demand the amount so distributed to such Lender, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Loan set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan or to make its payment under Section 10.04(c).

(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

(f) Insufficient Funds. Except as provided in Section 8.03, if at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

2.14 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of (a) Obligations due and payable to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender at such time to (ii) the aggregate amount of the Obligations due and payable to all Lenders hereunder and under the other Loan Documents at such time) of payments on account of the Obligations due and payable to all Lenders hereunder and under the other Loan Documents at such time obtained by all the Lenders at such time or (b) Obligations owing (but not due and payable) to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Lender at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time)

 

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of payment on account of the Obligations owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time obtained by all of the Lenders at such time then the Lender receiving such greater proportion shall (A) notify the Administrative Agent of such fact, and (B) purchase (for cash at face value) participations in the Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of Obligations then due and payable to the Lenders or owing (but not due and payable) to the Lenders, as the case may be, provided that:

(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

(ii) the provisions of this Section shall not be construed to apply to (A) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement or (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant.

The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of Borrower in the amount of such participation.

2.15 Defaulting Lenders(a) . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable Laws:

(a) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 10.01.

(b) Reallocation of Payments. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, or otherwise, and including any amounts made available to the Administrative Agent by such Defaulting Lender pursuant to Sections 2.10(c), shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loans in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; third, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender to fund Loans under this Agreement; fourth, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this

 

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Agreement; fifth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and sixth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that, if (i) such payment is a payment of the principal amount of any Loans in respect of which such Defaulting Lender has not fully funded its appropriate share, such payment shall be applied solely to pay the Loans owed to all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans owed to such Defaulting Lender until such time as all Loans are held by the Lenders pro rata in accordance with the Commitments. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

(c) Commitment Fees. No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).

(d) Defaulting Lender Cure. If the Borrower and the Administrative Agent agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, such Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as Administrative Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages, whereupon such Lender will cease to be a Defaulting Lender; provided that, no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while such Lender was a Defaulting Lender; and provided further that, except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Non-Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.

2.16 Conversion. The “Conversion Date” shall be the date on which each of the following conditions has been satisfied (unless waived in writing by the Administrative Agent (acting at the direction of the Required Lenders)):

(a) Each of Mechanical Completion and Final Completion has occurred.

(b) To the extent required, the Borrower has made the mandatory prepayments of the Loans required pursuant to Section 2.05(b)(x).

(c) The In-Service Date has occurred in respect of each of the Commitment Offtake Agreements.

(d) All Applicable Governmental Authorizations required to have been obtained from any Governmental Authority for the ownership, development, construction, and operation of the Project in accordance with the Material Project Documents have been issued and are in full force and effect, and to the Knowledge of the Borrower, the Project Company and Enterprise are in material compliance with all such Applicable Governmental Authorizations.

 

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(e) Each of the Commitment Offtake Agreement shall be in full force and effect.

(f) Unless such Material Project Document (other than the Commitment Offtake Agreements) has expired or been replaced with a Replacement Project Document in accordance with Section 6.06, each Material Project Document (other than any Additional Project Document that is not also a Commitment Offtake Agreement to the extent its failure to be in full force and effect could not reasonably be expected to have a Material Adverse Effect) shall be in full force and effect.

(g) All Loan Documents and the Project Company LLC Agreement shall be in full force and effect.

(h) The Debt Service Reserve Account shall have been funded in accordance with the terms of the Depositary Agreement.

(i) No Default or Event of Default shall have occurred and be continuing.

(j) The Borrower shall have demonstrated, to the reasonable satisfaction of the Lenders in consultation with the Lenders’ Technical and Environmental Consultant, that the Lenders’ Reliability Test has been completed with results reasonably satisfactory to the Lenders’ Technical and Environmental Consultant.

(k) The Administrative Agent shall have received the initial Operating Budget in accordance with Section 6.02(d)(i).

(l) The Lenders’ Technical and Environmental Consultant shall have delivered to the Administrative Agent a certificate in the form of Exhibit I-1 dated the Conversion Date.

(m) The Borrower shall have delivered to the Administrative Agent a certificate in the form of Exhibit I-2 dated the Conversion Date.

(n) Each representation and warranty of the Loan Parties set forth in the Loan Documents is true and correct in all material respects (except to the extent any such representation and warranty is qualified by materiality, “Material Adverse Effect” or similar qualifier, in which case, it shall, when repeated, be deemed to be true and correct in all respects) on and as of the Conversion Date (or, if any representation or warranty is stated to have been made as of a specific date, in all material respects as of such specific date).

(o) The Administrative Agent shall have received copies of any Additional Project Documents and Applicable Governmental Authorizations entered into or obtained, transferred or required (whether because of the status of the construction or operation of the Project or otherwise) since the Closing Date to the extent not previously received.

(p) [Reserved.]

 

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(q) Insurance complying with Section 6.09 shall be in full force and effect and the Administrative Agent shall have received (A) with respect to any insurance required to be obtained and maintained by the Borrower pursuant to Section 6.09, the certificates signed by the insurer or broker authorized to bind the insurer, and (B) a certificate from the Insurance Consultant, dated on or around the Conversion Date, confirming, among other things, that the relevant Persons have the insurance required by such Section 6.09, and that all premiums then due and payable on such insurance have been paid, and otherwise in form and substance reasonably satisfactory to the Administrative Agent.

(r) No Event of Loss shall have occurred and be continuing (i) the restoration of which is reasonably estimated to cost $3,000,000 or more or (ii) that could reasonably be expected to have a Material Adverse Effect.

(s) The Administrative Agent shall have received an updated Financial Model, together with a certificate of an Responsible Officer of the Borrower stating that such projections and supporting documents were prepared in good faith by the Borrower and are based upon assumptions which the Borrower considers to be reasonable and a certificate of the Lenders’ Technical and Environmental Consultant confirming that, based on the information supplied by the Borrower, the technical assumptions underlying the Financial Model are reasonable.

(t) The Completion Reserve Account will be funded in an amount up to the Required Completion Reserve Amount pursuant to and in accordance with Section 3.02(i) of the Depositary Agreement.

(u) The Borrower shall have delivered to the Administrative Agent evidence that the Debt to Equity Ratio (after giving effect to all Borrowings and all Restricted Payments made prior to and on the Conversion Date) does not exceed 50:50.

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

3.01 Taxes.

(a) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes.

(i) Any and all payments by or on account of any obligation of the Borrower hereunder or under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Laws. If any applicable Laws (as determined in the good faith discretion of an applicable Withholding Agent) require the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding, upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.

(ii) If the applicable Withholding Agent shall be required by applicable Law to withhold or deduct any Taxes, then (A) the applicable Withholding Agent shall withhold or make such deductions as are determined by such Withholding Agent to be required, (B) such Withholding Agent shall timely pay the full amount withheld or deducted to the

 

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relevant Governmental Authority in accordance with applicable Law, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the Borrower shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01(a)) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.

(b) Payment of Other Taxes by the Borrower. Without limiting the provisions of subsection (a) above, the Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

(c) Tax Indemnifications.

(i) The Borrower shall, and does hereby, indemnify each Recipient, and shall make payment in respect thereof within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01(c)(i)) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient, and reasonable out-of-pocket expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent, or by the Administrative Agent on its own behalf) shall be conclusive absent manifest error.

(ii) Each Lender shall, and does hereby, severally indemnify, and shall make payment in respect thereof within ten (10) days after demand therefor, (A) the Administrative Agent against any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (B) the Administrative Agent against any Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.06(d) relating to the maintenance of a Participant Register and (C) the Administrative Agent against any Excluded Taxes attributable to such Lender, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this clause (ii).

 

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(d) Evidence of Payments. After any payment of Taxes by the Borrower to a Governmental Authority as provided in this Section 3.01, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory the Administrative Agent.

(e) Status of Lenders; Tax Documentation.

(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.01(e)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii) Without limiting the generality of the foregoing,

(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN or W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

 

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(2) executed copies of IRS Form W-8ECI;

(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN or W-8BEN-E; or

(4) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or W-8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that, if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;

(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made;

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement; and

 

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(E) the Administrative Agent shall deliver to the Borrower, on or prior to the date on which it becomes a party to this Agreement, executed copies (in such number of copies as shall be requested by the Borrower) of (A) if it is a U.S. Person, a properly completed and duly executed Internal Revenue Service Form W-9 or (B) if it is not a U.S. Person, a properly completed and duly executed Internal Revenue Service Form W-8IMY (certifying that it is either a qualified intermediary or a U.S. branch and the payments it receives for the account of others are not effectively connected with the conduct of its trade or business in the United States and it is using such form as evidence of its agreement with the Borrower to be treated as a United States person with respect to payments under the Loan Documents), and, if required, a properly completed and duly executed Internal Revenue Service Form W-8ECI or W-8BEN-E with respect to any payment that it receives on its behalf under any Loan Document, in each case, with the effect that the Loan Parties can make payments to the Administrative Agent without deduction or withholding of any Taxes imposed by the United States.

(iii) Each Lender agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

(f) Treatment of Certain Refunds. Unless required by applicable Laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender, or have any obligation to pay to any Lender, any refund of Taxes withheld or deducted from funds paid for the account of such Lender. If any Recipient determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 3.01, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 3.01 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) incurred by such Recipient, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Recipient, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Recipient in the event the Recipient is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this subsection, in no event will the applicable Recipient be required to pay any amount to the Borrower pursuant to this subsection the payment of which would place the Recipient in a less favorable net after-Tax position than such Recipient would have been in if Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such tax had never been paid. This subsection shall not be construed to require any Recipient to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

(g) Survival. Each party’s obligations under this Section 3.01 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all other Obligations.

 

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3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to the LIBO Rate, or to determine or charge interest rates based upon the LIBO Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (i) any obligation of such Lender to make or continue LIBO Rate Loans or to convert Base Rate Loans to LIBO Rate Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the LIBO Rate component of the Base Rate, the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the LIBO Rate component of the Base Rate, in each case, until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (A) the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all LIBO Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the LIBO Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such LIBO Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBO Rate Loans and (B) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the LIBO Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the LIBO Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the LIBO Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 3.05.

3.03 Inability to Determine Rates. If in connection with any request for a LIBO Rate Loan or a conversion to or continuation thereof, (a) the Administrative Agent determines that (i) Dollar deposits are not being offered to banks in the London Interbank Offered Rate (LIBOR) market for the applicable amount and Interest Period of such LIBO Rate Loan, or (ii) adequate and reasonable means do not exist for determining the LIBO Rate for any requested Interest Period with respect to a proposed LIBO Rate Loan or in connection with an existing or proposed Base Rate Loan (in each case with respect to clause (a)(i) above, “Impacted Loans”), or (b) the Administrative Agent or the Required Lenders determine that for any reason the LIBO Rate for any requested Interest Period with respect to a proposed LIBO Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such LIBO Rate Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, (A) the obligation of the Lenders to make or maintain LIBO Rate Loans shall be suspended (to the extent of the affected LIBO Rate Loans or Interest Periods) and (B) in the event of a determination described in the preceding sentence with respect to the LIBO Rate component of the Base Rate, the utilization of the LIBO Rate component in determining the Base Rate shall be suspended, in each case until the

 

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Administrative Agent upon the instruction of the Required Lenders revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of LIBO Rate Loans (to the extent of the affected LIBO Rate Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Committed Loan Notice of Base Rate Loans in the amount specified therein.

Notwithstanding the foregoing, if the Administrative Agent has made the determination described in clause (a)(i) of this Section 3.03, the Administrative Agent, in consultation with the Borrower and the affected Lenders, may establish an alternative interest rate for the Impacted Loans, in which case, such alternative rate of interest shall apply with respect to the Impacted Loans until (1) the Administrative Agent revokes the notice delivered with respect to the Impacted Loans under clause (a) of the first sentence of this Section 3.03, (2) the Administrative Agent or the Required Lenders notify the Administrative Agent and the Borrower that such alternative interest rate does not adequately and fairly reflect the cost to such Lenders of funding the Impacted Loans, or (3) any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to such alternative rate of interest or to determine or charge interest rates based upon such rate or any Governmental Authority has imposed material restrictions on the authority of such Lender to do any of the foregoing and provides the Administrative Agent and the Borrower written notice thereof.

3.04 Increased Costs; Reserves on LIBO Rate Loans.

(a) Increased Costs Generally. If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e));

(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or

(iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or LIBO Rate Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to, continuing or maintaining any Loan the interest on which is determined by reference to the LIBO Rate (or, in the case of clause (ii) above, any Loan), or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

 

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(b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section 3.04 and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within fifteen (15) days after receipt thereof.

(d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lender’s right to demand such compensation, provided that, the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section 3.04 for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

(e) Reserves on LIBO Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each LIBO Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided that, the Borrower shall have received at least ten (10) days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice ten (10) days prior to the relevant Interest Payment Date, such additional interest shall be due and payable ten (10) days from receipt of such notice.

3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense (excluding loss of profit) incurred by it as a result of:

(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

 

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(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or

(c) any assignment of a LIBO Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.12;

excluding any loss of anticipated profits but including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each LIBO Rate Loan made by it at the LIBO Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBO Rate Loan was in fact so funded.

3.06 Mitigation Obligations; Replacement of Lenders.

(a) Designation of a Different Lending Office. Each Lender may make any Loans to the Borrower through any Lending Office, provided that, the exercise of this option shall not affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. If any Lender requests compensation under Section 3.04, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then at the request of the Borrower such Lender shall, as applicable, use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, and in each case, such Lender has declined or is unable to designate a different lending office in accordance with Section 3.06(a), the Borrower may replace such Lender in accordance with Section 10.12.

3.07 Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Commitments, repayment of all other Obligations hereunder, and resignation of the Administrative Agent.

 

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3.08 Effect of Benchmark Discontinuance Event.

(a) Notwithstanding anything to the contrary in this Agreement or any other Loan Document, at or promptly after a Benchmark Transition Determination, the Administrative Agent and the Borrower may amend this Agreement to replace the LIBO Rate with an alternate benchmark rate (which may include Term SOFR, to the extent publicly available quotes of Term SOFR exist at the relevant time), including any Replacement Benchmark Spread, in each case giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks and adjustments or any selection, endorsement or recommendation by the Relevant Governmental Body with respect to such facilities (any such proposed rate, together with the Replacement Benchmark Spread, a (“Replacement Benchmark”), together with any proposed Replacement Benchmark Conforming Changes. Such Replacement Benchmark shall be applied in a manner consistent with market practice or, to the extent such market practice is not administratively feasible for the Administrative Agent, in a manner as otherwise reasonably determined by the Administrative Agent; provided that in no event shall such Replacement Benchmark be less than zero for purposes of this Agreement.

(b) Any such amendment with respect to an event under clause (a) of the definition of Benchmark Transition Determination shall become effective at 5:00 p.m. on the fifth (5th) Business Day after the Administrative Agent shall have posted such proposed amendment to all Lenders and the Borrower unless, prior to such time, Lenders comprising the Required Lenders have delivered to the Administrative Agent written notice that such Required Lenders do not accept such amendment. Any such amendment with respect to an event under clause (b) of the definition of Benchmark Transition Determination shall become effective on the date that Lenders comprising the Required Lenders have delivered to the Administrative Agent written notice that such Required Lenders accept such amendment. No replacement of the LIBO Rate with a Replacement Benchmark pursuant to this Section 3.08 shall occur (i) prior to the applicable Benchmark Transition Start Date or (ii) prior to the effective date for such replacement, if any, specified in such amendment.

(c) The Administrative Agent will promptly notify the Borrower and each Lender of the occurrence of any Benchmark Unavailability Period. The Borrower may revoke any request for a Borrowing of LIBO Rate Loans, conversion to or continuation of LIBO Rate Loans to be made, converted or continued during any Benchmark Unavailability Period and, if no such revocation is timely sent by the Borrower, the Borrower will be deemed to have converted any such request into a request for a Borrowing of or conversion to Base Rate Loans (subject to the next sentence). During any Benchmark Unavailability Period, the LIBO Rate component shall not be used in any determination of the Adjusted Base Rate.

ARTICLE IV.

CONDITIONS PRECEDENT

4.01 Conditions Precedent to the Closing Date. The occurrence of the Closing Date is subject to the satisfaction by the Borrower of each of the following conditions (unless waived in writing by the Administrative Agent (acting at the direction of all Lenders)):

 

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(a) The Administrative Agent’s receipt of the following, each of which shall be originals or electronic copies (followed promptly following the Closing Date by originals if so specified), each properly executed by a Responsible Officer of the Borrower, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

(i) duly executed counterparts of this Agreement, with originals sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;

(ii) an original Note executed by the Borrower in favor of each Lender requesting a Note;

(iii) a pledge and security agreement (the “Security Agreement”), duly executed by the Borrower and Collateral Agent, together with:

(A) a proper financing statement in form appropriate for filing under the UCC of the State of organization of the Borrower, covering the Collateral described in the Security Agreement,

(B) with respect to the Borrower and the Project Company, certified copies of a recent search, satisfactory to them, in respect of all effective UCC financing statements and fixture filings and all judgment and tax lien filings, in each of the jurisdictions where assets of the Borrower or the Project Company are located, which have been made with respect to any personal or mixed property of the Borrower or the Project Company, together with copies of all such filings disclosed by such search, and such searches shall reveal no Liens on any of the assets of the Borrower or the Project Company except for Permitted Liens or Liens discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Lenders (including UCC termination statements for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture or real property filings disclosed in such search); and

(C) evidence that all other actions, recordings and filings that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Security Agreement has been taken;

(iv) a depositary agreement (the “Depositary Agreement”), duly executed by the Borrower, the Collateral Agent and the Depositary Bank;

(v) executed counterparts of the Pledge Agreement, duly executed by Holdings and the Collateral Agent, together with:

(A) original certificates and instruments representing any certificated securities collateral referred to therein accompanied by undated stock powers or instruments of transfer executed in blank,

 

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(B) a proper financing statement in form appropriate for filing under the UCC in the District of Columbia, covering the Collateral described in the Pledge Agreement,

(C) a statement of particulars in the required format to register the security interests under the Pledge Agreement at Companies House in England and Wales,

(D) with respect to Holdings, certified copies of a recent search, satisfactory to them, in respect of all effective Companies House filing histories and UCC financing statements and fixture filings and all judgment and tax lien filings, in each of the jurisdictions where assets of Holdings are located, which have been made with respect to any personal or mixed property of Holdings, together with copies of all such filings disclosed by such search, and such searches shall reveal no Liens on any of the assets of the Holdings except for Permitted HoldCo Liens or Liens discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Lenders (including UCC termination statements for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture or real property filings disclosed in such search); and

(E) evidence that all other actions, recordings and filings that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Pledge Agreement has been taken (other than the filing of the statement of particulars described in clause (C) above, which shall be filed within ten (10) days after the Closing Date);

(vi) a certificate from each of the Loan Parties, signed by a Responsible Officer of each such Person and dated the Closing Date, attaching and certifying the following:

(A) such Loan Party’s (and in the case of the Borrower, the Project Company’s) Organizational Documents (including a copy of the certificate of formation or other formation documents, including all amendments thereto, certified as of a recent date by the applicable Secretary of State or other applicable Governmental Authority), and certifying that such documents are in full force and effect as of the Closing Date, no term or condition thereof has been amended from the form attached to such certificate;

(B) a copy of one or more board or other resolutions or other authorizations from such Loan Party certified by a Responsible Officer of such Loan Party as being in full force and effect on the Closing Date, authorizing the execution, delivery and performance of this Agreement (in the case of the Borrower’s certificate) and of each Transaction Document to which it is a party and the consummation of the transactions contemplated therein and any instruments or agreements required hereunder or thereunder;

 

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(C) a certificate of incumbency including the names and true signatures of the incumbent officers of such Loan Party authorized to sign the Transaction Documents to which such Loan Party is a party;

(D) a certificate, certified as a recent date by the Delaware Secretary of State, certifying that the Borrower is validly existing and in good standing in its jurisdiction of formation;

(E) a certificate, certified as a recent date by the Texas Secretary of State, certifying that the Project Company is validly existing and in good standing in its jurisdiction of formation; and

(F) a certificate of another officer as to the incumbency and specimen signature of the Responsible Officer executing the certificate pursuant to this clause (vii);

(vii) the favorable opinions of Baker Botts LLP, New York, Delaware and English counsel to the Loan Parties addressed to and in form and substance satisfactory to the Administrative Agent and each Lender;

(viii) a certificate signed by a Responsible Officer of the Borrower certifying that (x) the conditions in Section 4.01 are satisfied, or to the extent that documents are to be delivered to the Administrative Agent, that such documents have been delivered (without certifying that such documents are in form and substance satisfactory to the Administrative Agent), (y) the representations and warranties made by it pursuant to Article V are true and correct and (z) the Borrower has not received written notice of, and has no Knowledge of, any Event of Loss in respect of the Project;

(ix) a certificate signed by a Responsible Officer of Holdings certifying that the representations and warranties made by it pursuant to the Pledge Agreement are true and correct;

(x) a certificate of the Borrower attesting to the Solvency of the Borrower before and after giving effect to the Transactions contemplated to occur on the Closing Date, from a Responsible Financial Officer of the Borrower, substantially in the form of Exhibit H; and

(xi) duly executed counterparts of the Intercreditor Agreement, with originals sufficient in number for distribution to the Administrative Agent, Collateral Agent and the Borrower;

(b) The Administrative Agent’s receipt of the following, each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

(i) the Construction Budget and Schedule (certified by a Responsible Officer of the Borrower as, to the Knowledge of the Borrower, based on reasonable assumptions as to the legal and factual matters material to the estimates set forth therein, and fairly representing the Borrower’s expectations as to the financial performance of the Project over the term of the Loans);

 

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(ii) the Technical and Environmental Due Diligence Report favorably reviewing (A) the technical and economic feasibility of the Project and the environmental compliance and environmental risks relating to the Project; (B) the reasonableness of the Construction Budget and Schedule, each of the EPC Contracts and the assumptions related to the costs and operating performance of the Project; and (C) the reasonableness of the technical assumptions underlying the Financial Model;

(iii) the unaudited financial statements of the Project Company, consisting of the balance sheet of the Project Company and the related statements of income and cash flows as of February 28, 2019;

(iv) the Financial Model (satisfying the Target Debt Balance and Debt Service Coverage Ratio); and

(v) copies of each of the Market Consultant Report and the Insurance Consultant’s Report, in each case, together, if necessary, with reliance letters in respect of the same authorizing the Administrative Agent’s, the Arrangers’ and the Lenders’ reliance on such reports, dated the Closing Date.

(c) With respect to the Material Project Documents, the Administrative Agent shall have received:

(i) true, complete and correct copies of each Material Project Document as of the Closing Date and any existing supplements or amendments thereto, and such documents shall have been duly authorized, executed and delivered by the Project Company and, to the Knowledge of the Borrower, the other parties thereto and shall be in full force and effect on the Closing Date and shall be certified by a Responsible Officer of the Borrower as, to its Knowledge, being true, complete and correct copies and in full force and effect;

(ii) a certificate from a Responsible Officer of the Borrower, satisfactory in form and substance to the Administrative Agent and the Lenders, certifying that (A) all conditions precedent to the performance of the Project Company under each Material Project Document have been satisfied or waived (other than conditions precedent that are not required to be satisfied until a later date); (B) all performance security required to be delivered under each Material Project Document as of the Closing Date has been so delivered and (C) no party to any such Material Project Document is, or but for the passage of time or giving of notice or both will be, in breach of any obligation thereunder;

(iii) a certificate from the Lenders’ Technical and Environmental Consultant confirming that (A) the Technical and Environmental Due Diligence Report and all informational materials contained therein are, as of the date of such Technical and Environmental Due Diligence Report, and are, as of the Closing Date true, correct and complete in all material respects based upon the information furnished to the Lenders’ Technical and Environmental Consultant as of the Closing Date, (B) since the date of the

 

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Technical and Environmental Due Diligence Report, there has been no material change to the Technical and Environmental Due Diligence Report or to the conditions set forth therein other than as disclosed to the Lenders in such certificate and (C) to the best of the Lenders’ Technical and Environmental Consultant’s knowledge, no act, event or condition has occurred that would make any information or statement contained in the Technical and Environmental Due Diligence Report untrue, incorrect or misleading in any material respect.

(d) All Applicable Governmental Authorizations for the ownership, development, construction, and operation of the Project in accordance with the Material Project Documents and required to have been obtained by the Closing Date from any Governmental Authority have been issued and are in full force and effect, and to the Knowledge of the Borrower the Project Company and Enterprise are in material compliance with all such Applicable Governmental Authorizations.

(e) The Administrative Agent shall have received copies of each Applicable Governmental Authorization.

(f) [Reserved.]

(g) The Administrative Agent shall have received at least five (5) Business Days prior to the Closing Date, all documentation and other information about each Loan Party required by regulatory authorities under applicable “know-your-customer” rules and regulations, including the USA Patriot Act, to the extent such information has been requested at least ten (10) Business Days prior to the Closing Date. At least five (5) Business Days prior to the Closing Date, any Owner Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall deliver a Beneficial Ownership Certification in relation to such Borrower Owner Party.

(h) [Reserved.]

(i) No Default or Event of Default shall have occurred and be continuing or would result from the initial funding of the Loans.

(j) No event, occurrence, development or state of circumstances or facts that individually or in the aggregate has had, or would reasonably be expected to have, or result in, a Material Adverse Effect shall have occurred and be continuing.

(k) Each representation and warranty of the Loan Parties set forth in the Loan Documents is true and correct in all material respects on and as of the Closing Date (or, if any representation or warranty is stated to have been made as of a specific date, in all material respects as of such specific date).

(l) [Reserved].

(m) On the Closing Date, after giving effect to the Transactions, Holdings and the Borrower shall have no Indebtedness for borrowed money or preferred equity except the initial Loans.

 

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(n) The Administrative Agent shall have received a certificate from a Responsible Officer of the Borrower that (i) there are no actions, suits, proceedings, claims or disputes pending or, to the Knowledge of the Borrower, threatened in writing, before any Governmental Authority, by or against any Loan Party or, to the Knowledge of the Borrower, the Project Company or against any of their properties or revenues that (A) purport to affect or pertain to this Agreement, any other Transaction Document, the consummation of the Transaction or, to the Knowledge of the Borrower, any Material Project Document, or (B) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect and (ii) the Borrower is not in breach or default under any order, writ, injunction or decree of any Governmental Authority or arbitral tribunal, in each case, applicable to the Borrower.

(o) [Reserved].

(p) Enterprise shall have assigned the Marubeni TSA and the Flint Hills TSA to the Project Company.

Without limiting the generality of the provisions of Section 9.03(e), for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

4.02 Conditions to Borrowings of Term Loans after the Closing Date. The obligation of the Term Lenders to make Term Loans on any date subsequent to the Closing Date (any such date, “Borrowing Date”) is subject to the satisfaction of each of the following conditions:

(a) As of such Borrowing Date, (i) unless such Material Project Document (other than the Commitment Offtake Agreements and the Terminal Services Agreement) has expired in accordance with its terms or been replaced in accordance with Section 6.06, each such Material Project Document (other than any Additional Project Document that is not also a Commitment Offtake Agreement to the extent its failure to be in full force and effect could not reasonably be expected to have a Material Adverse Effect) shall be in full force and effect and (ii) each Commitment Offtake Agreement, the Terminal Services Agreement and the Loan Documents shall be in full force and effect.

(b) As of such Borrowing Date, neither the Borrower nor the Project Company is in breach in any material respect of any obligation under any Material Project Document to which such Person is a party, except, in each case, to the extent such breach (i) does not and will not give rise to a termination right or other material remedy thereunder, (ii) is cured within the applicable cure period therefor, (iii) remains subject to a cure period thereunder and the applicable breaching party is diligently pursuing a cure or (iv) has been waived thereunder by the non-breaching party or parties.

(c) To the Knowledge of the Borrower, as of such Borrowing Date, no party (other than the Project Company and the Borrower) to any Material Project Document is in breach in any material respect of any obligation thereunder, except, in each case, to the extent such breach (i) does not and will not give rise to a termination right or other material remedy thereunder, (ii) is cured within the applicable cure period therefor, (iii) remains subject to a cure period thereunder and the applicable breaching party is diligently pursuing a cure or (iv) has been waived thereunder by the non-breaching party or parties.

 

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(d) All Applicable Governmental Authorizations for the ownership, development, construction, and operation of the Project in accordance with the Material Project Documents and required to have been obtained by such Borrowing Date from any Governmental Authority have been issued and are in full force and effect, and to the Knowledge of the Borrower, the Project Company is in compliance with all such Applicable Governmental Authorizations, except to the extent any such non-compliance could not reasonably be expected to have a Material Adverse Effect.

(e) No Default or Event of Default shall have occurred and be continuing or would result from the funding of the Loans on such Borrowing Date.

(f) Each representation and warranty of the Loan Parties set forth in Article V hereof and in each of the other Loan Documents is true and correct in all material respects (except to the extent any such representation and warranty is qualified by materiality, “Material Adverse Effect” or similar qualifier, in which case, it shall, when repeated, be deemed to be true and correct in all respects) on and as of such Borrowing Date (or, if any representation or warranty is stated to have been made as of a specific date, all material respects as of such specific date).

(g) The Borrower shall have delivered to the Administrative Agent evidence that the Debt to Equity Ratio (after giving effect to all Borrowings and all Restricted Payments made prior to and on such date) does not exceed 50:50.

(h) The Borrower shall have delivered to the Administrative Agent and the Lenders’ Technical and Environmental Consultant, at least eight (8) Business Days prior to the Borrowing Date the Borrower’s Construction Drawdown Certificate: (i) attaching a copy of the Call Notice received by the Borrower pursuant to Section 3.3(a) of the Project Company LLC Agreement, (ii) attaching copies of the Construction Reports as to the Project from Enterprise, status reports from the counterparties to the Storage Tank EPC Contract and the Liquefaction Facility, respectively, a breakdown and description of the Project Costs incurred by the Project Company as reported by the Construction Manager (including owner costs as outlined in Exhibit B of the Construction Management Agreement and not paid pursuant to an EPC Contract), an updated Project Schedule in the form of a bar chart or table of milestones as reported by the Construction Manager highlighting the estimated Conversion Date and any material deviations to the contractual schedule, status reports from Enterprise with respect to the “Permitting, Engineering, Procurement, and Construction” progress of the carrier pipeline referred to in the Transportation Services Agreement, health and safety reports covering the period’s and year to date health and safety metrics, including, contractor and employer job hours, lost-time-incidents, recordables, fatalities, and a summary of the status of the Applicable Governmental Authorizations necessary for the construction and operation of the Project, in each case that have not been previously delivered in connection with a Borrowing, and all other information received by the Borrower in support of such Call Notice, (iii) describing the Project Costs incurred by the Project Company and allocated to the Borrower to date, (iv) describing the Project Costs to be paid with the proceeds from the requested Borrowing, (v) certifying that the Borrower’s share of the remaining

 

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Project Costs expected to be incurred to achieve the Conversion Date on or prior to the Date Certain are less than or equal to the undrawn Term Loan Commitment up to the then applicable Commitment Availability plus amounts on deposit in the Construction Account, (vi) indicating when the Conversion Date is expected to occur, and (vii) describing the status of the Construction Budget and Schedule (including an update of the status of the Construction Budget and Schedule showing the actual costs incurred for each budget line item, current draw request by line item, the estimated costs to complete by line item and a summary of the sources for each of the foregoing that have been used and are available to cover the Project Costs and certifying that the progress of construction of the Project is in all material respects in accordance with the Construction Budget and Schedule and the requirements of the EPC Contracts).

(i) The Administrative Agent shall have received (i) the Lenders’ Technical and Environmental Consultant’s Certificate at least five (5) Business Days prior to the date of the Borrowing Date, pursuant to which the Lenders’ Technical and Environmental Consultant certifies (A) that the progress of construction of the Project is in all material respects in accordance with the Construction Budget and Schedule and applicable requirements of the EPC Contracts, (B) that the estimated Conversion Date set forth in the Borrower’s Construction Drawdown Certificate is achievable and the Conversion Date is reasonably likely to occur by the Date Certain, (C) the reasonableness of certain information and certifications provided in the Borrower’s Construction Drawdown Certificate based on the information provided in support thereof and (D) that based on the Borrower’s report of funds expended against the Construction Budget and Schedule and assuming that Enterprise funds its share of Project Costs in accordance with the Project Company LLC Agreement and based on the Borrower’s share of the remaining Project Costs expected to be incurred under the Construction Budget and Schedule, there are sufficient committed funds available to the Borrower pursuant to the Credit Agreement and funds on deposit in the Construction Account to achieve the Conversion Date in accordance with the Material Project Documents on or before the Date Certain; and (ii) to the extent requested and received by the Lenders’ Technical and Environmental Consultant, copies of all documentation required to be provided under the EPC Contracts to the Project Company or Construction Manager by the relevant contractor with respect to the Project Costs anticipated to be paid with the proceeds of the requested Borrowing.

(j) The Borrower shall have taken or caused to be taken all actions reasonably requested by the Administrative Agent in order that the Administrative Agent has a valid and perfected first priority security interest in the Collateral.

(k) (i) All fees required to be paid to the Administrative Agent and the Arrangers on or before such Borrowing Date shall have been paid and (ii) all fees required to be paid to the Lenders on or before such Borrowing Date shall have been paid.

(l) The Administrative Agent shall have received a certificate signed by a Responsible Officer of the Borrower certifying that (i) the conditions specified in Section 4.02 are satisfied as of such Borrowing Date and (ii) the estimated Project Costs will not exceed funds committed by the Borrower and Enterprise under the Project Company LLC Agreement to pay such Project Costs (determined as of such Borrowing Date).

 

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(m) With respect to the initial borrowing of the Term Loans, Equity Contributions shall equal at least the Required Equity Contribution Amount, provided that, the Lenders acknowledge that as of the Closing Date Equity Contributions were equal to $72,500,000.

(n) With respect to the initial borrowing of the Term Loans, the Lenders shall have received reasonably satisfactory regulatory opinions of federal regulatory counsel to the Borrower and Texas regulatory and environmental counsel to the Borrower

(o) The Administrative Agent shall have received a Committed Loan Notice in accordance with the requirements hereof.

(p) With respect to the initial borrowing of the Term Loans, insurance complying with Section 6.09 shall be in full force and effect and the Administrative Agent shall have received a certificate from the Insurance Consultant, dated on or around the date of such borrowing, confirming, among other things, that the Borrower has the insurance required to be obtained by the Borrower pursuant to Section 6.09, and that all premiums then due and payable on such insurance have been paid.

4.03 Conditions to Commitment Availability Increases. Any increase to the Commitment Availability shall be subject to the satisfaction by the Borrower of each of the following conditions (unless waived in writing by the Administrative Agent (acting at the direction of all Lenders)):

(a) The Administrative Agent shall have received a request for an adjustment to the Commitment Availability stating the proposed Commitment Availability Amount.

(b) The Administrative Agent shall have received an updated Financial Model approved by each Lender in consultation with the Lenders’ Technical and Environmental Consultant (such approval not to be unreasonably withheld).

(c) The Administrative Agent shall have received a certificate of the Financial Officer of the Borrower certifying that, as determined by the Borrower good faith based upon assumptions believed by the Borrower to be reasonable at the time, the Financial Model demonstrates a Projected Debt Service Coverage Ratio of at least 1.15x at each Repayment Date through the Maturity Date based on Contracted Cash Flows under the Commitment Offtake Agreements then in effect, with a balloon payment that can be fully repaid from Contracted Cash Flows under the Commitment Offtake Agreements then in effect expected to be received from the Maturity Date through the remaining tenor of such Commitment Offtake Agreements (and including all supporting calculations).

(d) The Administrative Agent shall have received an updated Schedule 1.01(A) reasonably acceptable to all Lenders.

(e) The Administrative Agent shall have received an updated Schedule 1.01(C) reasonably acceptable to all Lenders.

 

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4.04 Conditions to Issuance of each DSR Letter of Credit. The obligation of the Issuing Lender to Issue any DSR Letter of Credit is subject to the receipt by the Administrative Agent of each of the following documents, and the satisfaction of the conditions precedent set forth below, each of which shall be reasonably satisfactory in form and substance to the Administrative Agent and the Issuing Lender (unless waived by the Issuing Lender):

(a) Delivery of a Notice of Issuance to the Administrative Agent in accordance with Section 2.02(b).

(b) (i) The representations and warranties of the Borrower and Holdings set forth in each Loan Document shall be true and correct in all material respects on and as of the date of such Issuance (or, if any such representation or warranty is expressly stated to have been made as of a specific prior date, such representation or warranty was true and correct in all material respects as of such specific prior date), both immediately prior to the proposed Issuance and after giving effect to such Issuance, and (ii) at the time of and immediately after giving effect to such Issuance, no Default or Event of Default shall have occurred and be continuing; provided, however, that a representation or warranty that is qualified by materiality, Material Adverse Effect or similar phrase shall be true and correct in all respects.

(c) All conditions precedent to the Conversion Date shall have occurred or shall occur simultaneously with such Issuance.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and the Lenders that:

5.01 Existence, Qualification and Power. The Borrower and, to the Knowledge of the Borrower, the Project Company (a) is a limited liability company duly organized, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its organization, (b) has all requisite power and authority and all requisite governmental licenses, permits, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Transaction Documents and the Material Project Documents to which it is a party and consummate the Transaction, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

5.02 Authorization; No Contravention. The execution, delivery and performance by the Borrower of each Transaction Document to which it is a party, and, to the Knowledge of the Borrower, by the Project Company of each Transaction Document and each Material Project Document to which the Project Company is a party, and the consummation of the components of the Transaction to which such Person is a party have been duly authorized by all necessary corporate or other organizational action by such Person and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien (other than a Lien created under the Loan Documents) under, or cause the acceleration of any payment to be made under (i) any Contractual Obligation to which such Person is a party or by which it is bound or to which the properties of such Person are subject or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

 

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5.03 Governmental Authorization; Other Consents.

(a) No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required to be obtained, taken or made by the Borrower or, to the Knowledge of the Borrower, the Project Company (as applicable) in connection with (a) the execution, delivery or performance by, or enforcement against, the Borrower of any Transaction Document that the Borrower is a party, the execution, delivery or performance by, or enforcement against, the Project Company of any Material Project Document, any Transaction Document or for the consummation of the Transaction, other than in the case of performance of any Transaction Document, such actions as are required to be taken under such Transaction Document, (b) the grant by the Borrower of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except (i) approvals, consents, exemptions, authorizations, actions, notices and filings that has been obtained or made and are in full force and effect, (ii) UCC filings required to be made pursuant to the Loan Documents, and (iii) in the case of exercise of remedies in respect of Equity Interests, approvals and all other actions required under the Project Company LLC Agreement for any transfer of the Equity Interests.

(b) To the Knowledge of the Borrower, all applicable waiting or appeal periods in connection with the Transaction have expired without any action having been taken by any Governmental Authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Borrower or its Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them.

(c) To the Knowledge of the Borrower, there are no material Governmental Authorizations issued pursuant to or required under applicable Laws (including Environmental Laws) as the Project is currently designed and contemplated to be sited, constructed, owned, maintained and operated, other than the Applicable Governmental Authorizations set forth on Schedule 5.03(a) and the Governmental Authorizations set forth on Schedule 5.03(b).

(d) To the Knowledge of the Borrower, each Applicable Governmental Authorization that has been issued to the Project Company, Enterprise or a Material Project Party that is an Affiliate of the Project Company or Enterprise (except as set forth on Schedule 5.03(c)), is in full force and effect and is not subject to any pending or threatened in writing legal proceeding (including administrative or judicial appeal, permit renewals or modification) seeking material modification or revocation or to any unsatisfied condition (required to be satisfied as of date this representation and warranty is made) or that could reasonably be expected to have a Material Adverse Effect, and if an appeal period is specified by an applicable Law under which such Applicable Governmental Authorizations were issued, all appeal periods with respect to the issuance of such Governmental Authorizations have expired.

 

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(e) To the Knowledge of the Borrower, each of the Project Company, Enterprise and a Material Project Party that is an Affiliate of the Project Company or Enterprise are in compliance with all Applicable Governmental Authorizations held in its name or applicable to the Project, except in each case such non-compliance as could not reasonably be expected to have a Material Adverse Effect.

(f) As of the Closing Date, other than as set forth on Schedule 5.03(c), each Governmental Authorization which has not yet been obtained is not yet an Applicable Governmental Authorization and is of a type that is reasonably expected to be timely obtainable without material cost, difficulty, or delay prior to the time that it will become an Applicable Governmental Authorization, and, to the Knowledge of the Borrower, no facts or circumstances exist that make it reasonably likely that any such Governmental Authorization will not be so obtainable. No facts or circumstances exist that make it reasonably likely that the Applicable Governmental Authorizations set forth on Schedule 5.03(c) will not be timely obtainable without material cost, difficulty, or delay to the Construction Budget and Schedule or without causing the assumptions underlying the Financial Model to become unreasonable.

(g) The Project, if constructed in accordance with the Construction Budget and Schedule and otherwise developed as contemplated by the Material Project Documents, shall conform to and comply in all material respects with all material covenants, conditions, restrictions and reservations in the Applicable Governmental Authorizations and all applicable Laws as in effect as of the date this representation is made and deemed repeated, except in each case such non-compliance as could not reasonably be expected to have a Material Adverse Effect.

5.04 Binding Effect. This Agreement has been, and each other Transaction Document and each Material Project Document, when delivered hereunder, will have been, duly executed and delivered by the Borrower if it is party thereto or, to the Knowledge of the Borrower, the Project Company if it is party thereto. This Agreement constitutes, and each other Transaction Document and each Material Project Document when so delivered will constitute, a legal, valid and binding obligation of the Borrower or, to the Knowledge of the Borrower, the Project Company (as applicable), enforceable against each the Borrower or, to the Knowledge of the Borrower, the Project Company (as applicable) in accordance with its terms, subject, as to enforceability, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and to general principles of equity.

5.05 Financial Statements; No Material Adverse Effect; No Default.

(a) The Closing Date Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein and; (ii) fairly present the financial condition of the Project Company as of the dates thereof and its respective results of operations and cash flows for the period covered thereby in accordance with GAAP consistently applied throughout the periods covered thereby, except as otherwise expressly noted therein.

(b) The projected balance sheets, statements of income and cash flows of the Borrower and, to the Knowledge of the Borrower, the Project Company provided to the Lenders prior to the Closing Date were prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed to be reasonable at the Closing Date.

 

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(c) No event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

(d) No Default or Event of Default has occurred and is continuing or, as of the Closing Date, shall result from the consummation of all or any part of the Transaction.

5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the Knowledge of the Borrower, threatened, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or, to the Knowledge of the Borrower, the Project Company or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement, any other Transaction Document or the consummation of the Transaction or (b)(i) purport to affect or pertain to any Material Project Document and (ii) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.07 Indebtedness. The Borrower and, to the Knowledge of the Borrower, the Project Company have not created, incurred, assumed or suffered to exist or otherwise become liable with respect to any Indebtedness, other than Indebtedness permitted in accordance with Section 7.02.

5.08 Nature of Borrower; Ownership of Property; Liens; Investments.

(a) The Borrower is a Delaware limited liability company formed in December 2017, and has conducted no operations or activities other than the entering into and performance of the Transaction Documents to which it is a party and activities necessary in connection therewith.

(b) The Borrower does not own, lease, hold or operate any real property.

(c) The Borrower does not own or hold any assets (of any nature whatsoever) except (i) cash and Cash Equivalents in the Project Accounts in which the Collateral Agent has a perfected security interest (subject to Permitted Liens), other than to the extent the failure to maintain such security interest is the result of negligence of the Collateral Agent, (ii) the membership units in the Project Company and, following the Closing Date, any other Investments in the Project Company, (iii) its rights under the Transaction Documents to which it is a party, (iv) the insurance as may be required to be maintained by it under Section 6.09, (v) cash in the Pre-Existing Bank Account and (vi) any other assets acquired in the conduct of activities permitted by Section 7.07. The Borrower has no Subsidiaries and is not a general or limited partner in any partnership or a party to a joint venture (other than as a member of the Project Company).

(d) To the Knowledge of the Borrower, the Project Company owns good and marketable title to the Project and has a valid leasehold interest in all real property necessary for the development, construction and operation of the Project. The Borrower has a good and valid ownership interest in all property and assets (tangible and intangible) included in the Collateral under each Collateral Document that has been executed as of the date this representation is made or deemed repeated.

 

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(e) To the Knowledge of the Borrower, the Project Company conducts no operations or activities other than the entering into and performance of the Transaction Documents, the Material Project Documents and the Non-Material Documents to which it is a party and activities in connection therewith.

(f) The Collateral Agent has a perfected first priority Lien and security interest in all assets of the Loan Parties contemplated under the Security Documents to secure the Obligations (subject to Permitted Liens), except (i) to the extent the failure to maintain such security interest is the result of negligence of the Collateral Agent and (ii) in respect of the Equity Interests of the Borrower in the Project Company. There are no Liens on any assets of the Borrower or, to the Knowledge of the Borrower, the Project Company, in each case, other than Permitted Liens.

(g) The Obligations under the Loan Documents constitute senior secured and first priority (subject to Permitted Liens) Indebtedness of the Borrower.

5.09 Environmental Compliance. Except for any matters which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect:

(a) Neither the Borrower nor the Project Company has become subject to or received notice of any claim, action or proceeding with respect to any Environmental Liability or knows of any basis for any Environmental Liability.

(b) Neither the Borrower nor the Project Company is undertaking, or has completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened Release of Hazardous Materials at, on, under, or from any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by the Project Company have been disposed of in a manner which could not reasonably expected to result in material liability to the Borrower or the Project Company.

(c) Each of the Borrower and the Project Company: (i) is, and within the period of all applicable statutes of limitation have been, in compliance with all Environmental Laws; (ii) holds all Environmental Permits (each of which is in full force and effect) required for any of their current or intended operations or for any property owned, leased, or otherwise operated by any of them; and (iii) is, and within the period of all applicable statutes of limitation has been, in compliance with all of their Environmental Permits.

(d) There are no actions, omissions, circumstances, or conditions which could reasonably be expected to result in any Environmental Liability of the Borrower or the Project Company.

5.10 Taxes. The Borrower and, to the Knowledge of the Borrower, the Project Company have timely filed all federal, state and other material tax returns and reports required to be filed, and all such tax returns and reports are true, correct, and complete in all material respects, except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Borrower and, to the Knowledge of the Borrower, the Project Company have timely

 

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paid all federal, state and other material Taxes (whether or not shown on a tax return), including in their capacity as a withholding agent, levied or imposed upon them or their properties, income or assets otherwise due and payable, except (i) those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP or (ii) as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As of the date hereof, there is no proposed material tax assessment or other claim against, and no material tax audit with respect to the Borrower or, to the Knowledge of the Borrower, the Project Company. Neither the Borrower nor, to the Knowledge of the Borrower, the Project Company is party to any tax sharing agreement, tax allocation agreement or similar arrangement (including any indemnity arrangement) pursuant to which the Borrower or the Project Company (as applicable) will be liable for any amounts of material Taxes.

5.11 Margin Regulations; Investment Company Act.

(a) Neither the Borrower nor, to the Knowledge of the Borrower, the Project Company is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

(b) The Borrower is not required to register as an “investment company” under the Investment Company Act of 1940, as amended.

5.12 Disclosure.

(a) The Loan Parties have disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any other Loan Party or, to the Knowledge of the Borrower, the Project Company, is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party or, to the Knowledge of the Borrower, any other Owner Party to the Administrative Agent or any Lender in connection with the Transaction and the negotiation of this Agreement or delivered hereunder or under any other Loan Document, at the time furnished (in the case of all reports, financial statements, certificates or other information), taken as a whole, contains any material misstatement of fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that, subject to clauses (b) and (c) below, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time, it being understood that such projections are not to be viewed as facts and are subject to uncertainties and contingencies, many of which are beyond the control of the Borrower, that no assurance can be given that such projections will be realized, that actual results may differ and such differences may be material.

(b) As of the Closing Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.

 

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(c) The Construction Budget and Schedule and the Financial Model:

(i) as of the Closing Date, are, to the Knowledge of the Borrower, based on reasonable assumptions as to the legal and factual matters material to the estimates set forth therein, and fairly represent the Borrower’s expectations as to the financial performance of the Project over the term of the Loans;

(ii) as of the Closing Date, are consistent with the provisions of the Transaction Documents and the Material Project Documents;

(iii) indicate that the estimated Project Costs will not exceed funds committed by the Borrower and Enterprise under the Project Company LLC Agreement to pay Project Costs; and

(iv) indicate that the Conversion Date shall be achieved by no later than the Date Certain.

(d) As of the Closing Date, there are no material Project Costs that are not included in the Construction Budget and Schedule and, to the Knowledge of the Borrower, development costs incurred by Enterprise and paid prior to the Closing Date are Project Costs and have been applied in accordance with the Construction Budget and Schedule.

5.13 Compliance with Laws. The Borrower and, to the Knowledge of the Borrower, the Project Company, is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.14 Solvency. As of the Closing Date, the Borrower, and to the Knowledge of the Borrower, the Project Company is, and upon the occurrence of the Obligations and after giving effect to the Transaction will be, Solvent.

5.15 OFAC; FCPA; USA Patriot Act.

(a) No Owner Party nor any director, officer or employee thereof, is an individual or entity that is, or is owned or controlled by any individual or entity that is (i) currently the subject or target of any Sanctions or (ii) located, organized or resident in a Designated Jurisdiction.

(b) The Owner Parties have conducted their activities in compliance with applicable anti-corruption laws and have instituted and maintain policies and procedures designed to ensure continued compliance with applicable Sanctions, the FCPA and any other applicable anti-corruption laws.

(c) No Owner Party nor any director, officer, employee or, to the Knowledge of the Borrower, any agent or any other person acting on behalf of an Owner Party has (i) used any corporate funds of the Borrower for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; or (iii) violated the Foreign Corrupt Practices Act of 1977, as amended.

 

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(d) Each of the Owner Parties is in compliance in all respects with all applicable financial recordkeeping and reporting requirements, including the USA Patriot Act, and any other applicable anti-money laundering laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving any of the Owner Parties with respect to such anti-money laundering laws is pending or, to the Knowledge of the Borrower, threatened.

5.16 Intellectual Property. To the Knowledge of the Borrower, the Project Company has obtained and holds in full force and effect all patents, trademarks, copyrights, trade secrets and other proprietary information and know-how, and other similar intellectual property rights, or adequate licenses or rights thereto, subject only to Liens which are Permitted Liens, which intellectual property rights are necessary for the design, ownership, construction, operation and maintenance of the Project as of the date that this representation is made or deemed to be made, other than the absence of which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the Knowledge of the Borrower, no written notices of violation of third-party intellectual property rights (including offers to license) have been received by the Project Company, and no litigation or other legal proceeding has been commenced with respect to such intellectual property rights against the Project Company, in each case other than which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.17 Material Project Documents.

(a) (i) Correct and complete copies of all the Material Project Documents in effect on the Closing Date have been delivered to the Administrative Agent by the Borrower and (ii) to the Knowledge of the Borrower, none of the Material Project Documents has been amended, modified or terminated other than as provided to the Administrative Agent.

(b) To the Knowledge of the Borrower, all representations and warranties made by the Project Company and each Material Project Party in the Material Project Documents are true and correct in all material respects.

(c) All conditions precedent to the obligations of the Project Company and, to the Knowledge of the Borrower, the other respective parties under the Material Project Documents that have been executed have been satisfied or waived except for such conditions precedent that need not be satisfied until a later date.

(d) Except as otherwise permitted pursuant to the Loan Documents, the Borrower has not entered, and has not taken any action under the Project Company LLC Agreement to permit or cause the Project Company to enter, into any agreements with Holdings or any of the Borrower’s Affiliates, other than the applicable Transaction Documents and the Material Project Documents, on terms less favorable to the Borrower or the Project Company (as applicable) than the Borrower or the Project Company (as applicable) would obtain in a comparable arm’s-length transaction with a Person that is not an Affiliate of the Borrower, the Project Company or Holdings.

 

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(e) To the Knowledge of the Borrower, all the Material Project Documents (other than any Additional Project Document that is not also a Commitment Offtake Agreement to the extent its failure to be in full force and effect could not reasonably be expected to have a Material Adverse Effect) are in full force and effect and no default under any of the Material Project Documents has occurred and is continuing, other than in each case those which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(f) (i) As of the Closing Date, to the Knowledge of the Borrower, there are no material agreements, instruments or undertakings between the Project Company and any Material Project Party relating to the Project Company and the Project other than the Material Project Documents, and (ii) as of any subsequent date on which this representation is made, to the Knowledge of the Borrower, there are no material agreements, instruments or undertakings between the Project Company and any Material Project Party relating to the Project Company and the Project other than, as applicable, (w) the Transaction Documents, (x) the Material Project Documents, and (y) any Non-Material Document.

(g) To the Knowledge of the Borrower, the Transaction Documents, the Material Project Documents and the Applicable Governmental Authorizations, by their terms, create rights in the Project Company sufficient to enable the Project Company to own, construct, operate and maintain the Project and to perform its obligations under the Transaction Documents and the Material Project Documents to which it is a party.

(h) To the Knowledge of the Borrower, all utility services, means of transportation, facilities and other materials necessary for the construction and operation of the Project (including, as necessary, gas, electrical, water and sewage services and facilities) are, or will be when needed, available to the Project and arrangements in respect thereof have been made on commercially reasonable terms, except as could not reasonably be expected to have a Material Adverse Effect.

5.18 Required Insurance. To the Knowledge of the Borrower, all Required Insurance has been obtained and is in full force and effect and all premiums currently due thereon have been paid in full.

5.19 Condemnation. No Event of Loss has occurred and is continuing. To the Knowledge of the Borrower, there are no condemnation proceedings by or before any Governmental Authority now pending or threatened in writing with respect to the Project.

5.20 Conversion Date. Consistent with the Construction Budget and Schedule, the Project is scheduled to achieve the Conversion Date no later than the Date Certain.

5.21 Project Accounts. Except for the Operating Local Account and, prior to and on the date of the first Borrowing of the Term Loans, the Pre-Existing Bank Account, the Borrower does not have any “account” with a “bank” (within the meaning of Sections 4-104(a)(1) and 4-105(1) of the UCC, respectively) or “securities account” (within the meaning of Section 8-501(a) of the UCC) other than the Project Accounts.

 

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5.22 Ownership. As of the Closing Date, (a) Holdings owns directly 100% of the Equity Interests of the Borrower, (b) the Borrower owns directly 50% of the Equity Interests of the Project Company, and (c) Enterprise owns directly 50% of the Equity Interests of the Project Company. There are no outstanding options, warrants or other rights (including conversion or preemptive rights, preferential rights to purchase, and rights of first refusal) for any equity interests in any Loan Party or, to the Knowledge of the Borrower, the Project Company or relating to the transfer or issuance of any such interests, except as set forth in the Project Company LLC Agreement.

5.23 ERISA. No Loan Party nor the Project Company has any employees or former employees. No Loan Party nor the Project Company contributes to or has any liability (actual or contingent) under or with respect to any employee benefit plan (as defined in Section 3(3) of ERISA), other than obligations of the Project Company to reimburse an Affiliate of a Loan Party or Enterprise pursuant to a services or other agreement for costs attributable to employees providing services to the Project Company, which obligations do not cause the Project Company to be considered a contributing sponsor (within the meaning of Section 4001(15) of ERISA), participating employer, plan sponsor, plan administrator of any Pension Plan or to have obligation to contribute directly to such Pension Plan or to have any liability to a Multiemployer Plan and which would have no potential risk of a lien upon the assets of the Project Company or any Loan Party (“Indirect Project Company Obligations”). Without limiting the foregoing, no ERISA Affiliate of any Loan Party sponsors, maintains, participates in, has an obligation to contribute to or has any liability in respect of, and within the six (6) year period immediately preceding the date hereof, has not sponsored, maintained, participated in, had an obligation to contribute to or any liability in respect of any Pension Plan or any Multiemployer Plan.

5.24 No Force Majeure. To the Knowledge of the Borrower, no event of force majeure or other event or condition exists which (a) provides any Material Project Party the right to cancel or terminate any Material Project Document to which it is a party in accordance with the terms thereof, which cancellation or termination could reasonably be expected to have a Material Adverse Effect or (b) provides any Material Project Party the right to suspend its performance (or be excused of any liability) under any Material Project Document to which it is a party in accordance with the terms thereof, which suspension (or excuse) could reasonably be expected to (x) result in the Project failing to achieve the Conversion Date by the Date Certain or (y) which suspension (or excuse) could reasonably be expected to have a Material Adverse Effect.

5.25 Pari Passu. The Borrower’s obligations under this Agreement rank and will rank at least pari passu in priority of payment and in all other respects with all other present or future unsecured and secured Indebtedness of the Borrower.

5.26 Labor Matters. No strike, lockout or other labor dispute in connection with the Project or the business of the Borrower or, to the Knowledge of the Borrower, the Project Company exists or, to the Knowledge of the Borrower, is threatened, that could reasonably be expected to result in a material liability to the Borrower or the Project Company.

5.27 Operating Arrangements. The management, administration and operating-related responsibilities delegated to the Operator under the Operating Agreement constitute all of the management, administration and operating-related obligations of the Borrower pursuant to the Transaction Documents and Material Project Documents.

 

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ARTICLE VI.

AFFIRMATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnity obligations not due and payable), the Borrower shall:

6.01 Financial Statements. Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

(a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Borrower and the Project Company (as applicable) (commencing with the fiscal year ending December 31, 2018, with respect to the Project Company, and December 31, 2019, with respect to the Borrower), a balance sheet of the Borrower and the Project Company as at the end of its respective fiscal year, and their respective related statements of income or operations, changes in members’ equity, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit other than, in the case of the Borrower, any such qualifications based on the scheduled maturity of the Loans; and

(b) as soon as available, but in any event within the later of (i) 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and the Project Company (as applicable) (commencing with the fiscal quarter ended on March 31, 2019 for the Borrower and June 30, 2019 for the Project Company) and (ii) 15 Business Days after the Borrower receives the Project Company’s financial statements, a balance sheet of the Borrower and the Project Company as at the end of its respective fiscal quarter, and the related statements of income or operations, changes in members’ equity, and cash flows for such fiscal quarter and for the portion of the Borrower’s or the Project Company’s (as applicable) fiscal year then elapsed, setting forth, commencing with the fiscal quarter ending on March 31, 2019 for the Borrower and June 30, 2019, in each case, in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, and, in the case of the Borrower’s financial statements, certified by a Responsible Financial Officer of the Borrower as fairly presenting the financial condition, results of operations, members’ equity and cash flows of the Borrower in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.

6.02 Certificates; Other Information. Deliver to the Administrative Agent and each Lender:

(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a Responsible Financial Officer of the Borrower (which delivery may, unless the Administrative Agent, or a Lender requests executed originals, be by electronic communication including email and shall be deemed

 

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to be an original authentic counterpart thereof for all purposes); provided that, such Compliance Certificate shall (i) state that the financial statements referred to in Sections 6.01(a) and (b) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) fairly present the financial condition of each of the Borrower and the Project Company as of the dates thereof and its respective results of operations and cash flows for the period covered thereby in accordance with GAAP consistently applied throughout the periods covered thereby, except as otherwise expressly noted therein;

(b) within five (5) Business Days following receipt by the Borrower, any amendments or waivers of, supplements to, or material consents under, any of the Material Project Documents;

(c) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party or, to the extent received by the Borrower, the Project Company by independent accountants in connection with the accounts or books of any Loan Party or the Project Company, as applicable, or any audit of any of them;

(d) the following notices received by the Borrower under the applicable Material Project Document:

(i) within five (5) Business Days following receipt, (1) each Construction Budget (as defined in the Operating Agreement), each Operating Budget and each amendment thereof, (2) any action or proceeding against or of any non-compliance by the Project Company with any Environmental Law or Environmental Permit, (3) any notice of a Release of Hazardous Materials that must be reported to a Governmental Authority pursuant to applicable Environmental Laws (except for any such Release which could not reasonably be expected to result in a material liability or obligation), (4) each notice of dispute or claim of indemnity, (5) each notice of sale, assignment or other transfer of the equity interests in the Project Company (including grant of security interests in such equity interests), (6) each notice of force majeure, Event of Loss, emergency, or failure to meet standards of care, (7) each notice of action by the Project Company provided to non-consenting members, (8) each notice of termination, (9) each notice of key decisions under Section 5.2 of the Project Company LLC Agreement, (10) each notice of any amendment of, default under or termination of the Material Project Document or entry into an Additional Project Document, Additional Offtake Agreement or Replacement Project Document, and (11) each receipt of proceeds or liquidated damages under the EPC Contracts;

(ii) within two (2) Business Days following receipt, (1) each notice of a capital contribution required to be made, (2) each notice of the Borrower’s failure to make a capital contribution; and (3) each notice of default by the Borrower, in each case under the Project Company LLC Agreement; and

 

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(e) promptly, (i) such additional information regarding the business, financial, legal or corporate affairs of (x) the Borrower or compliance with the terms of the Loan Documents or (y) to the extent in the possession of the Borrower or reasonably obtainable, the Project Company, as the Administrative Agent or any Lender may from time to time reasonably request or (ii) information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” requirements under the PATRIOT Act or other applicable anti-money laundering laws;

(f) (i) commencing April 30, 2019, as soon as available and in any event on the last day of each month (or the next succeeding Business Day if the last day of a given month is not a Business Day), monthly Construction Reports as to the Project from Enterprise, status reports from the counterparties to the Storage Tank EPC Contract and the Liquefaction Facility, respectively, a breakdown and description of the Project Costs incurred by the Project Company as reported by the Construction Manager (including owner costs as outlined in Exhibit B of the Construction Management Agreement and not paid pursuant to an EPC Contract), an updated Project Schedule in the form of a bar chart or table of milestones as reported by the Construction Manager highlighting the estimated Conversion Date and any material deviations to the contractual schedule, status reports from Enterprise with respect to the “Permitting, Engineering, Procurement, and Construction” progress of the carrier pipeline referred to in the Transportation Services Agreement, health and safety reports covering the period’s and year to date health and safety metrics, including, contractor and employer job hours, lost-time-incidents, recordables, fatalities, and a summary of the status of the Applicable Governmental Authorizations necessary for the construction and operation of the Project; and (ii) commencing on June 30, 2019, as soon as available and in any event within thirty (30) days following the end of each fiscal quarter (or the next succeeding Business Day if the last day of a given month is not a Business Day), quarterly Construction Reports as to the Project from the Lenders’ Technical and Environmental Consultant.

Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(c) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender upon its request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks, Debtdomain, SyndTrak, ClearPar, or another similar electronic system (the “Platform”) and (b) certain of the Lenders (each, a “Public Lender”) may have personnel who do

 

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not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. The Borrower hereby agrees that if at any time the Borrower is the issuer of any outstanding debt or equity securities that are registered or issued pursuant to a private offering or is actively contemplating issuing any such securities it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States Federal and state securities Laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information”; and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information.”

6.03 Notices. Promptly after the Borrower obtains Knowledge thereof, notify the Administrative Agent and each Lender of any of the following:

(a) the occurrence of any Default or Event of Default;

(b) any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of any Loan Party or breach or non-performance by the Project Company or any Material Project Party of, or any default under, any Material Project Document; (ii) any dispute, litigation, investigation, proceeding or suspension between any Loan Party and any Governmental Authority or the Project Company and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding against any Loan Party or the Project Company, including pursuant to any Environmental Laws;

(c) any material change in accounting policies or financial reporting practices by the Borrower or the Project Company;

(d) the (i) occurrence of any Disposition of property or assets for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(v), (ii) occurrence of any sale of capital stock or other Equity Interests for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(viii), (iii) incurrence or issuance of any Indebtedness for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(vi) and (iii) any other event (including any Event of Loss) for which the Borrower is required to make a mandatory prepayment pursuant to Section 2.05; and

 

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(e) any change in the information provided in the Beneficial Ownership Certification that would result in a change to the list of beneficial owners identified in parts (c) or (d) of such certification.

Each notice pursuant to Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document, if any, that have been breached; provided that, failure to describe a breached provision shall not constitute a separate Default or Event of Default.

6.04 Payment of Obligations. (a) Pay and discharge, and cause the Project Company to pay and discharge, as the same shall become due and payable, all its obligations and liabilities, including (i) all material Tax liabilities upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted (which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien) and adequate reserves in accordance with GAAP are being maintained by the Borrower or the Project Company (as applicable); (ii) all lawful claims which, if unpaid, would by law become a Lien upon its property, unless being contested in good faith and for which adequate reserves in accordance with GAAP are being maintained by the Borrower or the Project Company (as applicable); and (iii) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness; and (b) timely file, and cause the Project Company to timely file, all material tax returns required to be filed.

6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect, and cause the Project Company to preserve, renew and maintain in full force and effect, its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary in the normal conduct of its business, and cause the Project Company to take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew, and cause the Project Company to preserve or renew, all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

6.06 Material Project Documents. Cause the Project Company to, perform and observe all material terms and provisions of each Material Project Document to be performed or observed by it, maintain each such Material Project Document to which it is a party in full force and effect (it being understood that the Project Company shall not be required to maintain in full force and effect any agreement that expires in accordance with its terms), and enforce each such Material Project Document in accordance with its material terms. If, notwithstanding the foregoing, any Material Project Document is terminated or canceled except by expiration in accordance with its terms, the Borrower shall cause the Project Company to enter into a Replacement Project Document within 60 days after the termination and shall deliver such Replacement Project Document to the Administrative Agent; provided that, any Replacement Project Document entered into following the termination or cancellation of (i) a Commitment Offtake Agreement shall also satisfy the requirements of an Increase Commitment Offtake Agreement or (ii) the Terminal Service Agreement shall be reasonably acceptable to the Required Lenders.

 

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6.07 Compliance with Laws. Comply, and cause the Project Company to comply, in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. The Borrower shall, and shall cause the Project Company to, take all actions reasonably requested by Lenders to permit Lenders to be in compliance in all material respects with the requirements of the Equator Principles.

6.08 Project Construction; Maintenance of Property.

(a) Cause the Project Company to construct and complete the Project and cause the Project to be constructed, as applicable, consistent with Prudent Industry Practices and consistent in all material respects with Applicable Governmental Authorizations, Environmental Laws, the EPC Contracts, the Construction Budget and Schedule, the other Material Project Documents, and in accordance with the requirements for maintaining the effectiveness of the material warranties of the EPC Contractors and each subcontractor thereof (including equipment manufacturers)

(b) Cause the Project Company to (i) keep and maintain the Project and other property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted, in accordance with Prudent Industry Practice, (ii) maintain and operate the Project in accordance with all Applicable Governmental Authorizations and all applicable Laws in all material respects, and (iii) maintain good title to the Project’s properties.

6.09 Insurance.

(a) Within ninety (90) days after the Closing Date, cause insurance complying with this Section 6.09 and required to be in place to be in full force and effect and the Administrative Agent shall have received (i) with respect to any insurance required to be obtained and maintained by the Borrower pursuant to Section 6.09(d), the certificates signed by the insurer or broker authorized to bind the insurer, and (B) a certificate from the Insurance Consultant, confirming, among other things, that the relevant Persons have the insurance required by this Section 6.09 and all premiums then due and payable on such insurance have been paid or otherwise in form and substance reasonably satisfactory to the Required Lenders.

(b) Provide to the Insurance Consultant, information to enable the Insurance Consultant to deliver an updated Insurance Consultant Report and Schedule 6.09 (which shall amend and replace the existing Schedule 6.09 in its entirety with no further action by any party hereto) to the Lenders within thirty (30) days after the Closing Date.

(c) Within ninety (90) days after the Closing Date cause the Project Company to obtain and maintain, the types and amounts of insurance required to be obtained by the Project Company, as listed and described in the Project LLC Agreement and the Material Project Documents, in accordance with the terms and provisions set forth in the Project LLC Agreement and the Material

 

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Project Documents (the “Project Company Required Insurance”); provided that, if such Required Insurance is unavailable on commercially reasonable terms, the Borrower may, with the concurrence of the Insurance Consultant, cause the Project Company to reduce or eliminate the Project Company Required Insurance coverage or otherwise adjust the terms of insurance to what is available on commercially reasonable terms.

(d) Within ninety (90) days after the Closing Date, obtain and maintain, the types and amounts of insurance required to be obtained by the Borrower, as listed and described in Schedule 6.09 (the “Borrower Required Insurance”) to the extent not otherwise demonstrated as having been obtained by the Project Company; provided that, if such Borrower Required Insurance is unavailable on commercially reasonable terms, the Borrower may, with the concurrence of the Insurance Consultant, reduce or eliminate the Borrower Required Insurance coverage or otherwise adjust the terms of insurance to what is available on commercially reasonable terms.

6.10 Maintenance of Governmental Authorizations. Cause the Project Company to obtain, renew and maintain in full force and effect, and comply with, all Applicable Governmental Authorizations under existing rules of a Governmental Authority (including Environmental Laws) that are required to be obtained by or on behalf of the Project Company for the ownership, operation and maintenance of the Project.

6.11 Operation of the Project.

(a) Cause the Project Company to cause the Project to be kept and operated, in good operating condition consistent with the applicable standards set forth in Section 7.0 of the Operating Agreement, all Applicable Governmental Authorizations and all Laws and all applicable requirements of the Material Project Documents, and make or cause to be made all repairs (structural and non-structural, extraordinary or ordinary) necessary to keep and operate the Project in such condition.

(b) Cause the Project Company to replace or consent to the replacement of the Operator if the Operator is in default of the Operating Agreement, upon receipt of notice from the Administrative Agent to the effect that, in the reasonable opinion of the Required Lenders and in consultation with the Lenders’ Technical and Environmental Consultant after consultation with the Borrower, the Operator has failed to perform any material obligations set forth therein.

(c) Cause the Project Company to adopt and put in place a final Operating Budget or Default Budget (as defined in the Operating Agreement) prior to the Conversion Date and prior to the beginning of each calendar year following the Conversion Date and a draft Operating Budget 90 days prior to the beginning of each calendar year following the Conversion Date; provided that, without the approval of the Required Lenders, the Borrower shall not vote in favor of accepting an Operating Budget pursuant to Section 5.2(a)(xx) of the Project Company LLC Agreement.

6.12 Books and Records. (a) Maintain and cause the Project Company to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied, in all material respects, shall be made of all financial transactions and matters involving the assets and business of the Loan Parties or the Project Company (as applicable) and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Loan Parties or the Project Company (as applicable).

 

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6.13 Inspection Rights.

(a) Permit representatives and independent contractors of the Administrative Agent and each Lender to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided that, such inspection right shall not be exercised more than once per year and not more than three (3) Business Days per inspection unless an Event of Default is then continuing; provided that, when an Event of Default is continuing the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

(b) Use commercially reasonable efforts to procure access for representatives and independent contractors (including the Lenders’ Technical and Environmental Consultant) of the Administrative Agent to visit and inspect the properties of the Project Company, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrower during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Project Company; provided that, such inspection right shall not be exercised more than once per year (or four (4) times per year in the case of the Lenders’ Technical and Environmental Consultant) and not more than three (3) Business Days per inspection (in each case, not including any inspection rights necessary or desirable in connection with the Lenders’ Reliability Test) unless an Event of Default is then continuing.

6.14 Use of Proceeds.

(a) Use the proceeds of the Term Loans solely to (i) make a capital contribution from the Borrower to the Project Company to be used solely for payment of Project Costs, (ii) pay Debt Service during construction, (iii) pay financing costs associated with the Transaction, (iv) fund the Debt Service Reserve Account in an amount up to the Debt Service Reserve Required Amount, and (v) on the Conversion Date, apply such proceeds in accordance with the Depositary Agreement.

(b) Not use or permit the use of the proceeds of any Loan to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

 

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6.15 Collateral Matters.

(a) Unless otherwise prohibited by the Project Company LLC Agreement, upon the acquisition of any property by any Loan Party, if such property shall not already be subject to a perfected first priority security interest in favor of the Collateral Agent for the benefit of the Secured Parties, then such Loan Party shall, at the Borrower’s expense:

(i) within ten (10) days after such acquisition, furnish to the Administrative Agent a description of the property so acquired in detail satisfactory to the Required Lenders,

(ii) within twenty (20) days after such acquisition, cause the applicable Loan Party to take whatever action (including the filing of UCC Code financing statements) may be necessary or advisable in the opinion of the Administrative Agent and Collateral Agent to vest in the Collateral Agent (or in any representative of the Collateral Agent designated by it) valid and subsisting Liens on such property, enforceable against all third parties and (y) deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties reasonably acceptable to the Required Lenders as to the matters contained in clause (ii) above.

(b) At any time upon request of the Administrative Agent or Collateral Agent, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent or Collateral Agent may reasonably request to perfect and preserve the Liens, of the Collateral Documents.

(c) Maintain the Project Accounts and deposit all Revenues and other amounts received into the Project Accounts, in accordance with the Depositary Agreement.

6.16 Project Company LLC Agreement and Fundamental Matter Approval.

(a) Obtain and act in accordance with the Required Lenders’ approval with respect to (i) all fundamental matters listed in Section 5.2 of the Project Company LLC Agreement or (ii) electing to participate in a Capital Project pursuant to Section 12.1 of the Project Company LLC Agreement.

(b) Perform and observe all material terms and provisions of the Project Company LLC Agreement to be performed or observed by it and maintain the Project Company LLC Agreement in full force and effect, and enforce its rights under the Project Company LLC Agreement in accordance with its material terms.

6.17 Lenders Reliability Test. (a) No later than Mechanical Completion (as defined in the Liquefaction EPC Contract and the Storage Tank EPC Contract), deliver to the Administrative Agent and the Lenders’ Technical and Environmental Consultant the corresponding commissioning procedures for the Project, specific procedures for conducting, and minimum performance standards for, each of the three stages of the Lenders’ Reliability Test and (b) within ten (10) days following the completion of each stage of the Lenders’ Reliability Test, deliver to the Administrative Agent and the Lenders’ Technical and Environmental Consultant the results of the applicable stage of the Lenders’ Reliability Test.

 

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6.18 Further Assurances. Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) to the fullest extent permitted by applicable law, subject any Loan Party’s properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents and (ii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder.

6.19 Information Regarding Collateral. Not affect any change (i) in any Loan Party’s legal name, (ii) in any Loan Party’s identity or organizational structure or (iii) in any Loan Party’s jurisdiction of organization (in each case, including by merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or organizing in any other jurisdiction), until (A) it shall have given the Administrative Agent and Collateral Agent not less than 30 days’ prior written notice (in the form of certificate signed by a Responsible Officer), or such lesser notice period agreed to by the Administrative Agent, of its intention so to do, clearly describing such change and providing such other information in connection therewith as the Administrative Agent or Collateral Agent may reasonably request and (B) it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the perfection and priority of the security interest of the Collateral Agent for the benefit of the Secured Parties in the Collateral, if applicable. Each Loan Party agrees to promptly provide the Administrative Agent and Collateral Agent with certified Organization Documents reflecting any of the changes described in the preceding sentence.

6.20 Anti-Corruption Laws. (a) Conduct its businesses in compliance with applicable anti-corruption laws, Sanction laws and the USA Patriot Act and other applicable anti-money laundering laws and (b) ensure that the proceeds of any Loans are not (i) used, directly or indirectly, for any purpose which would breach the United States Foreign Corrupt Practices Act of 1977, as amended, or other similar legislation in other jurisdiction.

6.21 Distribution of Available Cash. Cause the Project Company to distribute the Equity Percentage of the Available Cash (as defined under the Project Company LLC Agreement) to the Borrower, and not cause the Project Company to subject Available Cash to any restrictions on distribution.

6.22 Secured Hedge Agreements. Enter into, or be assigned, Secured Hedge Agreements for at least the Required Hedge Amount within forty-five (45) days of the Closing Date with one or more Hedge Banks on terms and conditions reasonably satisfactory to the Required Lenders. Thereafter, until the Maturity Date, the Borrower shall maintain Secured Hedge Agreements in full force and effect for not less than the Required Hedge Amount. The Borrower shall partially terminate one or more Secured Hedge Agreements in a proportionate amount equal to any voluntary or mandatory prepayment or other reduction in Commitments pursuant to Section 2.04, subject to Section 2.06(c).

 

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6.23 Separateness. Comply with the following:

(a) maintain accounts separate from those of any Affiliate of the Sponsor with commercial banking institutions and not commingle its funds with those of the Sponsor or any other Affiliate of the Sponsor;

(b) act solely in its name and through its duly authorized officers, managers, representatives or agents in the conduct of its businesses and not identify itself as a department or division of any other entity;

(c) conduct its business solely in its own name, in a manner not misleading to other Persons as to its identity (without limiting the generality of the foregoing, all oral and written communications (if any), including invoices, checks, purchase orders, and contracts) and correct any known misunderstanding regarding its separate identity;

(d) obtain proper authorization from member(s), director(s) and manager(s) as required by its limited liability company agreement for all of its limited liability company actions; and

(e) maintain accurate books and records separate from any other Person;

(f) pay its own liabilities out of its own funds;

(g) allocate fairly and reasonably any overhead for shared expenses; and

(h) comply with the terms of its limited liability company agreement.

6.24 Delivery of Additional Project Documents. After the entry into any Additional Project Document, Additional Offtake Agreement or Replacement Project Document and receipt of a copy of such by the Borrower, deliver a copy of such Additional Project Document, Additional Offtake Agreement or Replacement Project Document to the Administrative Agent.

6.25 Pre-Existing Bank Account. Close the Pre-Existing Bank Account on or prior to the first Borrowing of the Term Loans and, upon closing the Pre-Existing Bank Account, transfer all funds on deposit therein into the Construction Account.

6.26 Payment of Fees. On the earlier of the first disbursement of the Term Loans or the date 30 days following the Closing Date:

(a) (i) All fees required to be paid to the Administrative Agent and the Arrangers on or before the such date shall have been paid, (ii) all fees required to be paid to the Lenders on or before such date shall have been paid and (iii) all other fees required to be paid on or before such date in accordance with any Fee Letter shall have been paid.

(b) Without duplication of the fees contemplated by the preceding clause (a), the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) and all other costs and expenses then due and payable by the Borrower pursuant to this Agreement and the Fee Letters, to the extent invoiced at least three (3) Business Days prior to such date, plus such additional amounts of such fees, charges and disbursements of such counsel as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the date of such Borrowing (provided that, such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).

 

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6.27 Project Accounts. Cause the Project Accounts to be established within thirty (30) days following the Closing Date.

Notwithstanding anything to the foregoing in this Article VI, with respect to any affirmative covenants that seek to require actions of Project Company (including any such actions that require an agreement to be in form and substance satisfactory to the Required Lenders), the Borrower’s obligation shall be to vote its interest in the Project Company to cause such actions, but it shall not be a violation of such covenant by the Borrower if such actions cannot be required to be taken by the Project Company due to the Borrower’s inability to exercise its voting rights or inability to cause such action under the Project Company LLC Agreement.

ARTICLE VII.

NEGATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied (other than contingent indemnity obligations not due and payable):

7.01 Liens.

(a) The Borrower shall not create, assume or suffer to exist any Lien upon any of its property, real or personal, whether now owned or hereafter acquired, except Permitted HoldCo Liens.

(b) The Borrower shall not cause or permit the Project Company to create, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, real or personal, whether now owned or hereafter acquired, except Permitted Project Company Liens.

7.02 Indebtedness.

(a) The Borrower shall not create, incur, assume or suffer to exist any Indebtedness, except:

(i) Indebtedness under the Loan Documents and other Obligations (including Secured Hedge Agreements);

(ii) to the extent constituting Indebtedness, obligations under the Material Project Documents; and

(iii) intercompany Indebtedness subordinated on terms and conditions set forth in Exhibit L or otherwise satisfactory to the Required Lenders.

 

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(b) The Borrower shall not cause or permit the Project Company to create, incur, assume or suffer to exist any Indebtedness, except:

(i) to the extent constituting Indebtedness, obligations under the Material Project Documents or any Non-Material Documents;

(ii) to the extent constituting Indebtedness, any derivative contract required pursuant to Indebtedness permitted pursuant to Section 7.02(b)(i); and

(iii) trade indebtedness incurred in the ordinary course of developing the Project and operating the Project (but not for borrowed money) and not more than ninety (90) days past due; and

(iv) to the extent constituting Indebtedness, obligations in an aggregate amount not exceeding $10,000,000, pursuant to Section 5.2(a)(xviii) of the Project Company LLC Agreement.

7.03 Investments.

(a) The Borrower shall not make or hold any Investments, except:

(i) Investments held by the Borrower in the Project Accounts in the form of Cash Equivalents;

(ii) Investments by the Borrower in the Project Company pursuant to the Project Company LLC Agreement; and

(iii) to the extent constituting Investments, Permitted Swap Contracts;

(b) The Borrower shall not cause or permit the Project Company to make any Investments held by the Project Company in the Project, except:

(i) Investments in the ordinary course of business;

(ii) Investments contemplated by the Operating Budget;

(iii) Investments in connection with an Emergency (as defined in the Operating Agreement);

(iv) any deposit and securities accounts (if any); and

(v) Investments not to exceed $1,000,000 in any year.

7.04 Fundamental Changes. The Borrower shall not, and shall not cause or permit the Project Company to, merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person.

 

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7.05 Dispositions.

(a) The Borrower shall not make any Disposition, except:

(i) Dispositions constituting Investments permitted by Section 7.03(a) to the extent required by Section 6.22; and

(ii) Dispositions constituting Restricted Payments permitted by Section 7.06; and

(b) The Borrower shall not cause or permit the Project Company to make any Disposition, except:

(i) Dispositions pursuant to the Offtake Agreements in the ordinary course of business;

(ii) Dispositions constituting Restricted Payments under Section 7.06;

(iii) Dispositions in connection with an Emergency (as defined in the Operating Agreement);

(iv) Dispositions constituting Investments permitted by Section 7.03(b);

(v) Dispositions, in the aggregate less than $1,500,000, that are:

(A) contemplated by Section 12.1 of the Operating Agreement; and

(B) surplus, obsolete, worn out or replaced personal property not used or useful in the construction or operation of the Project at fair market value (provided that in any fiscal year the Project Company may rely on this clause (v) only in respect of dispositions of such assets having aggregate proceeds of up to $1,000,000 and, in respect of any such dispositions in excess of such permitted amount, such excess disposition shall require confirmation from the Lenders’ Technical and Environmental Consultant that such assets are not required for the continued operation of the Project; and

(vi) Dispositions other than in respect of clauses (i) through (v) above, not to exceed $3,000,000 in any year.

7.06 Restricted Payments.

(a) The Borrower shall not declare or make, directly or indirectly, any Restricted Payment, unless each of the following conditions has been satisfied at the time of the making of such Restricted Payment:

(i) the Conversion Date has occurred and the Scheduled Repayment Amount on the First Repayment Date has been made;

(ii) no Default or Event of Default has occurred and is continuing or would occur as a result of making such Restricted Payment;

 

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(iii) the Debt Service Reserve Account has been fully funded in accordance with the Depositary Agreement;

(iv) (A) the then applicable Target Debt Balance has been achieved, (B) the Debt Service Coverage Ratio is greater than or equal to 1.20:1 for the preceding twelve months from the applicable Repayment Date (or such shorter number of months, if applicable, from the Conversion Date) and (C) the Projected Debt Service Coverage Ratio based on Contracted Cash Flows for the succeeding twelve months from the applicable Repayment Date shall be greater than or equal to 1.20:1;

(v) all mandatory prepayments (if any) have been made in accordance with Section 2.05(b);

(vi) any such Restricted Payment is made from funds on deposit in the Distribution Account in accordance with the Depositary Agreement; and

(vii) the Completion Reserve Account has been fully funded in an amount at least equal to the then applicable Required Completion Reserve Amount (if any) less any amounts withdrawn from the Completion Reserve Account pursuant to Section 3.03(h) of the Depositary Agreement;

(viii) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer certifying that the conditions set forth in clauses (a)(i) through (a)(vii) have been satisfied as of the date of any such Restricted Payment (including relevant supporting calculations in respect of clause (a)(iv) above).

(b) Notwithstanding the foregoing, in accordance with Section 3.03(j)(i) of the Depositary Agreement, the Borrower shall be permitted to make Permitted Tax Distributions so long as (i) no Default or Event of Default has occurred and is continuing or would occur as a result of making such Restricted Payment and (ii) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer certifying as to the matters contemplated in the foregoing clause (i) and setting forth applicable supporting calculations as to the amount of any such Permitted Tax Distribution.

(c) The Borrower shall not permit the Project Company to declare or make, directly or indirectly, any Restricted Payment to or in favor of any Person other than the Borrower, Enterprise and any other members of the Project Company, except in accordance with the Project Company LLC Agreement.

(d) [Reserved].

(e) Notwithstanding the foregoing, in accordance with Section 3.03(a)(ii)(E) of the Depositary Agreement, the Borrower shall be permitted to make a Restricted Payment on the Conversion Date so long as (i) no Default or Event of Default has occurred and is continuing or would occur as a result of making such Restricted Payment, (ii) after giving effect to such Restricted Payment, the Debt to Equity Ratio does not exceed 50:50 and (iii) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer certifying as to the matters contemplated in the foregoing clauses (i) and (ii).

 

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7.07 Conduct of Business. The Borrower shall not engage in any business or activity other than (i) ownership of the Equity Interests issued by the Project Company and activities reasonably related thereto, including exercise of its rights and performances of its obligations under the Project Company LLC Agreement, (ii) entering into the Loan Documents and performance of its obligations thereunder and (iii) activities incidental to the business or activities described in the foregoing clauses (i) and (ii). The Borrower shall not form or hold any Subsidiary, become a general or limited partner in any partnership or become a party to a joint venture (other than as a member of the Project Company). The Borrower will not own any assets other than as indicated in Section 5.08(c). The Borrower shall not permit the Project Company to engage in any business or activity other than design, construction, operation and maintenance of the Project, and any activities reasonably related thereto, including (i) exercise of its rights and performances of its obligations under the Material Project Documents and (ii) any other business that is permitted in accordance with the Project Company LLC Agreement.

7.08 Transactions with Affiliates. The Borrower shall not, and shall not permit or cause the Project Company to enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower as would be obtainable by the Borrower at the time in a comparable arm’s length transaction with a Person other than an Affiliate; provided that the foregoing restriction shall not prohibit Restricted Payments permitted by Section 7.06.

7.09 Burdensome Agreements. The Borrower shall not, and shall not permit or cause the Project Company to enter into or permit to exist any Contractual Obligation that limits the ability of any Loan Party to create, incur, assume or suffer to exist Liens to secure the Obligations or any refinancings or replacements thereof.

7.10 Financial Covenant. At the end of each fiscal quarter following the Conversion Date, the Borrower shall not permit the Debt Service Coverage Ratio for the period of the prior 12 months (or the number of months since the Conversion Date, if less) or the Projected Debt Service Coverage for the next 12 months to be less than 1.10:1; provided that, such financial covenant shall not be tested until the second full fiscal quarter of the Borrower following the Conversion Date.

7.11 Amendments of Organization Documents. The Borrower shall not, and shall not permit or cause the Project Company to amend any of its Organization Documents in a manner materially adverse to the Lenders.

7.12 Change in Fiscal Year. The Borrower shall not, and shall not permit or cause the Project Company to make any change in (i) fiscal year or (ii) its accounting or financial reporting policies, in each case, other than as permitted in accordance with GAAP or as required by applicable law.

7.13 Amendment, Etc. of Material Project Documents, and Indebtedness. Except to the extent permitted under Section 6.06, the Borrower shall not, and shall not permit or cause the Project Company to (a) cancel, suspend or terminate or permit the termination of, or cause or permit the Project Company to cancel, suspend or terminate or permit the termination of, any Material Project Document, or any other document entered in connection therewith (including the

 

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Operating Budget) or consent to, or accept any cancellation, suspension or termination thereof or (b) amend, modify or change, or cause or permit the Project Company to amend, modify or change, in any manner any term or condition of any Material Project Document or any other document entered in connection therewith (including the Operating Budget) or give any consent, waiver or approval thereunder (except as may be expressly permitted in the Operating Agreement). The Borrower shall not permit the Project Company to enter into or become a party to any Additional Project Document, Additional Offtake Agreement or Replacement Project Document, except (i) with the prior written consent of the Required Lenders, not to be unreasonably withheld, conditioned or delayed, (ii) in the name of the Project Company and (iii) upon delivery to the Administrative Agent of the documents required pursuant to Section 6.24. If the Borrower is not permitted to vote on entry into an Additional Offtake Agreement but is permitted to provide comments pursuant to Section 4.9.1 of the Operating Agreement or otherwise and such Additional Offtake Agreement will not be an Increase Commitment Offtake Agreement, the Borrower’s comments shall recommend that the Offtake Agreement provides that the counterparties to Commitment Offtake Agreements receive priority with respect to loading and berthing and that the Additional Offtake Agreement does not otherwise result in any violation of any material term or provision of the Commitment Offtake Agreements.

7.14 ERISA. No Loan Party shall become an ERISA Affiliate of the Project Company. No Loan Party or the Project Company shall contribute to or has any liability (actual or contingent) under or with respect to any employee benefit plan (as defined in Section 3(3) of ERISA, including without limitation any Pension Plan or Multiemployer Plan of a Loan Party, the Project Company or any ERISA Affiliate of the Loan Party or Project Company, other than Indirect Project Company Obligations.

7.15 Swaps. The Borrower shall not enter into any Swap Contract, except for any Secured Hedge Agreement in accordance with Section 6.22.

7.16 Sale and Leasebacks. The Borrower shall not, and shall not permit the Project Company to, enter into any arrangement with any Person providing for the leasing by the Project Company of real or personal property that has been or is to be sold or transferred by the Project Company to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Project Company.

7.17 Other Accounts.

(a) The Borrower shall not open or maintain, or permit or instruct any other Person to open or maintain on its behalf, or use or be the beneficiary of any account other than the Project Accounts, the Operating Local Account and the Pre-Existing Bank Account.

(b) The Borrower shall not change the name or account number of any of the Project Accounts without the prior written consent of the Administrative Agent and the Collateral Agent.

7.18 Tax Status. The Borrower shall not take any affirmative action (including the filing of an IRS Form 8832 electing to be classified as an association taxable as a corporation) to be treated as other than a partnership or disregarded entity for U.S. federal, state or local income tax purposes.

 

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7.19 Applicable Governmental Authorizations.

(a) The Borrower shall not take, and shall not permit the Project Company to take, any action or inaction that would reasonably be expected to result in a material violation of any necessary Applicable Governmental Authorization or subject the Project, the Project Company, the Borrower, or any of its Affiliates to material liabilities thereunder.

(b) The Borrower shall not, and shall not cause the Project Company to, take any action or fail to act in any manner that would cause the Administrative Agent, the Collateral Agent, or the Lenders or any Affiliate of any of them to become, solely as a result of design, construction, operation and maintenance of the Project or the delivery or performance of any Loan Document or any transaction contemplated therein, subject to regulation under the ICA or Texas laws or any regulations promulgated thereunder, except to the extent required by the exercise of remedies under the Loan Documents.

(c) The Borrower shall not take, and shall not cause the Project Company to take, any action or fail to act in any manner that would subject it or the Project Company to or cause it or the Project Company to not otherwise be exempt from, regulation as a “common carrier” under the ICA or any similar term under any Texas laws or any regulations promulgated under any of the foregoing.

7.20 Acceptance. The Borrower shall not, and shall not permit the Project Company to, accept or approve (i) Final Acceptance (as defined in the Liquefaction EPC Contract) under the Liquefaction EPC Contract, (ii) the results of any performance test under any EPC Contract or (iii) the procedures for conducting any performance tests under any EPC Contract, in each case, without the approval of the Required Lenders (acting in consultation with the Lenders’ Technical and Environmental Consultant); provided such approval shall not be unreasonably withheld, conditioned or delayed.

7.21 Sanctions; Anti-Corruption Use of Proceeds. No Loan or DSR Letter of Credit, nor the proceeds from any Loan or DSR Letter of Credit, has been or will be used by the Borrower (A) to lend, contribute to, provide financing for or otherwise fund any activity or business in any Designated Jurisdiction, (B) to fund any activity or business of any Person organized or residing in any Designated Jurisdiction or who is the subject of any Sanctions, or (C) in any other manner that will result in any violation by any party to any Loan Document (including any Lender, the Arrangers or the Administrative Agent) of Sanctions.

Notwithstanding anything to the foregoing in this Article VII, with respect to any negative covenants that seek to prohibit certain actions of Project Company, the Borrower’s obligation shall be to vote its interest in the Project Company to prohibit such actions, but it shall not be a violation of such covenant by the Borrower if such actions are taken by the Project Company due to the Borrower’s inability to exercise its voting rights or inability to prohibit such action under the Project Company LLC Agreement.

 

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ARTICLE VIII.

EVENTS OF DEFAULT AND REMEDIES

8.01 Events of Default. Any of the following shall constitute an Event of Default:

(a) Non-Payment. The Borrower fails to (i) pay when and as required to be paid herein, any amount of principal of any Loan or (ii) pay within three (3) Business Days after the same becomes due, any interest on any Loan, any fee due hereunder or any other amount payable hereunder or under any other Loan Document; or

(b) Specific Covenants. Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Section 6.03(a), 6.05 (as to legal existence), 6.09, 6.14, 6.16, or Article VII; or

(c) Other Defaults. Any Loan Party fails to perform or observe any covenant or agreement not specified in Section 8.01(a) or (b) above contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days after the earlier of notice from the Administrative Agent or actual knowledge of any Loan Party; provided that such initial cure period specified above shall be extended to such date not to exceed ninety (90) days in the aggregate to the extent necessary for such Person (acting diligently) to cure such failure; or

(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made by any Loan Party herein, in any other Loan Document or in any document delivered in connection herewith or therewith shall be materially inaccurate when made and such inaccuracy has not been cured within 45 days after the earlier of notice from the Administrative Agent or actual knowledge of any Loan Party; provided that such initial cure period specified above shall be extended to such date not to exceed sixty (60) days in the aggregate to the extent necessary for such Person (acting diligently) to cure such breach; or

(e) Cross-Default. (i) Any Loan Party or the Project Company (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise and after giving effect to any applicable period of grace) in respect of any Indebtedness (other than Indebtedness hereunder) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, and as a consequence of such failure to perform such Indebtedness has become, or has been declared, due and payable before its stated maturity; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by such Loan Party as a result thereof is greater than the Threshold Amount; or

 

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(f) Insolvency Proceedings, Etc. (i) Any Subject Party (A) files a petition or otherwise commences, authorizes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or (B) applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; (ii) any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed with respect to any Subject Party without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or (iii) any proceeding under any Debtor Relief Law relating to any Subject Party or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; (iv) any Subject Party becomes unable or admits in writing its inability or fails generally to pay its debts as they become due; or (v) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any Subject Party and is not released, vacated or fully bonded within 60 days after its issue or levy (any of the events contemplated in this clause (f), with respect to any such Person, a “Bankruptcy Event”); provided that, no Event of Default shall occur as a result of such circumstance in respect of a Subject Party that is a Material Project Party to the extent that the Material Project Party shall have entered into a Replacement Material Project Document in accordance with the requirements set forth in Section 6.06 with an alternative Subject Party, in each case, within 90 days after the commencement of such involuntary proceeding or petition; provided further that, no Event of Default shall occur as a result of such circumstance in respect of a Subject Party, other than the Project Company, that is a party to an Additional Project Document (to the extent that such circumstance could not reasonably be expected to have a Material Adverse Effect); or

(g) Judgments. There is entered against any Loan Party or the Project Company (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer is rated at least “A” by A.M. Best Company, has been notified of the potential claim and has not issued a written notice disputing coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 60 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

(h) Invalidity of Transaction Documents or Security Interest. (i) Any material provision of any Transaction Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any Affiliate thereof contests in any manner the validity or enforceability of any provision of any Transaction Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Transaction Document, or purports to revoke, terminate or rescind any provision of any Transaction Document or (ii) any Collateral Document shall for any reason (other than pursuant to the express terms thereof) cease to create a valid and perfected Lien in any material respect, with the priority required by the Collateral Documents, or the Collateral Agent shall cease to have a valid, perfected, first priority (except Permitted Liens or except as a result of the failure of the Collateral Agent to maintain possession of certificates actually delivered to it representing securities or negotiable instruments pledged under the Collateral Documents which does not arise

 

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from a breach by a Loan Party of its obligations under the Transaction Documents) security interest in any material respect in or Lien on any Collateral; provided that, for the avoidance of doubt, any economic dilution of the Borrower’s Equity Interests in the Project Company in accordance with the Project Company LLC Agreement shall not constitute a Default or Event of Default; or

(i) Change of Control. Any Change of Control occurs; or

(j) Conversion Date. The Conversion Date has not occurred by the Date Certain; or

(k) ERISA. An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or is reasonably be expected to result in liability of the Borrower to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount that could reasonably be expected to have a Material Adverse Effect; or

(l) Failure to Make Capital Contributions. The Borrower shall have failed to make capital contributions to the Project Company when and as required by the Project Company LLC Agreement, except where there is a good faith dispute with respect to such capital contribution under the Project Company LLC Agreement;

(m) Rejection or Modification of an Applicable Governmental Authorization. Any Applicable Governmental Authorization required for the Project is rejected or modified, except to the extent the Borrower demonstrates to the reasonable satisfaction of the Required Lenders, within 60 days of such rejection or modification, that either (i) such rejection or modification could not reasonably be expected to have material adverse effect on the ownership, operation, business, assets, liabilities, results of operations, financial condition or value of the Project Company, taken as a whole, or (ii) such Applicable Governmental Authorization has expired in accordance with its terms, is no longer necessary or has been replaced; provided, that such 60-day period may be extended until the date that is 105 days following such rejection or modification so long as (A) the Project Company is diligently appealing (or causing to be appealed) such modification or rejection; (B) the Project Company can demonstrate to the reasonable satisfaction of the Required Lenders that such Applicable Governmental Authorization can be replaced within 105 days following such modification or rejection or such other reasonable time period acceptable to the applicable Governmental Authority in relation to such Applicable Governmental Authorization (including a circumstance under which such applicable Governmental Authority allows the Project to continue to be constructed or operate pending issuance of such replacement Applicable Governmental Authorization); (C) the Project Company continues to construct or operate the Project otherwise in compliance with other Laws, including the Environmental Laws; and (D) and such extension could not reasonably be expected to have a Material Adverse Effect; or

(n) Project Abandonment. (i) Abandonment of all or substantially all of the activities related to the Project for a period of 90 consecutive days, other than (x) as a result of a force majeure event (as defined under the relevant Material Project Document) or (y) in connection with any scheduled maintenance, repairs, forced or scheduled outages; or (ii) a formal, public announcement by the Project Company of a decision to abandon the Project; or (iii) any filing by the Project Company with a Governmental Authority giving notice of the intent or requesting authority to abandon the Project for any reason; or (iv) the suspension of construction of the Project for a period of 90 consecutive days, other than (x) as a result of a force majeure event (as defined under the relevant Material Project Document) or (y) in connection with any scheduled maintenance, repairs, forced or scheduled outages; or

 

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(o) Material Project Documents Termination. Any Material Project Document (other than any Additional Project Document to the extent its failure to be valid, binding, or in full force and effect could not reasonably be expected to have a Material Adverse Effect) shall cease to be valid, binding or in full force and effect, and such cessation continues for 60 consecutive days following the earlier of notice from the Administrative Agent or Knowledge of the Borrower of such cessation, unless such Material Project Document (other than the Terminal Services Agreement) is no longer necessary, has expired under its own terms or has been replaced within such 60 day period by a Replacement Project Document in accordance with Section 6.06; provided that, such initial cure period of 60 days shall be extended by an additional 45 days (for an aggregate period of 105 days) to the extent the Loan Parties or the Project Company are acting diligently to cure such cessation and such extension could not reasonably be expected to have a Material Adverse Effect; or

(p) Event of Loss. The occurrence of any Event of Loss affecting all or substantially all of the Project Company’s property without fair value being paid therefor such as to allow prepayment in full of all Obligations then outstanding.

8.02 Remedies upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:

(a) declare the commitment of each Lender to make Loans to be terminated, whereupon such commitments and obligation shall be terminated;

(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

(c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;

provided that, upon the occurrence of an Event of Default under Section 8.01(f) with respect to the Borrower, the obligation of each Lender to make Loans shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Administrative Agent or any Lender.

8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

 

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Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lenders)) arising under the Loan Documents and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and other Obligations arising under the Loan Documents, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and other Obligations then owing under the Loan Documents, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and

Last, the balance, if any, after all of the Obligations have been paid in full, to the Borrower or as otherwise required by Law.

8.04 Equity Cure Right. Notwithstanding anything to the contrary contained in Section 8.01, in the event that the Borrower fails to comply with the Financial Covenant, after the end of the applicable fiscal quarter and on or prior to the day that is ten (10) Business Days after the day on which the Compliance Certificate is required to be delivered pursuant to Section 6.02(a), the Borrower shall have the right to apply the amount of the proceeds of any common equity contributions made to the Borrower to increase Revenues with respect to the applicable fiscal quarter of the Borrower (the “Cure Right”); provided that (a) such proceeds are actually received by the Borrower after the end of the applicable fiscal quarter and on or prior to the day which is ten (10) Business Days after the date on which the Compliance Certificate is required to be delivered pursuant to Section 6.02(a), (b) such proceeds do not exceed the aggregate amount necessary to cure (by addition to Revenues) (the “Cure Amount”) the breach of the Financial Covenant for the applicable period, (c) the Cure Right shall not be exercised more than three (3) times in the aggregate during the term of this Agreement and (d) in each period of four consecutive fiscal quarters of the Borrower there shall be at least two (2) fiscal quarters during which the Cure Right is not exercised. The parties hereby acknowledge that this Section may not be relied on for purposes of calculating any financial ratios other than as applicable to the Financial Covenant and shall not result in any adjustments to any amounts, other than the amount of Revenues referred to in the immediately preceding sentence.

 

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ARTICLE IX.

ADMINISTRATIVE AGENT

9.01 Appointment and Authority. Each of the Lenders hereby irrevocably appoints ING Capital LLC to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article IX are solely for the benefit of the Administrative Agent and the Lenders, and neither the Borrower nor Holdings shall have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:

(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that, the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may affect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; provided further that the Administrative Agent shall not be liable for exercising, or not exercising, any right, power, authority or discretion given to it by, or in connection with, any Loan Document or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with, any Loan Document, other than by reason of its gross negligence or willful misconduct;

 

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(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity;

(d) shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct, as determined by a court of competent jurisdiction by a final and nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until notice describing such Default or Event of Default is given to the Administrative Agent by the Borrower or a Lender;

(e) shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent;

(f) shall not be liable, including, without limitation, for negligence or any other category of liability whatsoever (but not including any claim based on the fraud of the Administrative Agent) arising as a result of (i) any act, event or circumstance not reasonably within its control or (ii) the general risks of investment in, or the holding of assets in, any jurisdiction, including (in each case and without limitation) such damages, costs, losses, diminution in value or liability arising as a result of nationalization, expropriation or other governmental actions; any regulation, currency restriction, devaluation or fluctuation; market conditions affecting the execution or settlement of transactions or the value of assets (including any Disruption Event); breakdown, failure or malfunction of any third party transport, telecommunications, computer services or systems; natural disasters or acts of God; war, terrorism, insurrection or revolution; or strikes or industrial action;

(g) shall not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Loan Documents to be paid by the Administrative Agent if the Administrative Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognized clearing or settlement system used by the Administrative Agent for that purpose; and

(h) shall not be liable for any action taken by it under or in connection with Section 3.01(e).

 

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9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article IX shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents and no Party (other than the Administrative Agent) may take any proceedings against any officer, employee or agent of the Administrative Agent in respect of any claim it might have against the Administrative Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Loan Document and any officer, employee or agent of the Administrative Agent may rely on this clause.

9.06 Resignation of the Administrative Agent.

(a) The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with the Borrower’s consent (which consent shall not be unreasonably withheld or delayed and shall not be required during an Event of Default), to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.

 

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(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.

(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable), (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than as provided in Section 3.01(g) and other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section 9.06). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article IX and Section 10.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.

9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder.

 

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9.09 Administrative Agent May File Proofs of Claim; Credit Bidding.

(a) In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.10 and 10.04) allowed in such judicial proceeding; and

(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.10 and 10.04.

(b) Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender or in any such proceeding.

ARTICLE X.

MISCELLANEOUS

10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, or signed by the Administrative Agent acting with the consent of the Required Lenders, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

 

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(a) waive any condition set forth in Section 4.01, Section 4.03 or the definition of “Commitment Availability” without the written consent of each Lender;

(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated or reduced pursuant to Section 2.04, 2.07 or 8.02) without the written consent of such Lender;

(c) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment;

(d) reduce the principal of, or the rate of interest specified herein on, any Loan or any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to such amount; provided that, only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;

(e) change any provision of this Section 10.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;

(f) (i) approve the release of the Lien over any Equity Interests of the Borrower or (ii) the release of substantially all of the Collateral, in each case, in any transaction or series of related transactions, without the written consent of each Lender;

(g) release any Loan Party from the Loan Documents, without the written consent of each Lender;

(h) amend, modify or waive any provision of Section 2.13 without the written consent of each Lender;

(i) impose any greater restriction on the ability of any Lender to assign any of its rights or obligations hereunder without the written consent of the Required Lenders; or

(j) amend or modify the definition of “Commitment Availability” or “Target Debt Balance” without the written consent of each Lender;

and provided further that, (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document and (ii) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or

 

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extended without the consent of such Lender, (y) the principal of, or the rate of interest specified herein on, any Loan or any fees or other amounts payable hereunder or under any other Loan Document may not be reduced without the consent of such Lender and (z) any waiver, amendment or modification that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender. Notwithstanding anything herein to the contrary, the Loan Parties and the Administrative Agent may (but shall not be obligated to) amend or supplement any Loan Document without the consent of any Lender (1) to cure any ambiguity, defect or inconsistency which is not material, (2) to make any change that would provide any additional rights or benefits to the Lenders, (3) to make, complete or confirm any grant of Collateral permitted or required by any of the Collateral Documents, including to secure any Indebtedness permitted under Section 7.02 that may be secured by a Permitted HoldCo Lien on the Collateral, or any release of any Collateral that is otherwise permitted under the terms of this Agreement and the Collateral Documents, (4) to revise any schedule to reflect any change in notice information, (5) to revise the account numbers for each of the Project Accounts as may be necessary to reflect the replacement of the Administrative Agent or as may be required by internal procedures of the Administrative Agent or the Depository Bank or (6) to revise the name of the Collateral Agent on any UCC financing statement or other Collateral Document as may be necessary to reflect the replacement of the Administrative Agent.

If any Lender does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender and that has been approved by the Required Lenders, the Borrower may replace such Non-Consenting Lender in accordance with Section 10.12; provided that, such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section 10.12 (together with all other such assignments required by the Borrower to be made pursuant to this paragraph).

10.02 Notices; Effectiveness; Electronic Communications.

(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile or electronic mail as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

(i) if to Holdings, the Borrower, or the Administrative Agent, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire (including, as appropriate, notices delivered solely to the Person designated by a Lender on its Administrative Questionnaire then in effect for the delivery of notices that may contain material non-public information relating to the Borrower).

 

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Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).

(b) Electronic Communications. (i) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that, the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article II by electronic communication. The Administrative Agent or the Borrower may each, in its discretion, agree to accept notices and other communications delivered or furnished to it hereunder by electronic communication pursuant to procedures approved by it; provided that, approval of such procedures may be limited to particular notices or communications.

(ii) Unless the Administrative Agent otherwise prescribes, (A) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (B) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (A) and (B), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.

(c) The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to Holdings, the Borrower, any Lender or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s, any Loan Party’s or the Administrative Agent’s transmission of Borrower Materials or notices through the Platform, any other electronic messaging service, or through the Internet.

 

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(d) Change of Address, Etc. Each of Holdings, the Borrower and the Administrative Agent may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the “Private Side Information” or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the “Public Side Information” portion of the Platform and that may contain material non-public information with respect to the Borrower or its securities for purposes of United States Federal or state securities Laws.

(e) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic notices and Committed Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

10.03 No Waiver; Cumulative Remedies; Enforcement. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege, or any abandonment or discontinuance of steps to enforce such a right remedy, power or privilege, hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Lenders; provided that, the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 10.08 (subject to the terms of Section 2.13), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided further that, if

 

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at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 2.13, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.

10.04 Expenses; Indemnity; Damage Waiver.

(a) Costs and Expenses. The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable and documented fees, charges and disbursements of one counsel for the Administrative Agent and one local counsel in any appropriate jurisdiction), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not they became effective or the transactions contemplated hereby or thereby shall be consummated); and (ii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the reasonable and documented fees, charges and disbursements of one counsel for the Administrative Agent and one law firm for all Lenders, taken as a whole (and, in the case of an actual or reasonably perceived conflict of interest, of another firm of counsel for all affected Lenders) and one local counsel in any appropriate jurisdiction) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 10.04, or (B) in connection with Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable and documented fees, charges and disbursements of one law firm for all Indemnitees, taken as a whole, and if appropriate, by a single firm of local counsel in each appropriate jurisdiction for all such Indemnitees, taken as a whole (and, in the case of an actual or reasonably perceived conflict of interest, of another firm of counsel for all affected Indemnitees)), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party but excluding such Indemnitee and its Related Parties) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or Release of Hazardous Materials at, on, under or emanating from the Project or any property owned, leased or operated by the Borrower or the Project Company, or any Environmental Liability related to the Borrower or the Project Company or their respective properties, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating

 

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to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or Holdings or any of the Borrower’s or Holdings’ directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction in a final and nonappealable judgment to have resulted from the fraud, gross negligence or willful misconduct of such Indemnitee. Each Indemnitee pursuant to this Section 10.04(b), within thirty (30) days after the receipt by it of notice of any claim for which indemnity may be sought by it or by any Person controlling it from the Borrower on account of the agreements contained in this Section 10.04(b), shall notify the Borrower in writing of the commencement thereof; provided, that failure to so notify shall not prejudice any claim for which indemnity may be sought except to the extent that the Borrower is harmed thereby Without limiting the provisions of Section 3.01(c), this Section 10.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims and damages arising from any non-Tax claim.

(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to pay any amount required under subsection (a) or (b) of this Section 10.04(b) to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s share of the outstanding Loans and unused Commitments at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender), such payment to be made severally among them based on such Lenders’ Applicable Percentage of the Aggregate Commitment (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought); provided further that, the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).

(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, no party hereto shall assert, and each party hereby waives, and acknowledges that no other Person shall have, any claim against any Indemnitee or other party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. Subject to Section 10.07, no Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by others of any information or other materials distributed to such party by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

(e) Payments. All amounts due under this Section 10.04 shall be payable thirty (30) days after receipt of demand therefor.

 

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(f) Survival. The agreements in this Section 10.04 and the indemnity provision of Section 10.02(e) shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitment and the repayment, satisfaction or discharge of all the other Obligations.

10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party for any reason, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall automatically be reinstated and continued in full force and effect as if such payment had not been made or such setoff had not occurred and the Borrower shall pay the Lenders on demand all reasonable and documented costs and expenses (including reasonable and documented fees, expenses and disbursements of one counsel for all the Lenders) incurred by the Lenders in connection with the return of such funds by the Lenders, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

10.06 Successors and Assigns.

(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor Holdings may assign or otherwise transfer any of its rights or obligations hereunder or under any other Loan Document without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 10.06(b), (ii) by way of participation in accordance with the provisions of Section 10.06(d), or (iii) by way of pledge or assignment of a security interest in accordance with Section 10.06(e) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 10.06(d) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. Any Lender may at any time assign to an Eligible Assignee all or a portion of its rights and obligations under this Agreement (including all or a portion of its Loans); provided that, any such assignment shall be subject to the following conditions:

(i) Minimum Amounts.

 

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(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B) in any case not described in subsection (b)(i)(A) of this Section 10.06, the aggregate amount of the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld, conditioned or delayed).

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans assigned;

(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section 10.06 and, in addition:

(A) prior to the Conversion Date, the consent of the Borrower shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;

(B) following the Conversion Date, the consent of the Borrower (such consent not to be unreasonably withheld, conditioned or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that, the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; and

(C) the consent of the Administrative Agent (such consent not to be unreasonably withheld, conditioned or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.

(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided that, the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment; and provided further that, such fee shall not apply to any transfers under Section 9.09. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire and all applicable tax forms required pursuant to Section 3.01.

 

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(v) Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section 10.06, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d).

(c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and, with respect to its interests only, any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Eligible Person (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 10.04(c) without regard to the existence of any participation.

 

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Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that, such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in clauses (b) through (h) and (j) in the first proviso to Section 10.01 that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section 10.06 (it being understood that the documentation required under Section 3.01(e) shall be delivered to the Lender who sells the participation); provided that, such Participant (A) agrees to be subject to the provisions of Sections 3.06 and 10.12 as if it were an assignee under paragraph (b) of this Section 10.06 and (B) shall not be entitled to receive any greater payment under Sections 3.01 or 3.04, with respect to any participation, than the Lender from whom it acquired the applicable participation would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.06 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender; provided that, such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and, stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that, no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(e) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that, no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(f) Notwithstanding any other provisions of this Section 10.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Loan Parties to file a registration statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.

 

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10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to a Federal Reserve Bank or other central bank (whether in the United States or any other jurisdiction) and to the extent required or requested by any regulatory authority having jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners) (in which case such Person agrees (except with respect to any audit or examination conducted by bank accountants or any regulatory authority exercising examination or regulatory authority of such Person), to the extent practicable and not prohibited by applicable law, to inform the Loan Parties promptly thereof), (c) pursuant to the order of any court or administrative agency or in any pending legal or administrative proceeding, or otherwise as required by applicable law or regulation or as requested by a governmental authority (in which case such disclosing Person agrees (except with respect to any audit or examination conducted by bank accountants or any regulatory authority exercising examination or regulatory authority of such Person), to the extent practicable and not prohibited by applicable law, to inform the Loan Parties promptly thereof), (d) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (e) subject to an agreement containing provisions substantially the same as those of this Section 10.07 and subject to the acknowledgement and acceptance by such party or prospective party or assignee or participant or prospective assignee or participant that such information is being disseminated on a confidential basis in accordance with the standard syndication processes of the Arrangers or customary market standards for dissemination of such type of information, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (f) on a confidential basis to (i) any sub-agent insurance broker, provider of credit protection, (ii) any rating agency in connection with rating the Borrower or the credit facilities provided hereunder or (iii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers of other market identifiers with respect to the credit facilities provided hereunder, (g) with the prior written consent of the Borrower or (h) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Section 10.07 or (B) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates from a third party that is not, to such Person’s knowledge, subject to confidentiality obligations to the Sponsor, the Loan Parties, the Project Company or any of their respective Affiliates. In addition, the Administrative Agent and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors and similar service providers to the Administrative Agent, Depositary Bank and the Lenders in connection with the administration of this Agreement, the other Loan Documents, and the Commitments.

For purposes of this Section, “Information” means all information received from the Sponsor, the Loan Parties or the Project Company relating to such Persons or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Sponsor, the Loan Parties or the Project Company. Any Person required to maintain the confidentiality of Information as provided in this Section 10.07 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

 

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Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Sponsor, the Loan Parties or the Project Company, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws.

10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be unmatured or are owed to a branch or office or Affiliate of such Lender different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that, in the event that any Defaulting Lender shall exercise any such right of setoff, (a) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.14 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (b) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender and its Affiliates under this Section 10.08 are in addition to other rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that, the failure to give such notice shall not affect the validity of such setoff and application.

10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

 

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10.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. There are no unwritten oral agreements among the parties. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic imaging means (e.g., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Agreement.

10.11 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 10.11, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by bankruptcy Laws, as determined in good faith by the Administrative Agent, then such provisions shall be deemed to be in effect only to the extent not so limited.

10.12 Replacement of Lenders. If the Borrower is entitled to replace a Lender pursuant to the provisions of Section 3.06, or if any Lender is a Defaulting Lender or a Non-Consenting Lender or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01 and 3.04) and obligations under this Agreement and related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:

(a) the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 10.06(b);

(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;

 

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(d) such assignment does not conflict with applicable Laws; and

(e) in the case of an assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

10.13 Governing Law; Jurisdiction; Etc.

(a) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b) SUBMISSION TO JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST ANY OTHER PARTY HERETO, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION 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. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR HOLDINGS OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 

126


(c) WAIVER OF VENUE. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION 10.13. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

10.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.14.

10.15 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Borrower and Holdings acknowledges and agrees that: (i)(A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Arrangers and the Lenders are arm’s-length commercial transactions between the Borrower, Holdings and their respective Affiliates, on the one hand, and the Administrative Agent, the Arrangers and the Lenders, on the other hand, (B) each of the Borrower and Holdings has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrower and Holdings is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii)(A) the Administrative Agent, the Arrangers and the Lenders each is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower, Holdings or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent, the Arrangers nor any Lender has any obligation to the Borrower, Holdings or any of their respective Affiliates with respect to the transactions

 

127


contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Arrangers, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, Holdings and their respective Affiliates, and neither the Administrative Agent, the Arrangers nor any Lender has any obligation to disclose any of such interests to the Borrower, Holdings or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and Holdings hereby waives and releases any claims that it may have against the Administrative Agent, the Arrangers and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

10.16 Electronic Execution of Assignments and Certain Other Documents. The words “execution,” “execute,” “signed,” “signature,” and words of like import in or related to any document to be signed in connection with this Agreement and the transactions contemplated hereby (including Assignment and Assumptions, amendments or other Committed Loan Notices, waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that, notwithstanding anything contained herein to the contrary the Administrative Agent is under no obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it.

10.17 USA PATRIOT Act. Each Lender that is subject to the USA Patriot Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the USA Patriot Act. The Borrower shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the USA Patriot Act, in each case at least five days prior to the Closing Date. For the avoidance of doubt, nothing in this Agreement shall oblige the Administrative Agent to carry out (i) any “know-your-customer” or other checks in relation to any person or (ii) any check on the extent to which any transaction contemplated by this Agreement might be lawful for any Lender, in each case, on behalf of any Lender. Each Lender confirms to the Administrative Agent that it is solely responsible for any such checks it is required to carry out and that such Lender may not rely on any statement in relation to such checks made by the Administrative Agent. At least five days prior to the Closing Date, if the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulations, it shall deliver a Beneficial Ownership Certification to the Administrative Agent.

 

128


10.18 Acknowledgment and Consent to Bail-In of EEA Financial Institution. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by: (a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and (b) the effects of any Bail-in Action on any such liability, including, if applicable: (i) a reduction in full or in part or cancellation of any such liability; (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or (iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.

10.19 Non-Recourse. Notwithstanding anything to the contrary in this Agreement, any other Loan Document, any Secured Hedge Agreement or any other document, certificate or instrument executed, furnished or delivered by the Loan Parties or the Sponsor pursuant hereto or thereto, (a) none of the Secured Parties shall have any claims with respect to any Loan Document or any of the transactions contemplated by the Loan Documents or the Secured Hedge Agreements against any of the Affiliates of the Borrower (except Holdings, to the extent expressly set forth in the Loan Documents to which Holdings is party), any present or future holders (direct or indirect) of equity interests in the Borrower (except, in each case, as set forth under the Loan Documents to which any such direct or indirect holder of equity interests is a party), or any shareholders, partners, members, officers, directors, employees, representatives, controlling persons, executives or agents of the Borrower or any of its Affiliates (other than Holdings, to the extent expressly set forth in the Loan Documents to which Holdings is a party) or any of the foregoing (collectively, the “Non-Recourse Persons”), such claims against such Non-Recourse Persons (including as may arise by operation of law) being expressly waived hereby, (b) no judgment for any deficiency upon the obligations hereunder or under the other Loan Documents shall be obtainable by any Secured Party against the Non-Recourse Persons, (c) none of the Secured Parties shall have any claims with respect to any Loan Document or any of the transactions contemplated by the Loan Documents or the Secured Hedge Agreements against Holdings (except to the extent of Holdings’ ownership interest in the Borrower and any claims that may arise against Holdings under the Pledge Agreement to the extent expressly set forth in the Pledge Agreement), (d) without limiting the preceding clause (c), Holdings’ liability in respect of its obligations under the Pledge Agreement shall be limited to the Holdings Collateral (as defined in the Pledge Agreement), including any proceeds arising from the sale thereof upon the Administrative Agent’s exercise of rights and remedies under the Pledge Agreement, and no recourse shall be had against Holdings or any of Holdings’ assets other than such Holdings Collateral (whether now owned or hereafter acquired) for the payment of the Obligations or otherwise in satisfaction of Holdings’ obligations under the Pledge Agreement, including the payment of any deficiency arising following the disposition of the Holdings Collateral and (e) except as set forth in the preceding clauses (c) and (d), no judgment for any deficiency upon the obligations under the other Loan Documents shall be obtainable by any Secured Party against Holdings; provided that the foregoing provisions of this Section 10.19

 

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shall not (i) constitute a waiver, release or discharge (or otherwise impair the enforceability) of any of the Obligations, or of any of the terms, covenants, conditions, or provisions of this Agreement or any other Loan Document or any Secured Hedge Agreement and the same shall continue (but without personal liability of the Non-Recourse Persons) until fully paid, discharged, observed or performed, (ii) constitute a waiver, release or discharge of any lien or security interest purported to be created pursuant to the Collateral Documents (or otherwise impair the ability of any Secured Party to realize or foreclose upon any Collateral), (iii) limit or restrict the right of the Administrative Agent or any other Secured Party (or any assignee, beneficiary or successor to any of them) to name the Borrower as a defendant in any action or suit for a judicial foreclosure or for the exercise of any other remedy under or with respect to any Loan Document or any Secured Hedge Agreement, or for injunction or specific performance, so long as no judgment in the nature of a deficiency judgment shall be obtainable against any Non-Recourse Person, (iv) release any Non-Recourse Person from liability (to the extent it would otherwise be liable) for its own intentional fraud (which, for the avoidance of doubt, shall not include innocent or negligent misrepresentation), (v) limit the right of any Secured Party to name any Non-Recourse Party as a party to any action to the extent necessary to enforce this Agreement, any other Loan Document, any Secured Hedge Agreement or any Lien or security interest in the Collateral, so long as no judgment in the nature of a deficiency judgment shall be enforced against any Non-Recourse Person, or (vi) release the Borrower from its obligations under this Agreement or any other Loan Document. The limitations on recourse set forth in this Section 10.19 shall survive the repayment in full of the Obligations, the termination of any Commitments hereunder and the earlier termination of this Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

 

NAVIGATOR ETHYLENE TERMINALS LLC,

as Borrower
By:   Navigator Terminal Invest Limited, its sole member
By:  

/s/ Niall Nolan

Name:   Niall Nolan
Title: Chief Financial Officer
By:  

/s/ Kamaran Jomah

Name: Kamaran Jomah
Title: Financial Planning & Analysis Manager


ING CAPITAL LLC,
as Administrative Agent
By:  

/s/ Hans Beekmans

Name:Hans Beekmans
Title: Director
By:  

/s/ Subha Pasumarti

Name:Subha Pasumarti
Title:Managing Director


ING CAPITAL LLC,

as a Term Lender and Issuing Lender

By:  

/s/ Hans Beekmans

Name: Hans Beekmans
Title: Director
By:  

/s/ Subha Pasumarti

Name:   Subha Pasumarti
Title:   Managing Director


SG Americas Securities LLC,

as a Term Lender

By:  

/s/ Roberto S Simon

Name:   Roberto S Simon
Title:   Managing Director
EX-8.1

Exhibit 8.1

Subsidiaries of Navigator Holdings Ltd

 

Corporation Name

   Percentage Ownership
as of December 31,
    Country of
Incorporation
  Subsidiary of Limited
Liability Company
     2017     2018          

- Navigator Gas US L.L.C.

     100     100   Delaware (USA)   Service company

- Navigator Gas L.L.C.

     100     100   Marshall Islands   Holding company

~ Navigator Aries L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Atlas L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Aurora L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Centauri L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceres L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Copernico L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Capricorn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Eclipse L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Europa L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Galaxy L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gemini L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Genesis L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Glory L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Grace L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gusto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Jorf L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Leo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Libra L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Luga L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Magellan L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Mars L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Neptune L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Nova L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Oberon L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Pegasus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Phoenix L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Prominence L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Saturn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Scorpio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Taurus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Triton L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Umbrio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Venus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Virgo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Yauza L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ NGT Services (UK) Ltd

     100     100   England   Service company

~ NGT Services (Poland) Sp. z.o.o.

     100     100   Poland   Service company

~ Navigator Gas Ship Management Ltd.

     100     100   England   Service company

~ Falcon Funding PTE Ltd

     100     100   Singapore   Service company

~ Navigator Gas Invest Ltd

     100     100   England   Investment company

- PT Navigator Khatulistiwa

     49     49   Indonesia   Vessel-owning company

~ Navigator Terminals L.L.C.

     100     100   Marshall Islands   Investment company

~ Navigator Terminal Invest Ltd

     100     100   England   Investment company

- Navigator Ethylene Terminals L.L.C.

     100     100   Delaware (USA)   Investment company

- Enterprise Navigator Ethylene Terminal L.L.C.

     50     50   Texas (USA)   Terminal operator
EX-12.1

Exhibit 12.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David J. Butters, Principal Executive Officer, certify that:

I have reviewed this annual report on Form 20-F of Navigator Holdings Ltd. (the “company”);

 

  1.

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;

 

  2.

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;

 

  3.

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

  a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c.

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d.

Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

  4.

The company’s other certifying officer 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: April 1, 2019

 

By:  

/s/ David J. Butters

Name:   David J. Butters
Title:   Chief Executive Officer (Principal Executive Officer)
EX-12.2

Exhibit 12.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Niall Nolan, Principal Financial Officer, certify that:

I have reviewed this annual report on Form 20-F of Navigator Holdings Ltd. (the “company”);

 

  1.

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;

 

  2.

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;

 

  3.

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 

  a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c.

Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d.

Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

  4.

The company’s other certifying officer 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: April 1, 2019

 

By:  

/s/ Niall Nolan

Name:   Niall Nolan
Title:   Chief Financial Officer (Principal Financial Officer)
EX-13.1

Exhibit 13.1

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Navigator Holdings Ltd., a Marshall Islands company (the “Company”), hereby certifies that:

The Annual Report on Form 20-F for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 1, 2019

 

By:  

/s/ David J. Butters

Name:   David J. Butters
Title:   Chief Executive Officer (Principal Executive Officer)
EX-13.2

Exhibit 13.2

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Navigator Holdings Ltd., a Marshall Islands company (the “Company”), hereby certifies that:

The Annual Report on Form 20-F for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 1, 2019

 

By:  

/s/ Niall Nolan

Name:   Niall Nolan
Title:   Chief Financial Officer (Principal Financial Officer)
EX-15.1

Exhibit 15.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Navigator Holdings Ltd.:

We consent to the incorporation by reference in the registration statement (No. 333-197321) on Form S-8 of Navigator Holdings Ltd. of our reports dated April 1, 2019, with respect to the consolidated balance sheets of Navigator Holdings Ltd. as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes collectively, the “consolidated financial statements”, and the effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31, 2018 annual report on Form 20-F of Navigator Holdings Ltd..

Our audit report refers to a change to the method of accounting for revenue from contracts with customers in 2018 due to the adoption of ASC Topic 606 — Revenue From Contracts With Customers

/s/ KPMG LLP

London, United Kingdom

April 1, 2019

EX-15.2

Exhibit 15.2

April 1, 2019

Securities and Exchange Commission

Washington, D.C. 20549

Ladies and Gentlemen:

We are currently principal accountants for Navigator Holdings Ltd. and, under the date of April 1, 2019 we reported on the consolidated financial statements of Navigator Holdings Ltd. as of and for the years ended December 31, 2018 and 2017, and the effectiveness of internal control over financial reporting as of December 31, 2018. On December 6, 2018, we were notified that Navigator Holdings Ltd. engaged Ernst & Young LLP as its principal accountant for the year ended December 31, 2019 and that the auditor-client relationship with KPMG LLP will cease upon completion of the audit of Navigator Holdings Ltd.’s consolidated financial statements as of and for the year ended December 31, 2018, and the effectiveness of internal control over financial reporting as of December 31, 2018, and the issuance of our reports thereon. We have read Navigator Holdings Ltd.’s statements included under Item 16F of its Form 20-F dated April 1, 2019, and we agree with such statements, except that we are not in a position to agree or disagree with Navigator Holdings Ltd.’s statement that the change was approved by the Board of Directors.

Very truly yours.

/s/ KPMG LLP

v3.19.1
Document and Entity Information
12 Months Ended
Dec. 31, 2018
shares
Document And Entity Information [Abstract]  
Document Type 20-F
Amendment Flag false
Document Period End Date Dec. 31, 2018
Document Fiscal Year Focus 2018
Document Fiscal Period Focus FY
Trading Symbol NVGS
Entity Registrant Name Navigator Holdings Ltd.
Entity Central Index Key 0001581804
Current Fiscal Year End Date --12-31
Entity Well-known Seasoned Issuer No
Entity Current Reporting Status Yes
Entity Filer Category Accelerated Filer
Entity Shell Company false
Entity Emerging Growth Company false
Entity Common Stock, Shares Outstanding 55,657,631
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets    
Cash and cash equivalents $ 71,515 $ 62,109
Accounts receivable, net 17,033 14,889
Accrued income 4,731 15,791
Prepaid expenses and other current assets 16,057 11,340
Bunkers and lubricant oils 8,789 8,008
Total current assets 118,125 112,137
Non-current assets    
Property, plant and equipment, net 1,299 1,611
Investment in equity accounted joint venture 42,462  
Total non-current assets 1,714,626 1,741,750
Total assets 1,832,751 1,853,887
Current liabilities    
Current portion of secured term loan facilities, net of deferred financing costs 68,857 81,559
Accounts payable 10,784 8,071
Accrued expenses and other liabilities 12,798 12,478
Accrued interest 4,613 3,500
Deferred income 8,342 4,824
Total current liabilities 105,394 110,432
Non-current Liabilities    
Secured term loan facilities and revolving credit facilities, net of current portion and deferred financing costs 599,676 681,658
Senior secured bond, net of deferred financing costs 68,378  
Senior unsecured bond, net of deferred financing costs 99,039 98,584
Derivative liabilities 5,154  
Total non-current liabilities 772,247 780,242
Total Liabilities 877,641 890,674
Commitments and contingencies (see note 15)
Stockholders' equity    
Common stock-$.01 par value per share; 400,000,000 shares authorized; 55,657,631 shares issued and outstanding, (2017: 55,529,762) 557 555
Additional paid-in capital 590,508 589,436
Accumulated other comprehensive loss (363) (277)
Retained earnings 364,408 373,499
Total stockholders' equity 955,110 963,213
Total liabilities and stockholders' equity 1,832,751 1,853,887
Vessels In Operation [Member]    
Non-current assets    
Property, plant and equipment, net $ 1,670,865 $ 1,740,139
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Common stock, par value $ 0.01 $ 0.01
Common stock, authorized 400,000,000 400,000,000
Common stock, shares issued 55,657,631 55,529,762
Common stock, shares outstanding 55,657,631 55,529,762
v3.19.1
Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenues      
Operating revenue $ 310,046 $ 298,595 $ 294,112
Expenses      
Brokerage commissions 5,142 5,368 5,812
Voyage expenses 61,634 55,542 42,201
Vessel operating expenses 106,719 100,968 90,854
Depreciation and amortization 76,140 73,588 62,280
General and administrative costs 16,346 13,816 12,528
Other corporate expenses 2,585 2,131 1,976
Insurance recoverable from vessel repairs     504
Total operating expenses 268,566 251,413 216,155
Operating income 41,480 47,182 77,957
Other income/(expense)      
Share of result of equity accounted joint venture (38)    
Foreign currency exchange gain on senior secured bonds 2,360    
Unrealized loss on non-designated derivative instruments (5,154)    
Interest expense (44,908) (37,691) (32,321)
Write off of deferred finance costs   (786) (102)
Write off of call premium and redemption charges of 9.00% unsecured bond   (3,517)  
Interest income 854 519 281
Income/(loss) before income taxes (5,406) 5,707 45,815
Income taxes (333) (397) (1,177)
Net income/(loss) $ (5,739) $ 5,310 $ 44,638
Earnings/(loss) per share:      
Basic: $ (0.10) $ 0.10 $ 0.81
Diluted: $ (0.10) $ 0.10 $ 0.80
Weighted average number of shares outstanding:      
Basic: 55,629,023 55,508,974 55,418,626
Diluted: 55,629,023 55,881,454 55,794,481
v3.19.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ (5,739) $ 5,310 $ 44,638
Other comprehensive income / (loss):      
Foreign currency translation gain / (loss) (86) 10 178
Total comprehensive income / loss $ (5,825) $ 5,320 $ 44,816
v3.19.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Issued March 23, 2017 [Member]
Issued March 20, 2018 [Member]
Common Stock [Member]
Common Stock [Member]
Issued March 23, 2017 [Member]
Common Stock [Member]
Issued March 20, 2018 [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings [Member]
Beginning Balance at Dec. 31, 2015 $ 910,091     $ 554     $ 586,451 $ (465) $ 323,551
Beginning Balance, (in shares) at Dec. 31, 2015       55,363,467          
Restricted shares issued, (in shares)         72,620        
Net income 44,638               44,638
Foreign currency translation 178             178  
Share-based compensation plan 1,573           1,573    
Ending Balance at Dec. 31, 2016 956,480     $ 554     588,024 (287) 368,189
Ending Balance, (in shares) at Dec. 31, 2016       55,436,087          
Restricted shares issued   $ 1     $ 1        
Restricted shares issued, (in shares)         93,675        
Net income 5,310               5,310
Foreign currency translation 10             10  
Share-based compensation plan 1,412           1,412    
Ending Balance at Dec. 31, 2017 $ 963,213     $ 555     589,436 (277) 373,499
Ending Balance, (in shares) at Dec. 31, 2017 55,529,762     55,529,762          
Adjustment to equity for the adoption of the new revenue standard $ (3,352)               (3,352)
Forfeited shares - 2013 long-term equity incentive plan 18,506     (3,673)          
Restricted shares issued     $ 2     $ 2      
Restricted shares issued, (in shares)           131,542      
Net income $ (5,739)               (5,739)
Foreign currency translation (86)             (86)  
Share-based compensation plan 1,072           1,072    
Ending Balance at Dec. 31, 2018 $ 955,110     $ 557     $ 590,508 $ (363) $ 364,408
Ending Balance, (in shares) at Dec. 31, 2018 55,657,631     55,657,631          
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income/(loss) $ (5,739) $ 5,310 $ 44,638
Adjustments to reconcile net income to net cash provided by operating activities      
Unrealized loss on non-designated derivative instruments 5,154    
Depreciation and amortization 76,140 73,588 62,280
Payment of drydocking costs (5,796) (268) (9,902)
Amortization of share-based compensation 1,074 1,412 1,573
Amortization of deferred financing costs 2,292 3,217 3,091
Share of result of equity accounted affiliates 38    
Call option premium on redemption of 9.00% unsecured bond   2,500  
Prior year expenses recovered from insurance claim   (504)  
Insurance claim debtor (642) (7) 60
Changes in operating assets and liabilities      
Accounts receivable (2,144) (7,831) 1,991
Bunkers and lubricant oils (781) (1,074) (3,457)
Prepaid expenses and other current assets 2,629 (5,079) (7,694)
Accounts payable, accrued interest and accrued expenses and other liabilities 7,664 4,654 (6,040)
Net cash provided by operating activities 77,517 75,921 86,748
Cash flows from investing activities      
Payment to acquire vessels (648) (1,940) (1,733)
Investment in equity accounted joint venture (42,500)    
Payment for vessels under construction   (180,629) (239,179)
Purchase of other property, plant and equipment (182) (1,726) (75)
Receipt of shipyard penalty payments   280 1,901
Placement of short term investment   (25,000)  
Release of short term investment   25,000  
Insurance recoveries 1,003 990 9,374
Capitalized costs for the repair of Navigator Aries     (8,441)
Net cash used in investing activities (42,327) (183,025) (238,153)
Cash flows from financing activities      
Proceeds from secured term loan facilities and revolving credit facilities 21,900 395,170 327,670
Issuance of senior secured bonds 71,697    
Issuance of 7.75% senior unsecured bonds   100,000  
Repayment of 9.00% senior unsecured bonds   (127,500)  
Direct financing cost of secured term loan and revolving credit facilities (38) (2,058) (2,680)
Repayment of secured term loan facilities and revolving credit facilities (118,352) (251,852) (204,092)
Net cash provided by/(used in) financing activities (25,784) 111,941 120,898
Net (decrease)/increase in cash, cash equivalents and restricted cash 9,406 4,837 (30,507)
Cash, cash equivalents and restricted cash at beginning of year 62,109 57,272 87,779
Cash, cash equivalents and restricted cash at end of year 71,515 62,109 57,272
Supplemental Information      
Total interest paid during the year, net of amounts capitalized 41,465 35,890 29,815
Total tax paid during the year 176 515 601
Senior Secured Bonds [Member]      
Adjustments to reconcile net income to net cash provided by operating activities      
Unrealized foreign exchange gain/(loss) (2,360)    
Cash flows from financing activities      
Issuance cost (991)    
Other [Member]      
Adjustments to reconcile net income to net cash provided by operating activities      
Unrealized foreign exchange gain/(loss) $ (12) 3 $ 208
2017 Senior Unsecured Bonds [Member]      
Cash flows from financing activities      
Issuance cost   $ (1,819)  
v3.19.1
Consolidated Statements of Cash Flows (Parenthetical)
Dec. 31, 2018
Dec. 31, 2017
Feb. 10, 2017
Dec. 31, 2016
2017 Senior Unsecured Bonds [Member]        
Interest rate on bond 7.75% 7.75% 7.75% 7.75%
2012 Senior Unsecured Bonds [Member]        
Interest rate on bond 9.00% 9.00% 9.00% 9.00%
v3.19.1
Description of Business
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Description of Business

1. Description of Business

Navigator Holdings Ltd. (the “Company”), the ultimate parent company of the Navigator Group of companies, is registered in the Republic of the Marshall Islands. The Company has a core business of owning and operating a fleet of gas carriers. As of December 31, 2018, the Company owned and operated 38 gas carriers (the “Vessels”) each having a cargo capacity of between 20,600 cbm and 38,000 cbm, of which 31 were semi-refrigerated, and seven were fully-refrigerated vessels. The Company has an investment in a joint venture to construct a Marine Export Terminal at Morgan’s Point in Texas to export approximately one million tons of ethylene per year. Unless the context otherwise requires, all references in the consolidated financial statements to “our”, ”we” and “us” refer to the Company

v3.19.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

(a) Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries (See Note 9 (Group Subsidiaries) to the consolidated financial statements) and a Variable Interest Entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.

On January 31, 2018, the Company announced the execution of definitive agreements creating a 50/50 joint venture with Enterprise Products Partners L.P. (the “Export Terminal Joint Venture”) to construct and operate an ethylene export marine terminal at Morgan’s Point, Texas on the Houston Ship Channel (the “Marine Export Terminal”). Enterprise Products Partners, L.P. is the sole managing member of the Export Terminal Joint Venture and it is also the operator of the Marine Export Terminal. Interests in joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs and capitalized interest. Subsequent to initial recognition, the consolidated financial statements will include the Company’s share of the profit or loss and other comprehensive income (“OCI”) of equity-accounted investees, until the date on which significant influence or joint control ceases.

The joint venture, Enterprise Navigator Ethylene Terminals L.L.C. “Export Terminal Joint Venture” is organized as a limited liability company and maintains separate ownership accounts, consequently we account for our investment using the equity method as our ownership interest is between 20% and 50% and we exercise significant influence over the investee’s operating and financial policies. In consolidation, we disclose our proportionate share of profits and losses from equity method unconsolidated affiliates in the income statement and adjust the carrying amount of our equity method investments accordingly.

As of December 31, 2018, the Company has consolidated 100% of PT Navigator Khatulistiwa, a VIE for which the Company is deemed to be the primary beneficiary, i.e. it has a controlling financial interest in this entity. The Company owns 49% of the VIE’s common stock, all of its secured debt and has voting control. All economic interests in the residual net assets reside with the Company. A VIE is an entity that in general does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is present when a company has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the right to residual gains or the obligation to absorb losses that could potentially be significant to the VIE.

On January 1, 2018 the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company has adopted the standard using the modified retrospective method to incorporate the cumulative effect on all contracts at the date of initial application for reporting periods presented beginning January 1, 2018. By using the modified retrospective method approach we have made an adjustment to the consolidated statement of shareholders’ equity of $3.4 million which represents the amount of net revenue that would not have been recognized in retained earnings for the year ended December 31, 2017 under ASU 2014-09.

The Company receives its revenue streams from three different sources; vessels on time charters; voyage charters; and contracts of affreightment (“COA”). With time charters, the Company receives a fixed charter hire per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as the performance obligation is satisfied. In the case of voyage charters or COA’s, the vessel is contracted for a voyage, or a series of voyages, between two or more ports and the Company is paid for the cargo transported. Revenue under these performance obligations is recognized on a load port to discharge port basis and determines percentage of completion for all voyage charters and COA’s on a time elapsed basis. This approach differs from previous generally accepted accounting principles (“U.S. GAAP”) whereby under a voyage charter or a COA the revenue was recognized from the later of the charter party date and the date of completion of the previous discharge port until the following discharge port. This had the effect of recognizing the revenue over a shorter period of time as the performance obligation commences from the loading of the cargo rather than from the inception of the contract. The Company believes that the performance obligation towards the customer starts to become satisfied once the cargo is loaded and the obligation becomes completely satisfied once the cargo has been discharged at the discharge port. Time charter revenue is payable monthly in advance whilst revenue from voyage charters and COAs is due upon discharge of the cargo at the discharge port.

Under the new revenue recognition standard, the Company has identified certain costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences. These directly related costs are generally fuel or any canal or port costs incurred to get the vessel from its position at inception of the contract to the load port to commence loading of the cargo. These costs are deferred and amortized over the duration of the performance obligation on a time basis.

Operating revenue

The following table compares our operating revenue by the source of revenue stream for the years ended December 31, 2017 and 2018:

 

     Year ended
December 31,
(in thousands)
 
     2017      2018  

Operating revenue:

     

Time charters

   $ 144,521      $ 168,500  

Voyage charters (*)

     154,074        141,546  
  

 

 

    

 

 

 

Total operating revenue

   $ 298,595      $ 310,046  

 

*

Voyage Charter revenues: Voyage charter revenues, which include revenues from contracts of affreightment, are shown net of address commissions.

We have adopted the new accounting standard ASU 2014-09 for revenue recognition using the modified retrospective method, which incorporates the cumulative effect of prior years in January 1, 2018. Consequently, the revenues for the year ended December 31, 2017 have not been adjusted.

 

Impact on the financial statements

The Company applied Topic 606 using the cumulative effect method – i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity as of January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The details of the significant changes and quantitative impact of the changes are set out below.

Consolidated Balance Sheet:

 

     As reported at
December 31, 2018
(in thousands)
     Adjustments
(in thousands)
    Balances without
adoption of Topic 606
(in thousands)
 

Accrued income

   $ 4,731      $ 3,854     $ 8,585  

Prepaid expenses and other current assets

     16,057        (1,462     14,595  

Other

     1,811,963        —         1,811,963  
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Accrued expenses and other liabilities

   $ 12,798      $ 103     $ 12,901  

Other

     864,843        —         864,843  
  

 

 

    

 

 

   

 

 

 

Total Liabilities

     877,641        103       877,744  
  

 

 

    

 

 

   

 

 

 

Retained earnings

     364,408        2,289       366,697  

Other

     590,702        —         590,702  
  

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     955,110        2,289       957,399  
  

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Consolidated statements of Income:

 

     As reported for
the year ended
December 31,
2018
    Adjustments     Balances without
Adoption of
Topic 606
 
     (in thousands, except per share data)  

Revenues

      

Operating revenue

   $ 310,046     $ (1,243   $ 308,803  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Broker commissions

     5,142       60       5,202  

Voyage expenses

     61,634       (240     61,394  

Other

     201,790       —         201,790  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     268,566       (180     268,386  
  

 

 

   

 

 

   

 

 

 

Operating income

     41,480       (1,063     40,417  

Other expense

     (46,886     —         (46,886
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (5,406     (1,063     (6,469

Income taxes

     (333     —         (333
  

 

 

   

 

 

   

 

 

 

Net loss

     (5,739     (1,063     (6,802
  

 

 

   

 

 

   

 

 

 

Loss per share:

      

Basic:

   $ (0.10   $ (0.02   $ (0.12

Diluted:

   $ (0.10   $ (0.02   $ (0.12
  

 

 

   

 

 

   

 

 

 

 

     As reported at
December 31,
2018
(in thousands)
    Adjustments
(in thousands)
    Balances without
adoption of Topic
606
(in thousands)
 

Net loss

   $ (5,739   $ (1,063   $ (6,802

Adjustments to reconcile net income to net cash provided by operating activities

      

Others

     75,826       —         75,826  

Changes in operating assets and liabilities

      

Prepaid expenses and other current assets

     2,629       1,063       3,692  

Other

     4,801       —         4,801  
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     77,517       —         77,517  
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (42,327     —         (42,327
  

 

 

   

 

 

   

 

 

 

Net cash provided used in financing activities

     (25,784     —         (25,784
  

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     9,406       —         9,406  

Cash, cash equivalents and restricted cash at beginning of year

     62,109       —         62,109  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

   $ 71,515     $ —       $ 71,515  
  

 

 

   

 

 

   

 

 

 

Remaining Performance Obligations

The following table presents future committed revenue from contracts with customers, arising from remaining performance obligations as of December 31, 2018.

 

     Less than 1 year      1 – 2 years      2 – 5 years      More than 5 years      Total  
     (in thousands)  

Total committed revenue

   $ 133,743      $ 77,370      $ 143,603      $ 69,810      $ 424,526  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, including ongoing time charters, as of December 31, 2018. ASU 2014-09 requires disclosure based on time bands that would be the most appropriate for the duration of the remaining performance obligations. The company uses one year time bands for contracts with up to two years in remaining duration, then up to and more than five years thereafter.

As of December 31, 2018, the amount allocated to costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences is $1.5 million and is reflected on the company’s consolidated balance sheet within prepaid expenses and other current assets. This will be recognized over the duration of the performance obligation on a time basis, which is expected to occur within one year.

In presenting the information above, the company has applied the transition practical expedient in paragraph 606-10-65-1(f)(3) and has not disclosed as of December 31, 2017 the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the company is expected to satisfy those future performance obligations.

On January 1, 2018, the Company adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses eight classification issues related to the statement of cash flows:

 

   

Debt prepayment or debt extinguishment costs;

 

   

Settlement of zero-coupon bonds;

 

   

Contingent consideration payments made after a business combination;

 

   

Proceeds from the settlement of insurance claims;

 

   

Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;

 

   

Distributions received from equity method investees;

 

   

Beneficial interests in securitization transactions; and

 

   

Separately identifiable cash flows and application of the predominance principle.

The impact of adopting this ASU is immaterial to the financial statements.

On January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. The impact of adopting this ASU is immaterial to the financial statements.

(b) Vessels in Operation

The cost of the vessels (excluding the estimated initial drydocking cost) less their estimated residual value is depreciated on a straight-line basis over the vessel’s estimated economic life. Management estimates the useful life of each of the Company’s vessels to be 30 years from the date of its original construction.

(c) Vessels Under Construction

Vessels under construction are stated at cost, which includes the cost of construction, capitalized interest and other direct costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use.

(d) Impairment of Vessels

Our vessels are reviewed for impairment when events or circumstances indicate the carrying amount of the vessel may not be recoverable. When such indicators are present, a vessel is tested for recoverability and we recognize an impairment loss if the sum of the future cash flows (undiscounted and excluding interest charges that will be recognized as an expense when incurred) expected to be generated by the vessel over its estimated remaining useful life are less than its carrying value. If we determine that a vessel’s undiscounted cash flows are less than its carrying value, we record an impairment loss equal to the amount by which its carrying amount exceeds its fair value. The new lower cost basis would result in a lower annual depreciation than before the impairment.

Considerations in making such an impairment evaluation include comparison of current carrying values to anticipated future operating cash flows, expectations with respect to future operations and other relevant factors. The estimates and assumptions regarding expected cash flows require considerable judgment and are based upon historical experience, financial forecasts and industry trends and conditions.

(e) Drydocking Costs

Each vessel is required to be dry-docked every 30 to 60 months for classification society surveys and inspections of, among other things, the underwater parts of the vessel. These works include, but are not limited to hull coatings, seawater valves, steelworks and piping works, propeller servicing and anchor chain winch calibrations, all of which cannot be performed while the vessels are operating. The Company capitalizes costs associated with the dry-dockings in accordance with ASC Topic 360 “Property, Plant and Equipment” and amortizes these costs on a straight-line basis over the period to the next expected dry-docking. Amortization of dry-docking costs is included in depreciation and amortization in the Consolidated Statements of Income. Costs incurred during the dry-docking period which relate to routine repairs and maintenance are expensed. Where a vessel is newly acquired, or constructed, a proportion of the cost of the vessel is allocated to the components expected to be replaced at the next drydocking based on the expected costs relating to the next drydocking, which is based on experience and past history of similar vessels. Drydocking costs are included within operating activities on the cashflow statement.

(f) Cash, Cash Equivalents and Restricted Cash

The Company considers highly liquid investments, such as time deposits and certificates of deposit, with an original maturity of three months or less when purchased, to be cash equivalents. The Company has cash in a U.S. financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $0.3 million. As of December 31, 2018, and 2017 and for the years then ended, the Company had balances in this financial institution in excess of the insured amount. The Company also maintains cash balances in foreign financial institutions which are not covered by the FDIC.

Amounts included in restricted cash represent those required to be set aside by a contractual agreement with a banking institution for the payment of the forecast future liability on the cross-currency interest rate swap agreement, payable on maturity of our 2018 issued senior secured bonds (“2018 Bonds”). If the Norwegian Kroner depreciates relative to the U.S. Dollar beyond a certain threshold, we are required to place cash collateral with our swap providers. As of December 31, 2018, the collateral amount held with the swap provider was $0.16 million.

(g) Financial Instruments – Debt Securities

The 2017 issued senior unsecured bonds (“2017 Bonds”) and 2018 Bonds are recognized at the net amount of the proceeds received. Subsequent measurement is at amortized cost, net of deferred finance costs. Interest accrued on the 2017 Bonds and the 2018 Bonds is calculated on a 360-dayyear basis and is included within accrued interest as a current liability. Deferred finance costs are amortized using the effective interest method over the lifetime of the 2017 Bonds and the 2018 Bonds.

(h) Short-Term Investments

Short-term investments represent funds deposited in money market funds with an original maturity of more than three months when purchased. The Company records its short-term investments at fair value. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s short-term investments are classified within Level 1 of the fair value hierarchy.

(i) Accounts Receivable, net

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. As of December 31, 2017, and 2018, the Company evaluated its accounts receivable and established an allowance for doubtful accounts, based on a history of past write-offs, collections and current credit conditions. The Company does not generally charge interest on past-due accounts (unless the accounts are subject to legal action), and accounts are written off as uncollectible when all reasonable collection efforts have failed. Accounts are deemed past-due based on contractual terms.

 

(j) Bunkers and lubricant oils

Bunkers and lubricant oils include bunkers (fuel), for those vessels under voyage charter, and lubricants. Under a time charter, the cost of bunkers is borne by and remains the property of the charterer. Bunkers and lubricant oils are accounted for on a first in, first out basis and are valued at cost.

(k) Deferred Finance Costs

Costs incurred in connection with obtaining secured term loan facilities, revolving credit facilities and bonds are recorded as deferred financing costs and are amortized to interest expense over the estimated duration of the related debt. Such costs include fees paid to the lenders or on the lenders’ behalf and associated legal and other professional fees. Under the Accounting Standards Update (ASU) 2015- 03, Interest—Imputation of Interest the Company has adopted the accounting standard (Subtopic 835-30)—simplifying the presentation of debt issuance cost to present the unamortized debt issuance costs, excluding up front commitment fees, as a direct reduction of the carrying value of the debt.

(l) Deferred Income

Deferred income is the balance of cash received in excess of revenue earned under a time charter or voyage charter arrangement as of the balance sheet date.

(m) Revenue Recognition

The Company employs its vessels on time charters, voyage charters or COA’s. With time charters, the Company receives a fixed charter hire per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service is provided. In the case of voyage charters or COA’s, the vessel is contracted for a voyage, or a series of voyages, between two or more ports and the Company is paid for the cargo transported. Revenue for these voyages is recognized on a load to discharge basis in determining percentage of completion for all voyage charters.

(n) Other Comprehensive Income / (Loss)

The Company follows the provisions of ASC Topic 220 “Comprehensive Income,” which requires separate presentation of certain transactions, which are recorded directly as components of stockholders’ equity. Comprehensive income is comprised of net income and foreign currency translation gains and losses.

(o) Voyage Expenses and Vessel Operating Expenses

When the Company employs its vessels on time charter, it is responsible for all the operating expenses of the vessels, such as crew costs, stores, insurance, repairs and maintenance. In the case of voyage charters, the vessel is contracted only for a voyage between two or more ports, and the Company pays for all voyage expenses in addition to the vessel operating expenses. Voyage expenses consist mainly of in port expenses and bunker (fuel) consumption and are recognized as incurred during the performance obligation (the period of time from load to discharge) of the vessel. The Company has identified certain voyage costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences. These directly related costs are generally fuel or any canal or port costs to get the vessel from its position at inception of the contract to the load port to commence loading of the cargo. These costs are deferred and amortized over the duration of the performance obligation on a time basis.

(p) Repairs and Maintenance

All expenditures relating to routine maintenance and repairs are expensed when incurred.

 

(q) Insurance

The Company maintains hull and machinery insurance, war risk insurance, protection and indemnity insurance coverage, increased value insurance, demurrage and defense insurance coverage in amounts considered prudent to cover normal risks in the ordinary course of its operations. Premiums paid in advance to insurance companies are recognized as prepaid expenses and recorded as a vessel operating expense over the period covered by the insurance contract. In addition, the Company maintains Directors and Officers insurance.

(r) Share-Based Compensation

The Company records as an expense in its financial statements the fair value of all equity-settled stock-based compensation awards. The terms and vesting schedules for share-based awards vary by type of grant. Generally, the awards vest subject to time-based (immediate to three years) service conditions. Compensation expense is recognized ratably over the service period.

(s) Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

(t) Foreign Currency Transactions

Substantially all of the Company’s cash receipts are in U.S. Dollars. The Company’s disbursements, however, are in the currency invoiced by the supplier. The Company remits funds in the various currencies invoiced. The non U.S. Dollar invoices received, and their subsequent payments, are converted into U.S. Dollars when the transactions occur. The movement in exchange rates between these two dates is transferred to an exchange difference account and is expensed each month. The exchange risk resulting from these transactions is not material.

The primary source of our foreign exchange gains and losses are the movements on our Norwegian Kroner denominated 2018 Bonds. The 2018 Bonds are translated into U.S. Dollars at each reporting date at the prevailing exchange rate at the end of the period. The movement in the foreign exchange rates between each reporting date will result in a foreign exchange gain or loss on the 2018 Bonds, which is shown as a single line on the face of the income statement. As of December 31, 2018, the foreign currency exchange gain on the 2018 Bonds was $2.4 million, compared to December 31, 2017 when we did not hold any non-U.S. Dollar denominated financial instruments.

The aggregate amount of all foreign exchange movements recorded in net income for the year ended December 31, 2018, was a $1.7 million gain compared to a $0.1 million loss for the year ended December 31, 2017. The movement was primarily as a result of the foreign currency translation of the 2018 Bonds mentioned in the previous paragraph.

(u) Derivative instruments

Derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying balance sheet and subsequently remeasured to fair value at each reporting date, regardless of the purpose or intent for holding the derivative. The resulting derivative assets or liabilities are shown as a single line and are not net off against one another on the face of the balance sheet. The method of recognizing the resulting gain or loss is dependent on whether the derivative contract qualifies for hedge accounting and has been designated as a hedging instrument. For derivative instruments that are not designated or that do not qualify as hedging instruments under the Financial Accounting Standards Board (‘FASB’) Accounting Standards Codification (‘ASC’) 815, Derivatives and Hedging, the liability has been recognized as ‘Derivative liabilities’ on the balance sheet and changes in the fair value of the derivative financial instruments are recognized in earnings. Gains and losses from the Company’s non-designated cross-currency interest rate swap agreement are recorded in realized and unrealized loss on non-designated derivative instruments in the Company’s consolidated statements of income but do not impact our cash flows.

(v) Income Taxes

Navigator Holdings Ltd. and its Marshall Islands subsidiaries are currently not required to pay income taxes in the Marshall Islands on ordinary income or capital gains as they qualify as exempt companies.

The Company has four subsidiaries incorporated in the United Kingdom where the base tax rate is 19%. One UK subsidiary earns management and other fees from fellow subsidiary companies. The second UK subsidiary holds an investment in our VIE and has a loan to our group subsidiary in Poland. The third subsidiary earns management fees from fellow subsidiary companies. The fourth subsidiary is a holding company.

The Company has a subsidiary in Poland where the base tax rate is 19%. The subsidiary earns management fees from fellow subsidiary companies.

The Company has a subsidiary incorporated in Singapore where the base tax rate is 17%. The subsidiary earns management and other fees and receives interest from its VIE, PT Navigator Khatulistiwa.

The Company considered the income tax disclosure requirements of ASC Topic 740 “Income Taxes,” with regard to disclosing material unrecognized tax benefits; none were identified. The Company’s policy is to recognize accrued interest and penalties for unrecognized tax benefits as a component of tax expense. As of December 31, 2017, and 2018, there were no accrued interest and penalties for unrecognized tax benefits.

(w) Earnings Per Share

Basic earnings per common share (“Basic EPS”) is computed by dividing the net income available to common stockholders by the weighted-average number of shares outstanding. Diluted earnings per common share (“Diluted EPS”) are computed by dividing the net income available to common stockholders by the weighted average number of common shares and dilutive common share equivalents then outstanding.

Shares granted pursuant to the 2013 Restricted Stock Plan are the only dilutive shares, and these shares have been considered as outstanding since their respective grant dates for purposes of computing diluted earnings per share.

(x) Segment Reporting

Although separate vessel financial information is available, management internally evaluates the performance of the enterprise as a whole and not on the basis of separate business units or different types of charters. As a result, the Company has determined that it operates as one reportable segment. Since the Company’s vessels regularly move between countries in international waters over many trade routes, it is impractical to assign revenues or earnings from the transportation of international LPG and petrochemical products by geographic area. As disclosed in Note 2(a) Basis of Presentation – there are two different revenue streams due to the nature of the contracts that we operate. The Company believes that all of these contracts are part of the same operating segment of seaborne transportation.

(y) Recent Accounting Pronouncements

The following accounting standards issued as of December 31, 2018, may affect the future financial reporting by Navigator Holdings Ltd:

In February 2016, the Financial accounting Standards Board, or “FASB” issued ASU 2016-02, Leases, (‘Topic 842’), which, requires lessees to recognize most leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842 Leases; and ASU 2018-11, Target Improvements, which clarifies and corrects errors in ASC 842. The effective date and transition requirements in ASU 2018-10 are the same as the effective date and transition requirements of ASU 2016-02.

The new standard established a right-of use (“ROU”) model that requires a lessee to recognize a ROU asset, representing the right to use the asset for a specified period of time and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases for lessees will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard also requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease in effect, transfers control of the underlying assets to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third-party, the lease is a direct financing lease. All lessor leases that are not sales-type or direct financing leases are operating leases.

The effective date for ASU 2016-02 is for annual and interim periods in fiscal years beginning after December 15, 2018. The Company will adopt the standard using the modified retrospective transition method for reporting periods presented beginning January 1, 2019 and elect all of the standard’s practical expedients in ASC 842-10-65-1(f) as a package on adoption. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We do not expect a significant change in our leasing activity between now and adoption. We adopted the new standard with effect from January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided, for dates and periods before January 1, 2019.

For the Company as a lessee, we expect that this standard will have a material effect in the way our leases are recorded, presented and disclosed in our consolidated financial statements. We believe that the most significant changes relate to the recognition of new ROU assets and liabilities on our balance sheet for our operating leases, expected to relate to long-term commitments for our offices in London, New York and Gdynia. Consequently, on adoption, we expect to recognize additional operating liabilities, less unamortized lease incentives, of $7.6 million, with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

The new standard also provides practical expedients for any entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for leases that qualify, meaning that we will not recognize ROU assets or lease liabilities for these leases. This includes not recognizing ROU assets or lease liabilities for existing short-term leases at the transition date.

For the Company as a lessor, in applying ASU 2016-02, we believe that our vessels contracted under voyage charters or contracts of affreightment do not qualify as leases, as the charterer does not have the right to operate the asset and we maintain the right to direct the use of the asset during the period of charter hire. Vessels on time charters will continue to qualify as operating leases, when the charterer has the right to obtain substantially all of the benefits and can direct how and for what purposes the vessel will be used, and the Company has no substantive substitution rights. Time charters do not qualify as direct finance leases under ASU 2016-02 as the present value of the sum of the lease payments does not exceed the fair value of the underlying vessel.

The Company has elected, as a package, the practical expedients available in ASC 842-10-65-1(f) to not re-assess whether any existing or expired contracts are, or contain leases, for voyages in progress at the adoption date of ASU 2016-02. We will assess new charter contracts after the adoption date for whether they are, or contain, leases and should be recognized under ASU 2016-02. Any future charter contracts that do not contain a lease will be accounted for under Topic 606. Please read Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements. We do not anticipate a change to the classification of time charters, voyage charters or contracts of affreightment, the period over which we recognize revenue and we expect no significant impact on our consolidated financial statements or cash flows as a result of adopting this standard.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which contains an amendment to ASU 2016-02 that would allow lessors to elect, as a practical expedient, by class of underlying asset, not to separate lease and non-lease components of a contract from lease components. The amendment allows these components to be accounted for as a single lease component if both (i) the timing and pattern of the revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company has elected the package of practical expedients, as mentioned above, and it is expected that revenue from vessels under time charters will be presented as a single lease component. This ASU has the same effective date as ASU 2016-02 for entities that have not early adopted ASU 2016-02, or for entities that have early adopted ASU 2016-02, upon issuance.

ASU 2018-11 also created a new, optional, transition method for implementing ASU 2016-02, which can only be adopted by entities either at (1) the beginning of the company’s first reporting period after issuance or (2) the entity’s mandatory ASU 2016-02 effective date. The Company will apply this optional transitional method at the effective date of adoption of ASU 2016-02. Under this transition method, a cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of adoption for the reporting entity, and the presentation of the consolidated financial statements for comparative periods will remain unchanged. This choice of method affects only the timing of when an entity applies the transition provisions. The impact of adopting this transition method will not have a material impact on our consolidated financial statements as we expect to recognize an adjustment to the opening balance of retained earnings for an expense of $0.08 million on adoption.

In June 2016, the FASB issued ASU 2016–13, Financial Instruments – Credit Losses, which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity debt securities, among others. ASU 2016–13 is required to be adopted for public business entities using the modified retrospective method by January 1, 2020, with early adoption permitted for fiscal periods beginning after December 15, 2018. We plan to adopt ASU 2016-13 on January 1, 2020 and we do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which more closely aligns the accounting for employee and nonemployee share-based payments. This ASU is effective for Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We adopted the new standard with effect from January 1, 2019, and the adoption of this standard will not have a material impact on our consolidated financial statements and related disclosures.

v3.19.1
Fair Value of Derivative Instruments
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value of Derivative Instruments

3. Fair Value of Derivative Instruments

The Company held no derivatives designated as hedges as of December 31, 2017 and 2018.

The fair value of the cross-currency interest rate swap agreement is the estimated amount that we would receive to sell or transfer the swap at the reporting date, taking into account current interest rates, foreign exchange rates and the current credit worthiness of the swap counterparties. The estimated amount is the present value of future cash flows. The Company transacts all of these derivative instruments through investment-grade rated financial institutions at the time of the transaction. It is possible that the amount recorded as a derivative asset or liability could vary by a material amount in the near term if there is volatility in the credit markets.

 

The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring basis.

 

     December 31, 2017      December 31, 2018  

Fair Value Hierarchy Level

   Fair
Value
Hierarchy
Level
     Carrying
Amount
Asset
(Liability)
     Fair Value
Asset
(Liability)
     Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
 
            (in thousands)        

Cross-currency interest rate swap agreement

     Level 2        —          —          (5,154     (5,154

v3.19.1
Fair Value of Financial Instruments Not Accounted For at Fair Value
12 Months Ended
Dec. 31, 2018
Investments, All Other Investments [Abstract]  
Fair Value of Financial Instruments Not Accounted For at Fair Value

4. Fair Value of Financial Instruments Not Accounted For at Fair Value

The principal financial assets of the Company as of December 31, 2017 and 2018 consist of cash, cash equivalents and accounts receivable. The principal financial liabilities of the Company consist of accounts payable, accrued expenses and other liabilities, secured term loan facilities, revolving credit facilities, the 2017 Bonds and the 2018 Bonds.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are reasonable estimates of their fair value due to the short-term nature or liquidity of these financial instruments.

Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. The fair value accounting standard establishes a three tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs which are supported by little or no market activity.

The 2017 Bonds and the 2018 Bonds are classified as a level two liability and the fair values have been calculated based on the most recent trades of the bond on the Oslo Børs prior to December 31, 2018. The 2018 Bonds are denominated in Norwegian Kroner (“NOK”) and the fair value has been translated to the functional currency of the Company using the exchange rate as of December 31, 2018.

The fair value of secured term loan facilities and revolving credit facilities is estimated based on the average of the current rates offered to the Company for all debt facilities. The carrying value approximates the fair market value for the floating rate loans and revolving credit facilities due to their variable interest rate, being three month U.S. LIBOR. This has been categorized at level three on the fair value measurement hierarchy.

 

The following table includes the estimated fair value and carrying value of those assets and liabilities. The table excludes accounts receivable, accounts payable, accrued expenses and other liabilities because the fair value approximates carrying value.

 

     December 31, 2017     December 31, 2018  

Fair Value Hierarchy Level

   Fair
Value
Hierarchy
Level
     Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
    Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
 
            (in thousands)        

Cash and cash equivalents

     Level 1        62,109       62,109       71,515       71,515  

2018 Bonds (note 11)

     Level 2        —         —         (69,337     (66,004

2017 Bonds (note 12)

     Level 2        (100,000     (96,775     (100,000     (96,481

Secured term loan facilities and revolving credit facilities (note 10)

     Level 3        (772,190     (636,220     (675,738     (588,713 )
v3.19.1
Accounts Receivable, Net
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Accounts Receivable, Net

5. Accounts Receivable, Net

It is a condition of time charter parties that payments of hire are received monthly in advance. Voyage charter contracts require payment upon completion of each discharge, with subsequent demurrage claims payable on submission of invoices. As of December 31, 2018, management has provided a provision for doubtful accounts of $0.3 million relating to outstanding demurrage claims (2017: $0.3 million).

v3.19.1
Vessels in Operation, net
12 Months Ended
Dec. 31, 2018
Vessels In Operation [Member]  
Vessels in Operation, net

6. Vessels in Operation, net

 

     Vessel
(in thousands)
     Drydocking
(in thousands)
     Total
(in thousands)
 

Cost

        

December 31, 2016

     1,727,491        33,949        1,761,440  

Additions

     1,940        268        2,208  

Transfer in from vessels under construction

     327,571        3,550        331,121  

Disposals

     —          (1,492      (1,492

Reduction in contract cost of newbuild vessels

     (280      —          (280
  

 

 

    

 

 

    

 

 

 

December 31, 2017

     2,056,722        36,275        2,092,997  

Additions

     648        5,796        6,444  

Transfer in from vessels under construction

     —          —          —    

Disposals

     —          (10,163      (10,163
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     2,057,370        31,908        2,089,278  
  

 

 

    

 

 

    

 

 

 

Accumulated Depreciation

        

December 31, 2016

     268,677        12,404        281,081  

Charge for the period

     64,031        9,238        73,269  

Disposals for the period

     —          (1,492      (1,492
  

 

 

    

 

 

    

 

 

 

December 31, 2017

     332,708        20,150        352,858  

Charge for the period

     67,809        7,909        75,718  

Disposals for the period

     —          (10,163      (10,163
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     400,517        17,896        418,413  
  

 

 

    

 

 

    

 

 

 

Net Book Value

        

December 31, 2016

   $ 1,458,814      $ 21,545      $ 1,480,359  
  

 

 

    

 

 

    

 

 

 

December 31, 2017

   $ 1,724,014      $ 16,125      $ 1,740,139  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

   $ 1,656,853      $ 14,012      $ 1,670,865  
  

 

 

    

 

 

    

 

 

 

During 2017 the Company took delivery of two semi-refrigerated midsize liquefied gas carriers from Jiangnan shipyard for a combined contract price of $156.8 million and two semi-refrigerated handysize and one fully refrigerated liquefied gas carriers from HMD shipyard for a combined contract price of $152.5 million.

The cost and net book value of vessels that were contracted under time charter agreements (please read Note 16 to the consolidated financial statements) was $1,337 million and $1,084 million respectively as of December 31, 2018.

The net book value of vessels that serve as collateral for the Company’s secured bond, secured term loan and revolving credit facilities (Note 10 and Note 11 to the consolidated financial statements) was $1,509 million as of December 31, 2018.

Vessels Under Construction [Member]  
Vessels in Operation, net

8. Vessels Under Construction

 

     2017
(in thousands)
     2018
(in thousands)
 

Vessels under construction as of January 1

   $ 150,492      $ —  

Payments to shipyard

     174,131        —    

Other payments including initial stores and site costs

     4,783        —    

Capitalized interest

     1,715        —    

Transfer to vessels in operation

     (331,121      —    
  

 

 

    

 

 

 

Vessels under construction as of December 31

   $ —        $ —    
  

 

 

    

 

 

 

 

v3.19.1
Investment in Equity Accounted Joint Venture
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Investment in Equity Accounted Joint Venture
7.

Investment in Equity Accounted Joint Venture

 

     (in thousands)  

Investment in equity accounted joint venture as of December 31, 2017

   $ —    

Equity contributions to joint venture entity

     41,000  

Share of results

     (38

Capitalized interest

     1,024  

Legal costs

     476  
  

 

 

 

Investment in equity accounted joint venture as of December 31, 2018

   $ 42,462  
  

 

 

 

On January 31, 2018, the Company entered into an agreement to construct the Marine Export Terminal, pursuant to which the Company has a 50% economic interest in building and operating the Marine Export Terminal.

v3.19.1
Group Subsidiaries
12 Months Ended
Dec. 31, 2018
Schedule of Investments [Abstract]  
Group Subsidiaries

9. Group Subsidiaries

As of December 31, 2017, and 2018, the company had the following significant subsidiaries:

 

Corporation Name

   Percentage Ownership
as of December 31,
    Country of
Incorporation
  Subsidiary of Limited
Liability Company
     2017     2018          

- Navigator Gas US L.L.C.

     100     100   Delaware (USA)   Service company

- Navigator Gas L.L.C.

     100     100   Marshall Islands   Holding company

~ Navigator Aries L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Atlas L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Aurora L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Centauri L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceres L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Copernico L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Capricorn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Eclipse L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Europa L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Galaxy L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gemini L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Genesis L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Glory L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Grace L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gusto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Jorf L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Leo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Libra L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Luga L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Magellan L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Mars L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Neptune L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Nova L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Oberon L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Pegasus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Phoenix L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Prominence L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Saturn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Scorpio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Taurus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Triton L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Umbrio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Venus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Virgo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Yauza L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ NGT Services (UK) Ltd

     100     100   England   Service company

~ NGT Services (Poland) Sp. z.o.o.

     100     100   Poland   Service company

~ Navigator Gas Ship Management Ltd.

     100     100   England   Service company

~ Falcon Funding PTE Ltd

     100     100   Singapore   Service company

~ Navigator Gas Invest Ltd

     100     100   England   Investment company

- PT Navigator Khatulistiwa

     49     49   Indonesia   Vessel-owning company

~ Navigator Terminals L.L.C.

     100     100   Marshall Islands   Investment company

~ Navigator Terminal Invest Ltd

     100     100   England   Investment company

- Navigator Ethylene Terminals L.L.C.

     100     100   Delaware (USA)   Investment company

- Enterprise Navigator Ethylene Terminal L.L.C.

     50     50   Texas (USA)   Terminal operator

 

The VIE, PT Navigator Khatulistiwa, had total assets and liabilities, as of December 31, 2018, of $125.3 million (2017: $132.2 million) and $36.6 million (2017: $54.4 million) respectively.

v3.19.1
Secured Term Loan Facilities and Revolving Credit Facilities
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Secured Term Loan Facilities and Revolving Credit Facilities

10. Secured Term Loan Facilities and Revolving Credit Facilities

The table below represents the annual principal payments to be made under our term loans and revolving credit facilities after December 31, 2018:

 

     December 31,
2017
(in thousands)
     December 31,
2018
(in thousands)
 

Due within one year

   $ 83,352      $ 70,600  

Due in two years

     70,600        128,725  

Due in three years

     128,725        60,600  

Due in four years

     60,600        302,461  

Due in five years

     302,461        113,352  

Due in more than five years

     126,452        —    
  

 

 

    

 

 

 

Total secured term loan facilities and revolving credit facility

   $ 772,190      $ 675,738  

Less: current portion

     83,352        70,600  
  

 

 

    

 

 

 

Secured term loan facilities and revolving credit facility, non-current portion

   $ 688,838      $ 605,138  
  

 

 

    

 

 

 

On June 29, 2018 the Company obtained approval to amend one of the covenants in each of its secured term loan and revolving credit facilities. The covenant, requiring the ratio of Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) to be at least two and a half times or three times interest has been amended to a requirement of two times interest, up to and including September 30, 2020, before then reverting back to the original requirements of two and a half times or three times interest, dependent upon the facility.

January 2015 Secured Term Loan Facility. On January 27, 2015 the Company entered into a secured term loan facility with Credit Agricole Corporate and Investment Bank as agent as well as HSH Nordbank AG and NIBC Bank N.V. to refinance the April 2013 $120.0 million secured term loan facility, as well as to provide financing for an additional five existing newbuildings. The January 2015 secured term loan facility has a term of up to seven years from the loan drawdown date with a maximum principal amount of up to $278.1 million. The aggregate fair market value of the collateral vessels must be no less than 135% of the aggregate outstanding borrowing under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 270 basis points per annum. The deferred finance costs associated with the extinguishment of the previous $120.0 million facility were written off in full. The facility is fully drawn and as of December 31, 2018 the amount still outstanding was $200.8 million which is repayable for each vessel tranche in quarterly installments of between $0.5 million and $0.7 million for seven years from the date of each vessel drawdown followed by a final payment of between $15.6 million and $18.3 after each seven year term ends.

This loan facility is secured by first priority mortgages on each of; Navigator Atlas, Navigator Europa, Navigator Oberon, Navigator Triton, Navigator Umbrio, Navigator Centauri, Navigator Ceres, Navigator Ceto and Navigator Copernico as well as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5% of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

December 2015 Secured Revolving Credit Facility. On December 21, 2015 the company entered into a secured revolving credit facility with Nordea Bank AB and ABN Amro Bank N.V as agents, to provide financing for six vessels. The December 2015 secured revolving credit facility has a term of seven years from the loan arrangement date (expiring in December 2022) with a maximum principal amount of up to $290.0 million. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 210 basis points per annum. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility. As of December 31, 2018, the facility was fully drawn with an amount still outstanding of $246.7 million which is repayable over 15 combined quarterly installments of $4.1 million with the final combined repayment of $185.1 million on December 21, 2022.

This loan facility is secured by first priority mortgages on each of; Navigator Aurora, Navigator Eclipse, Navigator Nova, Navigator Prominence, Navigator Luga and Navigator Yauza as well as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also paid a commitment fee of 0.74% per annum based on any undrawn portion of the facility. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

October 2016 Secured Term Loan and Revolving Credit Facility. On October 28, 2016 the company entered into a secured term loan and revolving credit facility with ABN Amro Bank N.V as agents as well as Nordea Bank AB, London Branch; DVB Bank SE and Skandinaviska Enskilda Banken AB to provide $130.0 million to refinance and extinguish the remaining debt under the 2011 secured term loan facility and the 2012 secured term loan facility; to provide $35 million as a newbuilding term loan to part finance Navigator Jorf, which was delivered in July 2017, and to provide a revolving credit facility of $55.0 million for general corporate purposes. The facility has a term of seven years from the first utilization date (expiring in December 2023) with a maximum principal amount of up to $220.0 million. As of December 31, 2018, the outstanding balance drawn on the secured term loan and newbuilding loan was $92.2 million which is repayable in 17 quarterly amounts of $4.1 million, followed by payments of $1.0 million, $0.5 million final repayment of $21.0 million. As of December 31, 2018, the Company had $55.0 million in available borrowing capacity under its October 2016 Secured Term Loan and Revolving Credit Facility

Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 260 basis points per annum. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility.

This facility is secured by first priority mortgages on each of: Navigator GeminiNavigator Leo, Navigator Libra, Navigator PegasusNavigator PhoenixNavigator Taurus and Navigator Jorf as well as assignments of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also pays a commitment fee of 0.91% per annum based on any undrawn portion of the facility. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

June 2017 Secured Term Loan and Revolving Credit Facility. On June, 2017 the company entered into a secured term loan and revolving credit facility with Nordea Bank AB (Publ.), Filial I Norge, BNP Paribas, DVB Bank America N.V., ING Bank N.V. London Branch and Skandinaviska Enskilda Banken AB (Publ.) for a maximum principal amount of $160.8 million (the “June 2017 Secured Term Loan and Revolving Credit Facility”), to re-finance our $270.0 million February 2013 secured term loan facility that was due to mature in February 2018 and for general corporate purposes. The facility has $100.0 million as a secured term loan and $60.8 million available in a revolving credit facility with a term of six years from the date of the agreement (expiring in June 2023) with a maximum principal amount of up to $160.8 million. As of December 31, 2018, the outstanding balance drawn on the loan was $136.1 million which is repayable in 17 quarterly amounts of $4.1 million followed by a final repayment of $66.4 million. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 230 basis points per annum. The aggregate fair market value of the collateral vessels must be no less than 125% of the aggregate outstanding borrowing under the facility.

The facility is secured by first priority mortgages on each of Navigator Galaxy, Navigator Genesis, Navigator Grace, Navigator Gusto, Navigator Glory, Navigator Capricorn, Navigator Scorpio and Navigator Virgo, as well as assignment of earnings and insurances on these secured vessels. The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 2.5:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%. The Company also pays a commitment fee of 0.91% per annum based on any undrawn portion of the facility. As of December 31, 2018, the Company was in compliance with all covenants contained in this credit facility.

The following table shows the breakdown of secured term loan facilities and total deferred financing costs split between current and non-current liabilities as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Current Liability

     

Current portion of secured term loan facilities

   $ (83,352    $ (70,600

Less: current portion of deferred financing costs

     1,793        1,743  
  

 

 

    

 

 

 

Current portion of secured term loan facilities, net of deferred financing costs

   $ (81,559    $ (68,857
  

 

 

    

 

 

 

Non-Current Liability

     

Secured term loan facilities and revolving credit facilities net of current portion

   $ (688,838    $ (605,138

Less: non-current portion of deferred financing costs

     7,180        5,462  
  

 

 

    

 

 

 

Non-current secured term loan facilities and revolving credit facilities, net of current portion and non-current deferred financing costs

   $ (681,658    $ (599,676
  

 

 

    

 

 

 

v3.19.1
Senior Secured/Unsecured Bond
12 Months Ended
Dec. 31, 2018
Senior Secured/Unsecured Bond

12. Senior Unsecured Bond

On February 10, 2017, the Company issued senior unsecured bonds in an aggregate principal amount of $100.0 million with Nordic Trustee AS as the bond trustee (the “2017 Bonds”). The net proceeds of the issuance of the 2017 Bonds, together with cash on hand, were used to redeem in full all of the Company’s outstanding 9.0% senior unsecured bonds. The 2017 Bonds are governed by Norwegian law and listed on the Nordic ABM which is operated and organized by Oslo Børs ASA. The 2017 Bonds bear interest at a rate of 7.75% per annum and mature on February 10, 2021. Interest is payable semi-annually in arrears on February 10 and August 10. The Company may redeem the 2017 Bonds, in whole or in part, at any time beginning on or after February 11, 2019. Any 2017 Bonds redeemed from February 11, 2019 up until February 10, 2020, are redeemable at 103.875% of par, from February 11, 2020 to August 10, 2020, are redeemable at 101.9375% of par, and from August 11, 2020 to the maturity date are redeemable at 100% of par, in each case, plus accrued interest.

The 2017 Bond Agreement contains an option to issue additional bonds up to a maximum issue amount of a further $100.0 million, at identical terms as the original bond issue, except that additional bonds may be issued at a different price.

 

The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the Company and its subsidiaries”) maintains a minimum liquidity of the greater of no less than $25.0 million; (b) to maintain an interest coverage ratio (as defined in the bond agreement) of not less than 2.25:1; and (c) maintain a Group equity ratio of minimum 30% (as defined in the bond agreement). As of December 31, 2018, the Company was in compliance with all covenants for the 2017 Bonds.

The 2017 Bond Agreement provides that we may declare dividends so long as such dividends do not exceed 50% of our cumulative consolidated net profits after taxes since June 30, 2016. The 2017 Bond Agreement also limits us and our subsidiaries from, among other things, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens which would have a material adverse effect. In addition, the 2017 Bond Agreement includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

The following table shows the breakdown of our senior unsecured bond and total deferred financing costs as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Senior Unsecured Bond

     

Total Bond

   $ (100,000    $ (100,000

Less deferred financing costs

     1,416        961  
  

 

 

    

 

 

 

Total Bond, net of deferred financing costs

   $ (98,584    $ (99,039
  

 

 

    

 

 

 

2018 Senior Secured Bonds [Member]  
Senior Secured/Unsecured Bond

11. Senior Secured Bond

On November 2, 2018, the Company issued senior secured bonds in an aggregate principal amount of NOK 600 million with Nordic Trustee AS as the bond trustee (the “2018 Bonds”). The net proceeds are being used to part finance the Export Terminal Joint Venture. The 2018 Bonds are governed by Norwegian law and are listed on the Nordic ABM which is operated and organized by Oslo Børs ASA. The 2018 Bonds bear interest at a rate of 3-month NIBOR plus 6.0% per annum, calculated on a 360-day year basis and mature on November 2, 2023. Interest is payable quarterly in arrears on February 2, May 2, August 2 and November 2.

On the same date, the company entered into a cross-currency interest rate swap agreement with Nordea Bank Abp (“Nordea”), with a termination date of November 2, 2023, to run concurrently with the 2018 Bonds. The interest rate payable by the Company under this cross-currency interest rate swap agreement will be 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million Please read Note 18 (Note 18 (Derivative Instruments) to the consolidated financial statements. For a description of our accounting policy in relation to the cross-currency interest rate swap, please read Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements.

 

The Company may redeem the 2018 Bonds, in whole or in part, at any time beginning on or after November 2, 2021. Any 2018 Bonds redeemed from November 2, 2021 until November 1, 2022, are redeemable at 102.4% of par, from November 2, 2022 until May 1, 2023, are redeemable at 101.5% of par, and from May 2, 2023 to the maturity date are redeemable at 100% of par, in each case, in cash plus accrued interest.

Additionally, upon the occurrence of a “Change of Control Event” (as defined in the 2018 Bond Agreement), the holders of 2018 Bonds have an option to require us to repay such holders’ outstanding principal amount of 2018 Bonds at 101% of par, plus accrued interest.

The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the Company and its subsidiaries”) maintains a minimum liquidity of no less than $25.0 million and (b) maintain a Group equity ratio of minimum 30% (as defined in the bond agreement). As of December 31, 2018, the Company was in compliance with all covenants for the 2018 Bonds.

The 2018 Bond Agreement provides that we may declare dividends from January 1, 2020, payable at the earliest from January 1, 2021 so long as such dividends do not exceed 50% of our cumulative consolidated net profits after taxes from January 1, 2020. The 2018 Bond Agreement also limits us and our subsidiaries from, among other things, entering into mergers and divestitures, engaging in transactions with affiliates or incurring any additional liens which would have a material adverse effect. In addition, the 2018 Bond Agreement includes customary events of default, including those relating to a failure to pay principal or interest, a breach of covenant, false representation and warranty, a cross-default to other indebtedness, the occurrence of a material adverse effect, or our insolvency or dissolution.

The following table shows the breakdown of our senior secured bond and total deferred financing costs as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Senior Secured Bond

     

Total Bond

   $ —        $ (69,337

Less deferred financing costs

     —          959  
  

 

 

    

 

 

 

Total Bond, net of deferred financing costs

   $ —        $ (68,378
  

 

 

    

 

 

 

v3.19.1
Earnings per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Earnings per Share

13. Earnings per Share

Basic and diluted earnings per share is calculated by dividing the net income available to common stockholders by the average number of common shares outstanding during the periods. Diluted earnings per share is calculated by adjusting the net income available to common stockholders and the weighted average number of common shares used for calculating basic earnings per share for the effects of all potentially dilutive shares.

The calculation of both basic and diluted number of weighted average outstanding shares of:

 

    December 31,
2016
    December 31,
2017
    December 31,
2018
 

Net income/(loss) available to common stockholders (in thousands)

    44,638       5,310       (5,739

Basic weighted average number of shares

    55,418,626       55,508,974       55,629,023  

Effect of dilutive potential share options:

    375,855       372,480       —    
 

 

 

   

 

 

   

 

 

 

Diluted weighted average number of shares

    55,794,481       55,881,454       55,629,023  

 

*

Due to a loss for the year ended December 31, 2018, no incremental shares are included because the effect would be antidilutive.

v3.19.1
Share-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation

14. Share-Based Compensation

During 2008, the Company’s Board adopted the 2008 Restricted Stock Plan (the “2008 Plan”), which entitled officers, employees, consultants and directors of the Company to receive grants of restricted stock of the Company’s common stock. This 2008 Plan is administered by the Board or a committee of the Board. A holder of restricted stock, awarded under the Plan, shall have the same voting and dividend rights as the Company’s other common stockholders in relation to those shares.

 

Prior to closing of the Company’s initial public offering in November 2013, this 2008 Plan was frozen such that new awards will no longer be issued thereunder. However, any outstanding awards issued prior to the 2008 Plan being frozen shall continue to remain outstanding and extend beyond the date the 2008 Plan was frozen. Any future equity incentive awards will be granted under the new 2013 Long-Term Incentive Plan (the “2013 Plan”) entered into prior to the closing of the Company’s initial public offering.

The 2013 Plan is administered by the Compensation Committee with certain decisions subject to approval of our Board. The maximum aggregate number of common shares that may be delivered pursuant to options or restricted stock awards granted under the 2013 Plan is 3,000,000 shares of common stock. A holder of restricted stock, awarded under the 2013 Plan, shall have the same voting and dividend rights as the Company’s other common stockholders in relation to those shares.

Share awards

On March 20, 2018, the Company granted 29,898 restricted shares under the 2013 Plan to non-employee directors with a weighted average value of $12.04 per share. On November 28, 2018 the Company granted a further 5,000 shares to a newly appointed non-employee director with a weighted average value of $12.30. These restricted shares vest on the first anniversary of the grant date. On March 20, 2018 the Company granted 63,728 restricted shares to the Chief Executive Officer of the Company and a further 32,916 restricted shares were granted to officers and employees of the Company with a weighted average value of $12.04 per share. All these restricted shares vest on the third anniversary of the grant date.

During the year ended December 31, 2018, 28,194 shares that were previously granted under the 2013 Plan to non-employee directors with a weighted average grant value of $12.77 per share vested at a fair value of $325,641.

On March 23, 2017, the Company granted 28,194 restricted shares under the 2013 Plan to non-employee directors with a weighted average value of $12.77 per share. These restricted shares vest on the first anniversary of the grant date. On the same date the Company granted 42,023 restricted shares to the Chief Executive Officer of the Company and a further 23,458 restricted shares were granted to officers and employees of the Company with a weighted average value of $12.77 per share. All these restricted shares vest on the third anniversary of the grant date.

During the year ended December 31, 2017, 22,782 shares that were previously granted under the 2008 Plan at a weighted average grant value of $15.80 vested at a fair value of $305,279. During the year ended December 31, 2017, 2,500 shares that were previously granted under the 2013 Plan to an officer of the Company with an average grant value of $19.59 vested at a fair value of $24,888.

Restricted share grant activity for the year ended December 31, 2017 and 2018 was as follows:

 

     Number of non-
vested
restricted
shares
     Weighted
average grant
date fair value
     Weighted
average
remaining
contractual
term
     Aggregate
intrinsic value
 

Balance as of January 1, 2017

     75,120      $ 15.93        1.59 years      $ 698,616  

Granted

     93,675        12.77        

Vested

     (25,282      16.17        
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2017

     143,513        13.82        1.49 years      $ 1,413,603  

Granted

     131,542        12.04        

Vested

     (28,194      12.77        

Forfeit

     (3,673      14.16        
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2018

     243,188        12.98        1.30 years      $ 2,285,967  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Using the straight-line method of expensing the restricted stock grants, the weighted average estimated value of the shares calculated at the date of grant is recognized as compensation cost in the Statement of Income over the period to the vesting date. During the year ended December 31, 2018, the Company recognized $1,173,580 in share-based compensation costs relating to share grants (year ended December 31, 2017: $859,061). As of December 31, 2018, there was a total of $1,387,104 unrecognized compensation costs relating to the expected future vesting of share-based awards (December 31, 2017: $1,027,683) which are expected to be recognized over a weighted average period of 1.30 years (December 31, 2017: 1.49 years).

Share options

Share options issued under the 2013 Plan are not exercisable until the third anniversary of the grant date and can be exercised up to the tenth anniversary of the date of grant. The fair value of each option is calculated on the date of grant based on the Black-Scholes valuation model using the assumptions listed in the table below. Expected volatilities are based on the historic volatility of the Company’s stock price and other factors. The Company does not currently pay dividends and it is assumed this will not change. The expected term of the options granted is anticipated to occur in the range between 4 and 6.5 years. The risk-free rate is the rate adopted from the U.S. Government Zero Coupon Bond.

The movements in the existing share options during the years ended December 31, 2017 and 2018 were as follows:

 

Options    Number of non-
vested
options
     Weighted
average exercise
price per share
     Weighted
average
remaining
contractual
term years
     Aggregate
intrinsic value
 

Balance as of January 1, 2017

     373,740      $ 21.54        7.70        —    

Vested

     (214,055      24.19        —          —    

Forfeited during the period

     (5,000      23.85        —          —    
  

 

 

    

 

 

    

 

 

    

Balance as of December 31, 2017

     154,685        17.80        6.70      $ —    

Vested

     (148,387      23.85        —          —    

Forfeited during the period

     (6,298      —          —          —    
  

 

 

    

 

 

    

 

 

    

Balance as of December 31, 2018

     —          —          —        $ —    
  

 

 

    

 

 

    

 

 

    

On March 17, 2018, 153,185 share options granted on March 17, 2015 at an option price of $17.80 became exercisable. None of the options were exercised as of December 31, 2018. During the year ended December 31, 2018 and following the vesting of share options on March 17, 2018 a further 23,304 share options were forfeit.

On April 14, 2017, 194,055 share options granted previously at an option price of $24.29 became exercisable and on October 14, 2017, 20,000 share options became exercisable at an option price of $23.18.

During the year ended December 31, 2018, 18,506 of the share options that had previously vested as of December 31, 2017 were forfeited at a weighted average option price of $24.17. As of December 31, 2018, there were 343,936 share options vested and still outstanding.

During the year ended December 31, 2018, the Company recognized a credit of $99,902 in share-based compensation costs relating to the forfeiture of options granted under the 2013 Plan, which was recognized in general and administrative costs (year ended December 31, 2017: expense of $553,894). As of December 31, 2018, there was no unrecognized compensation costs (year ended December 31, 2017 $85,898) related to non-vested options under the 2013 Plan.

v3.19.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

15. Commitments and Contingencies

The contractual obligations schedule set forth below summarizes our contractual obligations as of December 31, 2018.

 

    2019     2020     2021     2022     2023     Total  
    (in thousands)  

Ethylene terminal capital contributions *

    92,500       21,500       —         —         —         114,000  

Secured term loan facilities and revolving credit facilities

    70,600       128,725       60,600       302,461       113,352       675,738  

2017 Bonds

    —         —         100,000       —         —         100,000  

2018 Bonds **

    —         —         —         —         71,697       71,697  

Office operating leases

    1,493       1,280       1,128       109       —         4,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $ 164,593     $ 151,505     $ 161,728     $ 302,570     $ 185,049     $ 965,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

On January 8, February 19, and March 22, 2019, the Company made capital contributions of $18.0 million, $3.5 million and $10.0 million respectively, reducing the remaining contributions required for 2019 from $92.5 million to $61.0 million for the Company’s portion of the capital cost for the construction of the Marine Export Terminal.

**

The Company has NOK 600 million of 2018 Bonds that mature in 2023 issued in the Norwegian Bond market (see Note 11 (Senior Secured Bond) to the consolidated financial statements). The Company has entered into a cross-currency interest rate swap agreement, to swap all interest and principal payments of the 2018 Bonds into U.S. Dollars, with the interest payments at 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million (see Note 18 (Derivative Instruments) to the consolidated financial statements).

The Company occupies office space in London with a lease that commenced in January 2017 for a period of 10 years with a mutual break option in January 2022, which is the fifth anniversary from the lease commencement date. The gross rent per year is approximately $1.1 million.

The Company entered into a lease for office space in New York that commenced June 1, 2017 and expires on May 31, 2020. The annual gross rent under this lease is approximately $0.4 million, subject to certain adjustments.

The lease term for our representative office in Gdynia, Poland is for a period of five years commencing from April 2017. The gross rent per year is approximately $60,000.

v3.19.1
Concentration of Credit Risks
12 Months Ended
Dec. 31, 2018
Risks and Uncertainties [Abstract]  
Concentration of Credit Risks

16. Concentration of Credit Risks

The Company’s vessels are chartered under either a time charter arrangement or voyage charter arrangement. Under a time charter arrangement, no security is provided for the payment of charter hire. However, payment is usually required monthly in advance. Under a voyage charter arrangement, a lien may sometimes be placed on the cargo to secure the payment of the accounts receivable, as permitted by the prevailing charter party agreement.

 

As of December 31, 2018, 23 of the Company’s 38 operated vessels, were subject to time charters, 15 of which will expire within one year, two which will expire within three years, and six which will expire within nine years. The committed time charter income for financial years ending December 31, 2018, is as follows:

 

     (in thousands)  

2019:

   $ 114,098  

2020:

   $ 77,370  

2021:

   $ 60,974  

2022:

   $ 43,961  

2023:

   $ 38,667  

2024 onwards:

   $ 69,810  

During 2018, four charterers contributed 55.1% of the operating revenue, comprising 16.5%, 15.4%, 13.5%, and 9.7% (2017: four charterers contributed 55.1% of the operating revenue, comprising 16.5%, 16.3%, 11.9% and10.4%).

As of December 31, 2017, and 2018, all of the Company’s cash and cash equivalents and short-term investments were held by large financial institutions, highly rated by a recognized rating agency.

v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

17. Income Taxes

Navigator Holdings Ltd and its vessel owning subsidiaries are incorporated in the Marshall Islands and under the laws of the Marshall Islands are not subject to tax on income or capital gains and no Marshall Islands withholding tax will be imposed on dividends paid by the Company to its stockholders. However, the Company’s UK, Polish and Singaporean subsidiaries are subject to local taxes.

 

     2016
(in thousands)
     2017
(in thousands)
     2018
(in thousands)
 

Net Income/(loss)

   $ 44,638      $ 5,310      $ (5,739

Tax expense at statutory rate

   $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

 

Total statutory tax charge

   $ —        $ —        $ —    

Tax charge in UK subsidiaries

   $ 669      $ 221      $ 254  

Tax credit in Polish subsidiary

   $ —        $ (130    $ (147

Tax charge in Singapore subsidiary

   $ 508      $ 306      $ 226  
  

 

 

    

 

 

    

 

 

 

Total Tax charge

   $ 1,177      $ 397      $ 333  
  

 

 

    

 

 

    

 

 

 

v3.19.1
Derivative Instruments
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments

18. Derivative Instruments

The Company uses derivative instruments in accordance with its overall risk management policy to mitigate our risk to the effects of unfavorable fluctuations in foreign exchange movements.

The Company entered into a cross-currency interest rate swap agreement concurrently with the issuance of its NOK-denominated Senior secured bonds (see Note 11 (Senior Secured Bond) to the consolidated financial statements) and pursuant to this swap, the Company receives the principal amount of NOK 600 million in exchange for a payment of a fixed amount of $71.7 million on the maturity date of the swap.

In addition, at each quarterly interest payment date, the cross-currency interest rate swap exchanges a receipt of floating interest of 6.0% plus 3-month NIBOR on NOK 600 million for a U.S. Dollar payment of floating interest of 6.608% plus 3-month U.S. LIBOR on the $71.7 million principal amount. The purpose of the cross-currency interest rate swap is to economically hedge the foreign currency exposure on the payments of interest and principal of the Company’s NOK-denominated 2018 Bonds due in 2023.

 

The cross-currency interest rate swap is remeasured to fair value at each reporting date. The fair value of this non-designated derivative instrument is presented in the Company’s consolidated balance sheet and the change in fair value is presented in the consolidated statement of income. As of December 31, 2018, the cross-currency interest rate swap had a fair value liability of $5.2 million and an unrealized loss of $5.2 million. There is no impact on the cash flows.

Foreign Exchange risk

Under U.S. GAAP, all foreign currency-denominated monetary assets and liabilities are revalued and are reported in the Company’s functional currency based on the prevailing exchange rate at the end of the period. These foreign currency transactions fluctuate based on the strength of the U.S. Dollar relative to the NOK and are included in our results of operations. The primary source of our foreign exchange gains and losses are the movements on our NOK-denominated 2018 Bonds, which we have mitigated through the cross-currency interest rate swap. The translation of all foreign currency-denominated monetary assets and liabilities at each reporting date results in unrealized foreign currency exchange differences but do not impact our cash flows.

Credit risk

The Company is exposed to credit loss in the event of non-performance by the counterparty to the cross-currency interest rate swap agreement. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are reputable financial institutions, highly rated by a recognized rating agency.

v3.19.1
Subsequent Events
12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

19. Subsequent Events

In January 2019, February 2019 and March 2019, we contributed a further $18.0 million, $3.5 million and $10.0 million, respectively, to the Export Terminal Joint Venture, in addition to the $41.0 million contributed up to December 31, 2018, of our expected share of our expected $155.0 million share of the capital cost of the Marine Export Terminal from the company’s available cash resources and the proceeds of the 2018 Bonds.

On March 25, 2019 the Company entered into a secured term loan with Credit Agricole Corporate and Investment Bank, ING Bank N.V. London Branch and Skandinaviska Enskilda Banken AB (Publ.) for a maximum principal amount of $107.0 million (the “March 2019 Secured Term Loan”), to re-finance four of our vessels secured within our January 2015 secured term loan facility that was due to mature in June 2020. The repayment of the loan on the four vessels was $75.6 million, leaving net proceeds of $31.4 million for general corporate purposes. The facility has a term of six years from the date of the agreement and expires in March 2025. Under this agreement, liquidity must be no less (i) $35.0 million, or (ii) 5% of net debt or total debt, as applicable, whichever is greater; and the aggregate fair market value of the collateral vessels must be no less than 130% of the aggregate outstanding borrowing under the facility. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 240 basis points per annum.

On March 29, 2019, Navigator Ethylene Terminals LLC, a wholly-owned subsidiary of the Company (the “Marine Terminal Borrower”), entered into a Credit Agreement (the “Terminal Facility”with ING Capital LLC and SG Americas Securities, LLC for a maximum principal amount of $75.0 million, to be used solely for the payment of project costs relating to our Marine Export Terminal. The Terminal Facility is comprised of an initial construction loan, followed by a term loan with a final maturity occurring on the earlier of (i) five years from completion of the Marine Export Terminal and (ii) December 31, 2025. The loans are subject to quarterly repayments of principal and interest beginning three months after the completion of the Marine Export Terminal. Interest on amounts drawn is payable at a rate of U.S. LIBOR plus 250 to 300 basis points per annum over the term of the facility, for interest periods of three or six months as selected by the Marine Terminal Borrower. The Terminal Facility includes events of default for the failure to achieve the completion of the Marine Export Terminal by December 31, 2020, the abandonment of all or substantially all activities relating to the Marine Export Terminal for 90 consecutive days and if certain material contracts relating to the Marine Export Terminal are terminated, as well as customary events of default including those relating to a failure to pay principal or interest, a breach of covenant, representation or warranty, a cross-default to other indebtedness and non-compliance with security documents. The loans under the Terminal Facility are secured by first priority liens on the rights to the Marine Terminal Borrower’s distributions from the Marine Terminal Joint Venture, the Marine Terminal Borrower’s assets and properties and the company’s equity interests in the Marine Terminal Borrower.

v3.19.1
Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2018
Basis of Presentation

(a) Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries (See Note 9 (Group Subsidiaries) to the consolidated financial statements) and a Variable Interest Entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.

On January 31, 2018, the Company announced the execution of definitive agreements creating a 50/50 joint venture with Enterprise Products Partners L.P. (the “Export Terminal Joint Venture”) to construct and operate an ethylene export marine terminal at Morgan’s Point, Texas on the Houston Ship Channel (the “Marine Export Terminal”). Enterprise Products Partners, L.P. is the sole managing member of the Export Terminal Joint Venture and it is also the operator of the Marine Export Terminal. Interests in joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs and capitalized interest. Subsequent to initial recognition, the consolidated financial statements will include the Company’s share of the profit or loss and other comprehensive income (“OCI”) of equity-accounted investees, until the date on which significant influence or joint control ceases.

The joint venture, Enterprise Navigator Ethylene Terminals L.L.C. “Export Terminal Joint Venture” is organized as a limited liability company and maintains separate ownership accounts, consequently we account for our investment using the equity method as our ownership interest is between 20% and 50% and we exercise significant influence over the investee’s operating and financial policies. In consolidation, we disclose our proportionate share of profits and losses from equity method unconsolidated affiliates in the income statement and adjust the carrying amount of our equity method investments accordingly.

As of December 31, 2018, the Company has consolidated 100% of PT Navigator Khatulistiwa, a VIE for which the Company is deemed to be the primary beneficiary, i.e. it has a controlling financial interest in this entity. The Company owns 49% of the VIE’s common stock, all of its secured debt and has voting control. All economic interests in the residual net assets reside with the Company. A VIE is an entity that in general does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is present when a company has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the right to residual gains or the obligation to absorb losses that could potentially be significant to the VIE.

On January 1, 2018 the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company has adopted the standard using the modified retrospective method to incorporate the cumulative effect on all contracts at the date of initial application for reporting periods presented beginning January 1, 2018. By using the modified retrospective method approach we have made an adjustment to the consolidated statement of shareholders’ equity of $3.4 million which represents the amount of net revenue that would not have been recognized in retained earnings for the year ended December 31, 2017 under ASU 2014-09.

The Company receives its revenue streams from three different sources; vessels on time charters; voyage charters; and contracts of affreightment (“COA”). With time charters, the Company receives a fixed charter hire per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as the performance obligation is satisfied. In the case of voyage charters or COA’s, the vessel is contracted for a voyage, or a series of voyages, between two or more ports and the Company is paid for the cargo transported. Revenue under these performance obligations is recognized on a load port to discharge port basis and determines percentage of completion for all voyage charters and COA’s on a time elapsed basis. This approach differs from previous generally accepted accounting principles (“U.S. GAAP”) whereby under a voyage charter or a COA the revenue was recognized from the later of the charter party date and the date of completion of the previous discharge port until the following discharge port. This had the effect of recognizing the revenue over a shorter period of time as the performance obligation commences from the loading of the cargo rather than from the inception of the contract. The Company believes that the performance obligation towards the customer starts to become satisfied once the cargo is loaded and the obligation becomes completely satisfied once the cargo has been discharged at the discharge port. Time charter revenue is payable monthly in advance whilst revenue from voyage charters and COAs is due upon discharge of the cargo at the discharge port.

Under the new revenue recognition standard, the Company has identified certain costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences. These directly related costs are generally fuel or any canal or port costs incurred to get the vessel from its position at inception of the contract to the load port to commence loading of the cargo. These costs are deferred and amortized over the duration of the performance obligation on a time basis.

Operating revenue

The following table compares our operating revenue by the source of revenue stream for the years ended December 31, 2017 and 2018:

 

     Year ended
December 31,
(in thousands)
 
     2017      2018  

Operating revenue:

     

Time charters

   $ 144,521      $ 168,500  

Voyage charters (*)

     154,074        141,546  
  

 

 

    

 

 

 

Total operating revenue

   $ 298,595      $ 310,046  

 

*

Voyage Charter revenues: Voyage charter revenues, which include revenues from contracts of affreightment, are shown net of address commissions.

We have adopted the new accounting standard ASU 2014-09 for revenue recognition using the modified retrospective method, which incorporates the cumulative effect of prior years in January 1, 2018. Consequently, the revenues for the year ended December 31, 2017 have not been adjusted.

 

Impact on the financial statements

The Company applied Topic 606 using the cumulative effect method – i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity as of January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The details of the significant changes and quantitative impact of the changes are set out below.

Consolidated Balance Sheet:

 

     As reported at
December 31, 2018
(in thousands)
     Adjustments
(in thousands)
    Balances without
adoption of Topic 606
(in thousands)
 

Accrued income

   $ 4,731      $ 3,854     $ 8,585  

Prepaid expenses and other current assets

     16,057        (1,462     14,595  

Other

     1,811,963        —         1,811,963  
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Accrued expenses and other liabilities

   $ 12,798      $ 103     $ 12,901  

Other

     864,843        —         864,843  
  

 

 

    

 

 

   

 

 

 

Total Liabilities

     877,641        103       877,744  
  

 

 

    

 

 

   

 

 

 

Retained earnings

     364,408        2,289       366,697  

Other

     590,702        —         590,702  
  

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     955,110        2,289       957,399  
  

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Consolidated statements of Income:

 

     As reported for
the year ended
December 31,
2018
    Adjustments     Balances without
Adoption of
Topic 606
 
     (in thousands, except per share data)  

Revenues

      

Operating revenue

   $ 310,046     $ (1,243   $ 308,803  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Broker commissions

     5,142       60       5,202  

Voyage expenses

     61,634       (240     61,394  

Other

     201,790       —         201,790  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     268,566       (180     268,386  
  

 

 

   

 

 

   

 

 

 

Operating income

     41,480       (1,063     40,417  

Other expense

     (46,886     —         (46,886
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (5,406     (1,063     (6,469

Income taxes

     (333     —         (333
  

 

 

   

 

 

   

 

 

 

Net loss

     (5,739     (1,063     (6,802
  

 

 

   

 

 

   

 

 

 

Loss per share:

      

Basic:

   $ (0.10   $ (0.02   $ (0.12

Diluted:

   $ (0.10   $ (0.02   $ (0.12
  

 

 

   

 

 

   

 

 

 

 

     As reported at
December 31,
2018
(in thousands)
    Adjustments
(in thousands)
    Balances without
adoption of Topic
606
(in thousands)
 

Net loss

   $ (5,739   $ (1,063   $ (6,802

Adjustments to reconcile net income to net cash provided by operating activities

      

Others

     75,826       —         75,826  

Changes in operating assets and liabilities

      

Prepaid expenses and other current assets

     2,629       1,063       3,692  

Other

     4,801       —         4,801  
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     77,517       —         77,517  
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (42,327     —         (42,327
  

 

 

   

 

 

   

 

 

 

Net cash provided used in financing activities

     (25,784     —         (25,784
  

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     9,406       —         9,406  

Cash, cash equivalents and restricted cash at beginning of year

     62,109       —         62,109  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

   $ 71,515     $ —       $ 71,515  
  

 

 

   

 

 

   

 

 

 

Remaining Performance Obligations

The following table presents future committed revenue from contracts with customers, arising from remaining performance obligations as of December 31, 2018.

 

     Less than 1 year      1 – 2 years      2 – 5 years      More than 5 years      Total  
     (in thousands)  

Total committed revenue

   $ 133,743      $ 77,370      $ 143,603      $ 69,810      $ 424,526  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, including ongoing time charters, as of December 31, 2018. ASU 2014-09 requires disclosure based on time bands that would be the most appropriate for the duration of the remaining performance obligations. The company uses one year time bands for contracts with up to two years in remaining duration, then up to and more than five years thereafter.

As of December 31, 2018, the amount allocated to costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences is $1.5 million and is reflected on the company’s consolidated balance sheet within prepaid expenses and other current assets. This will be recognized over the duration of the performance obligation on a time basis, which is expected to occur within one year.

In presenting the information above, the company has applied the transition practical expedient in paragraph 606-10-65-1(f)(3) and has not disclosed as of December 31, 2017 the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the company is expected to satisfy those future performance obligations.

On January 1, 2018, the Company adopted ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addresses eight classification issues related to the statement of cash flows:

 

   

Debt prepayment or debt extinguishment costs;

 

   

Settlement of zero-coupon bonds;

 

   

Contingent consideration payments made after a business combination;

 

   

Proceeds from the settlement of insurance claims;

 

   

Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;

 

   

Distributions received from equity method investees;

 

   

Beneficial interests in securitization transactions; and

 

   

Separately identifiable cash flows and application of the predominance principle.

The impact of adopting this ASU is immaterial to the financial statements.

On January 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. The impact of adopting this ASU is immaterial to the financial statements.

Impairment of Vessels

(d) Impairment of Vessels

Our vessels are reviewed for impairment when events or circumstances indicate the carrying amount of the vessel may not be recoverable. When such indicators are present, a vessel is tested for recoverability and we recognize an impairment loss if the sum of the future cash flows (undiscounted and excluding interest charges that will be recognized as an expense when incurred) expected to be generated by the vessel over its estimated remaining useful life are less than its carrying value. If we determine that a vessel’s undiscounted cash flows are less than its carrying value, we record an impairment loss equal to the amount by which its carrying amount exceeds its fair value. The new lower cost basis would result in a lower annual depreciation than before the impairment.

Considerations in making such an impairment evaluation include comparison of current carrying values to anticipated future operating cash flows, expectations with respect to future operations and other relevant factors. The estimates and assumptions regarding expected cash flows require considerable judgment and are based upon historical experience, financial forecasts and industry trends and conditions.

Drydocking Costs

(e) Drydocking Costs

Each vessel is required to be dry-docked every 30 to 60 months for classification society surveys and inspections of, among other things, the underwater parts of the vessel. These works include, but are not limited to hull coatings, seawater valves, steelworks and piping works, propeller servicing and anchor chain winch calibrations, all of which cannot be performed while the vessels are operating. The Company capitalizes costs associated with the dry-dockings in accordance with ASC Topic 360 “Property, Plant and Equipment” and amortizes these costs on a straight-line basis over the period to the next expected dry-docking. Amortization of dry-docking costs is included in depreciation and amortization in the Consolidated Statements of Income. Costs incurred during the dry-docking period which relate to routine repairs and maintenance are expensed. Where a vessel is newly acquired, or constructed, a proportion of the cost of the vessel is allocated to the components expected to be replaced at the next drydocking based on the expected costs relating to the next drydocking, which is based on experience and past history of similar vessels. Drydocking costs are included within operating activities on the cashflow statement.

Cash, Cash Equivalents and Restricted Cash

(f) Cash, Cash Equivalents and Restricted Cash

The Company considers highly liquid investments, such as time deposits and certificates of deposit, with an original maturity of three months or less when purchased, to be cash equivalents. The Company has cash in a U.S. financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $0.3 million. As of December 31, 2018, and 2017 and for the years then ended, the Company had balances in this financial institution in excess of the insured amount. The Company also maintains cash balances in foreign financial institutions which are not covered by the FDIC.

Amounts included in restricted cash represent those required to be set aside by a contractual agreement with a banking institution for the payment of the forecast future liability on the cross-currency interest rate swap agreement, payable on maturity of our 2018 issued senior secured bonds (“2018 Bonds”). If the Norwegian Kroner depreciates relative to the U.S. Dollar beyond a certain threshold, we are required to place cash collateral with our swap providers. As of December 31, 2018, the collateral amount held with the swap provider was $0.16 million.

Financial Instruments - Debt Securities

(g) Financial Instruments – Debt Securities

The 2017 issued senior unsecured bonds (“2017 Bonds”) and 2018 Bonds are recognized at the net amount of the proceeds received. Subsequent measurement is at amortized cost, net of deferred finance costs. Interest accrued on the 2017 Bonds and the 2018 Bonds is calculated on a 360-day year basis and is included within accrued interest as a current liability. Deferred finance costs are amortized using the effective interest method over the lifetime of the 2017 Bonds and the 2018 Bonds.

Short-Term Investments

(h) Short-Term Investments

Short-term investments represent funds deposited in money market funds with an original maturity of more than three months when purchased. The Company records its short-term investments at fair value. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s short-term investments are classified within Level 1 of the fair value hierarchy.

Accounts Receivable, net

(i) Accounts Receivable, net

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. As of December 31, 2017, and 2018, the Company evaluated its accounts receivable and established an allowance for doubtful accounts, based on a history of past write-offs, collections and current credit conditions. The Company does not generally charge interest on past-due accounts (unless the accounts are subject to legal action), and accounts are written off as uncollectible when all reasonable collection efforts have failed. Accounts are deemed past-due based on contractual terms.

Bunkers and lubricant oils

(j) Bunkers and lubricant oils

Bunkers and lubricant oils include bunkers (fuel), for those vessels under voyage charter, and lubricants. Under a time charter, the cost of bunkers is borne by and remains the property of the charterer. Bunkers and lubricant oils are accounted for on a first in, first out basis and are valued at cost.

Deferred Finance Costs

(k) Deferred Finance Costs

Costs incurred in connection with obtaining secured term loan facilities, revolving credit facilities and bonds are recorded as deferred financing costs and are amortized to interest expense over the estimated duration of the related debt. Such costs include fees paid to the lenders or on the lenders’ behalf and associated legal and other professional fees. Under the Accounting Standards Update (ASU) 2015- 03, Interest—Imputation of Interest the Company has adopted the accounting standard (Subtopic 835-30)—simplifying the presentation of debt issuance cost to present the unamortized debt issuance costs, excluding up front commitment fees, as a direct reduction of the carrying value of the debt.

Deferred Income

(l) Deferred Income

Deferred income is the balance of cash received in excess of revenue earned under a time charter or voyage charter arrangement as of the balance sheet date.

Revenue Recognition

(m) Revenue Recognition

The Company employs its vessels on time charters, voyage charters or COA’s. With time charters, the Company receives a fixed charter hire per on-hire day and revenue is recognized on an accrual basis and is recorded over the term of the charter as service is provided. In the case of voyage charters or COA’s, the vessel is contracted for a voyage, or a series of voyages, between two or more ports and the Company is paid for the cargo transported. Revenue for these voyages is recognized on a load to discharge basis in determining percentage of completion for all voyage charters.

Other Comprehensive Income / (Loss)

(n) Other Comprehensive Income / (Loss)

The Company follows the provisions of ASC Topic 220 “Comprehensive Income,” which requires separate presentation of certain transactions, which are recorded directly as components of stockholders’ equity. Comprehensive income is comprised of net income and foreign currency translation gains and losses.

Voyage Expenses and Vessel Operating Expenses

(o) Voyage Expenses and Vessel Operating Expenses

When the Company employs its vessels on time charter, it is responsible for all the operating expenses of the vessels, such as crew costs, stores, insurance, repairs and maintenance. In the case of voyage charters, the vessel is contracted only for a voyage between two or more ports, and the Company pays for all voyage expenses in addition to the vessel operating expenses. Voyage expenses consist mainly of in port expenses and bunker (fuel) consumption and are recognized as incurred during the performance obligation (the period of time from load to discharge) of the vessel. The Company has identified certain voyage costs incurred to obtain or fulfill a contract with a charterer which are costs incurred following the commencement of a contract or charter party but before the loading of the cargo commences. These directly related costs are generally fuel or any canal or port costs to get the vessel from its position at inception of the contract to the load port to commence loading of the cargo. These costs are deferred and amortized over the duration of the performance obligation on a time basis.

Repairs and Maintenance

(p) Repairs and Maintenance

All expenditures relating to routine maintenance and repairs are expensed when incurred.

Insurance

(q) Insurance

The Company maintains hull and machinery insurance, war risk insurance, protection and indemnity insurance coverage, increased value insurance, demurrage and defense insurance coverage in amounts considered prudent to cover normal risks in the ordinary course of its operations. Premiums paid in advance to insurance companies are recognized as prepaid expenses and recorded as a vessel operating expense over the period covered by the insurance contract. In addition, the Company maintains Directors and Officers insurance.

Share-Based Compensation

(r) Share-Based Compensation

The Company records as an expense in its financial statements the fair value of all equity-settled stock-based compensation awards. The terms and vesting schedules for share-based awards vary by type of grant. Generally, the awards vest subject to time-based (immediate to three years) service conditions. Compensation expense is recognized ratably over the service period.

Critical Accounting Estimates

(s) Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

Foreign Currency Transactions

(t) Foreign Currency Transactions

Substantially all of the Company’s cash receipts are in U.S. Dollars. The Company’s disbursements, however, are in the currency invoiced by the supplier. The Company remits funds in the various currencies invoiced. The non U.S. Dollar invoices received, and their subsequent payments, are converted into U.S. Dollars when the transactions occur. The movement in exchange rates between these two dates is transferred to an exchange difference account and is expensed each month. The exchange risk resulting from these transactions is not material.

The primary source of our foreign exchange gains and losses are the movements on our Norwegian Kroner denominated 2018 Bonds. The 2018 Bonds are translated into U.S. Dollars at each reporting date at the prevailing exchange rate at the end of the period. The movement in the foreign exchange rates between each reporting date will result in a foreign exchange gain or loss on the 2018 Bonds, which is shown as a single line on the face of the income statement. As of December 31, 2018, the foreign currency exchange gain on the 2018 Bonds was $2.4 million, compared to December 31, 2017 when we did not hold any non-U.S. Dollar denominated financial instruments.

The aggregate amount of all foreign exchange movements recorded in net income for the year ended December 31, 2018, was a $1.7 million gain compared to a $0.1 million loss for the year ended December 31, 2017. The movement was primarily as a result of the foreign currency translation of the 2018 Bonds mentioned in the previous paragraph.

Derivative instruments

(u) Derivative instruments

Derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying balance sheet and subsequently remeasured to fair value at each reporting date, regardless of the purpose or intent for holding the derivative. The resulting derivative assets or liabilities are shown as a single line and are not net off against one another on the face of the balance sheet. The method of recognizing the resulting gain or loss is dependent on whether the derivative contract qualifies for hedge accounting and has been designated as a hedging instrument. For derivative instruments that are not designated or that do not qualify as hedging instruments under the Financial Accounting Standards Board (‘FASB’) Accounting Standards Codification (‘ASC’) 815, Derivatives and Hedging, the liability has been recognized as ‘Derivative liabilities’ on the balance sheet and changes in the fair value of the derivative financial instruments are recognized in earnings. Gains and losses from the Company’s non-designated cross-currency interest rate swap agreement are recorded in realized and unrealized loss on non-designated derivative instruments in the Company’s consolidated statements of income but do not impact our cash flows.

Income Taxes

(v) Income Taxes

Navigator Holdings Ltd. and its Marshall Islands subsidiaries are currently not required to pay income taxes in the Marshall Islands on ordinary income or capital gains as they qualify as exempt companies.

The Company has four subsidiaries incorporated in the United Kingdom where the base tax rate is 19%. One UK subsidiary earns management and other fees from fellow subsidiary companies. The second UK subsidiary holds an investment in our VIE and has a loan to our group subsidiary in Poland. The third subsidiary earns management fees from fellow subsidiary companies. The fourth subsidiary is a holding company.

The Company has a subsidiary in Poland where the base tax rate is 19%. The subsidiary earns management fees from fellow subsidiary companies.

The Company has a subsidiary incorporated in Singapore where the base tax rate is 17%. The subsidiary earns management and other fees and receives interest from its VIE, PT Navigator Khatulistiwa.

The Company considered the income tax disclosure requirements of ASC Topic 740 “Income Taxes,” with regard to disclosing material unrecognized tax benefits; none were identified. The Company’s policy is to recognize accrued interest and penalties for unrecognized tax benefits as a component of tax expense. As of December 31, 2017, and 2018, there were no accrued interest and penalties for unrecognized tax benefits.

Earnings Per Share

(w) Earnings Per Share

Basic earnings per common share (“Basic EPS”) is computed by dividing the net income available to common stockholders by the weighted-average number of shares outstanding. Diluted earnings per common share (“Diluted EPS”) are computed by dividing the net income available to common stockholders by the weighted average number of common shares and dilutive common share equivalents then outstanding.

Shares granted pursuant to the 2013 Restricted Stock Plan are the only dilutive shares, and these shares have been considered as outstanding since their respective grant dates for purposes of computing diluted earnings per share.

Segment Reporting

(x) Segment Reporting

Although separate vessel financial information is available, management internally evaluates the performance of the enterprise as a whole and not on the basis of separate business units or different types of charters. As a result, the Company has determined that it operates as one reportable segment. Since the Company’s vessels regularly move between countries in international waters over many trade routes, it is impractical to assign revenues or earnings from the transportation of international LPG and petrochemical products by geographic area. As disclosed in Note 2(a) Basis of Presentation – there are two different revenue streams due to the nature of the contracts that we operate. The Company believes that all of these contracts are part of the same operating segment of seaborne transportation.

Recent Accounting Pronouncements

(y) Recent Accounting Pronouncements

The following accounting standards issued as of December 31, 2018, may affect the future financial reporting by Navigator Holdings Ltd:

In February 2016, the Financial accounting Standards Board, or “FASB” issued ASU 2016-02, Leases, (‘Topic 842’), which, requires lessees to recognize most leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842 Leases; and ASU 2018-11, Target Improvements, which clarifies and corrects errors in ASC 842. The effective date and transition requirements in ASU 2018-10 are the same as the effective date and transition requirements of ASU 2016-02.

The new standard established a right-of use (“ROU”) model that requires a lessee to recognize a ROU asset, representing the right to use the asset for a specified period of time and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases for lessees will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard also requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease in effect, transfers control of the underlying assets to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third-party, the lease is a direct financing lease. All lessor leases that are not sales-type or direct financing leases are operating leases.

The effective date for ASU 2016-02 is for annual and interim periods in fiscal years beginning after December 15, 2018. The Company will adopt the standard using the modified retrospective transition method for reporting periods presented beginning January 1, 2019 and elect all of the standard’s practical expedients in ASC 842-10-65-1(f) as a package on adoption. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We do not expect a significant change in our leasing activity between now and adoption. We adopted the new standard with effect from January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided, for dates and periods before January 1, 2019.

For the Company as a lessee, we expect that this standard will have a material effect in the way our leases are recorded, presented and disclosed in our consolidated financial statements. We believe that the most significant changes relate to the recognition of new ROU assets and liabilities on our balance sheet for our operating leases, expected to relate to long-term commitments for our offices in London, New York and Gdynia. Consequently, on adoption, we expect to recognize additional operating liabilities, less unamortized lease incentives, of $7.6 million, with corresponding ROU assets of the same amount, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

The new standard also provides practical expedients for any entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for leases that qualify, meaning that we will not recognize ROU assets or lease liabilities for these leases. This includes not recognizing ROU assets or lease liabilities for existing short-term leases at the transition date.

For the Company as a lessor, in applying ASU 2016-02, we believe that our vessels contracted under voyage charters or contracts of affreightment do not qualify as leases, as the charterer does not have the right to operate the asset and we maintain the right to direct the use of the asset during the period of charter hire. Vessels on time charters will continue to qualify as operating leases, when the charterer has the right to obtain substantially all of the benefits and can direct how and for what purposes the vessel will be used, and the Company has no substantive substitution rights. Time charters do not qualify as direct finance leases under ASU 2016-02 as the present value of the sum of the lease payments does not exceed the fair value of the underlying vessel.

The Company has elected, as a package, the practical expedients available in ASC 842-10-65-1(f) to not re-assess whether any existing or expired contracts are, or contain leases, for voyages in progress at the adoption date of ASU 2016-02. We will assess new charter contracts after the adoption date for whether they are, or contain, leases and should be recognized under ASU 2016-02. Any future charter contracts that do not contain a lease will be accounted for under Topic 606. Please read Note 2 (Summary of Significant Accounting Policies) to the consolidated financial statements. We do not anticipate a change to the classification of time charters, voyage charters or contracts of affreightment, the period over which we recognize revenue and we expect no significant impact on our consolidated financial statements or cash flows as a result of adopting this standard.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which contains an amendment to ASU 2016-02 that would allow lessors to elect, as a practical expedient, by class of underlying asset, not to separate lease and non-lease components of a contract from lease components. The amendment allows these components to be accounted for as a single lease component if both (i) the timing and pattern of the revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company has elected the package of practical expedients, as mentioned above, and it is expected that revenue from vessels under time charters will be presented as a single lease component. This ASU has the same effective date as ASU 2016-02 for entities that have not early adopted ASU 2016-02, or for entities that have early adopted ASU 2016-02, upon issuance.

ASU 2018-11 also created a new, optional, transition method for implementing ASU 2016-02, which can only be adopted by entities either at (1) the beginning of the company’s first reporting period after issuance or (2) the entity’s mandatory ASU 2016-02 effective date. The Company will apply this optional transitional method at the effective date of adoption of ASU 2016-02. Under this transition method, a cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of adoption for the reporting entity, and the presentation of the consolidated financial statements for comparative periods will remain unchanged. This choice of method affects only the timing of when an entity applies the transition provisions. The impact of adopting this transition method will not have a material impact on our consolidated financial statements as we expect to recognize an adjustment to the opening balance of retained earnings for an expense of $0.08 million on adoption.

In June 2016, the FASB issued ASU 2016–13, Financial Instruments – Credit Losses, which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity debt securities, among others. ASU 2016–13 is required to be adopted for public business entities using the modified retrospective method by January 1, 2020, with early adoption permitted for fiscal periods beginning after December 15, 2018. We plan to adopt ASU 2016-13 on January 1, 2020 and we do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which more closely aligns the accounting for employee and nonemployee share-based payments. This ASU is effective for Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We adopted the new standard with effect from January 1, 2019, and the adoption of this standard will not have a material impact on our consolidated financial statements and related disclosures.

Vessels In Operation [Member]  
Vessels

(b) Vessels in Operation

The cost of the vessels (excluding the estimated initial drydocking cost) less their estimated residual value is depreciated on a straight-line basis over the vessel’s estimated economic life. Management estimates the useful life of each of the Company’s vessels to be 30 years from the date of its original construction.

Vessels Under Construction [Member]  
Vessels

(c) Vessels Under Construction

Vessels under construction are stated at cost, which includes the cost of construction, capitalized interest and other direct costs attributable to the construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and put into use.

v3.19.1
Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Operating Revenue by Source of Revenue Stream

The following table compares our operating revenue by the source of revenue stream for the years ended December 31, 2017 and 2018:

 

     Year ended
December 31,
(in thousands)
 
     2017      2018  

Operating revenue:

     

Time charters

   $ 144,521      $ 168,500  

Voyage charters (*)

     154,074        141,546  
  

 

 

    

 

 

 

Total operating revenue

   $ 298,595      $ 310,046  

 

*

Voyage Charter revenues: Voyage charter revenues, which include revenues from contracts of affreightment, are shown net of address commissions.

Summary of Impact on Financial Statements on Adoption of Topic 606

The Company applied Topic 606 using the cumulative effect method – i.e. by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity as of January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. The details of the significant changes and quantitative impact of the changes are set out below.

Consolidated Balance Sheet:

 

     As reported at
December 31, 2018
(in thousands)
     Adjustments
(in thousands)
    Balances without
adoption of Topic 606
(in thousands)
 

Accrued income

   $ 4,731      $ 3,854     $ 8,585  

Prepaid expenses and other current assets

     16,057        (1,462     14,595  

Other

     1,811,963        —         1,811,963  
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Accrued expenses and other liabilities

   $ 12,798      $ 103     $ 12,901  

Other

     864,843        —         864,843  
  

 

 

    

 

 

   

 

 

 

Total Liabilities

     877,641        103       877,744  
  

 

 

    

 

 

   

 

 

 

Retained earnings

     364,408        2,289       366,697  

Other

     590,702        —         590,702  
  

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     955,110        2,289       957,399  
  

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,832,751      $ 2,392     $ 1,835,143  
  

 

 

    

 

 

   

 

 

 

Consolidated statements of Income:

 

     As reported for
the year ended
December 31,
2018
    Adjustments     Balances without
Adoption of
Topic 606
 
     (in thousands, except per share data)  

Revenues

      

Operating revenue

   $ 310,046     $ (1,243   $ 308,803  
  

 

 

   

 

 

   

 

 

 

Expenses

      

Broker commissions

     5,142       60       5,202  

Voyage expenses

     61,634       (240     61,394  

Other

     201,790       —         201,790  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     268,566       (180     268,386  
  

 

 

   

 

 

   

 

 

 

Operating income

     41,480       (1,063     40,417  

Other expense

     (46,886     —         (46,886
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (5,406     (1,063     (6,469

Income taxes

     (333     —         (333
  

 

 

   

 

 

   

 

 

 

Net loss

     (5,739     (1,063     (6,802
  

 

 

   

 

 

   

 

 

 

Loss per share:

      

Basic:

   $ (0.10   $ (0.02   $ (0.12

Diluted:

   $ (0.10   $ (0.02   $ (0.12
  

 

 

   

 

 

   

 

 

 

 

     As reported at
December 31,
2018
(in thousands)
    Adjustments
(in thousands)
    Balances without
adoption of Topic
606
(in thousands)
 

Net loss

   $ (5,739   $ (1,063   $ (6,802

Adjustments to reconcile net income to net cash provided by operating activities

      

Others

     75,826       —         75,826  

Changes in operating assets and liabilities

      

Prepaid expenses and other current assets

     2,629       1,063       3,692  

Other

     4,801       —         4,801  
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     77,517       —         77,517  
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (42,327     —         (42,327
  

 

 

   

 

 

   

 

 

 

Net cash provided used in financing activities

     (25,784     —         (25,784
  

 

 

   

 

 

   

 

 

 

Net increase in cash, cash equivalents and restricted cash

     9,406       —         9,406  

Cash, cash equivalents and restricted cash at beginning of year

     62,109       —         62,109  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of year

   $ 71,515     $ —       $ 71,515  
  

 

 

   

 

 

   

 

 

 

Summary of Future Committed Revenue from Contracts with Customers, Arising from Remaining Performance Obligations

The following table presents future committed revenue from contracts with customers, arising from remaining performance obligations as of December 31, 2018.

 

     Less than 1 year      1 – 2 years      2 – 5 years      More than 5 years      Total  
     (in thousands)  

Total committed revenue

   $ 133,743      $ 77,370      $ 143,603      $ 69,810      $ 424,526  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

v3.19.1
Fair Value of Derivative Instruments (Tables)
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Schedule of Estimated Fair Value and Carrying Value of Assets and Liabilities Measured at Fair Value on Recurring Basis, Non-recurring Basis

The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring basis.

 

     December 31, 2017      December 31, 2018  

Fair Value Hierarchy Level

   Fair
Value
Hierarchy
Level
     Carrying
Amount
Asset
(Liability)
     Fair Value
Asset
(Liability)
     Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
 
            (in thousands)        

Cross-currency interest rate swap agreement

     Level 2        —          —          (5,154     (5,154

v3.19.1
Fair Value of Financial Instruments Not Accounted For at Fair Value (Tables)
12 Months Ended
Dec. 31, 2018
Investments, All Other Investments [Abstract]  
Schedule of Estimated Fair Value and Carrying Value of Assets and Liabilities Measured at Fair Value on Recurring Basis, Non-recurring Basis

The following table includes the estimated fair value and carrying value of those assets and liabilities. The table excludes accounts receivable, accounts payable, accrued expenses and other liabilities because the fair value approximates carrying value.

 

     December 31, 2017     December 31, 2018  

Fair Value Hierarchy Level

   Fair
Value
Hierarchy
Level
     Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
    Carrying
Amount
Asset
(Liability)
    Fair Value
Asset
(Liability)
 
            (in thousands)        

Cash and cash equivalents

     Level 1        62,109       62,109       71,515       71,515  

2018 Bonds (note 11)

     Level 2        —         —         (69,337     (66,004

2017 Bonds (note 12)

     Level 2        (100,000     (96,775     (100,000     (96,481

Secured term loan facilities and revolving credit facilities (note 10)

     Level 3        (772,190     (636,220     (675,738     (588,713

v3.19.1
Vessels in Operation, net (Tables)
12 Months Ended
Dec. 31, 2018
Vessels In Operation [Member]  
Vessels

     Vessel
(in thousands)
     Drydocking
(in thousands)
     Total
(in thousands)
 

Cost

        

December 31, 2016

     1,727,491        33,949        1,761,440  

Additions

     1,940        268        2,208  

Transfer in from vessels under construction

     327,571        3,550        331,121  

Disposals

     —          (1,492      (1,492

Reduction in contract cost of newbuild vessels

     (280      —          (280
  

 

 

    

 

 

    

 

 

 

December 31, 2017

     2,056,722        36,275        2,092,997  

Additions

     648        5,796        6,444  

Transfer in from vessels under construction

     —          —          —    

Disposals

     —          (10,163      (10,163
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     2,057,370        31,908        2,089,278  
  

 

 

    

 

 

    

 

 

 

Accumulated Depreciation

        

December 31, 2016

     268,677        12,404        281,081  

Charge for the period

     64,031        9,238        73,269  

Disposals for the period

     —          (1,492      (1,492
  

 

 

    

 

 

    

 

 

 

December 31, 2017

     332,708        20,150        352,858  

Charge for the period

     67,809        7,909        75,718  

Disposals for the period

     —          (10,163      (10,163
  

 

 

    

 

 

    

 

 

 

December 31, 2018

     400,517        17,896        418,413  
  

 

 

    

 

 

    

 

 

 

Net Book Value

        

December 31, 2016

   $ 1,458,814      $ 21,545      $ 1,480,359  
  

 

 

    

 

 

    

 

 

 

December 31, 2017

   $ 1,724,014      $ 16,125      $ 1,740,139  
  

 

 

    

 

 

    

 

 

 

December 31, 2018

   $ 1,656,853      $ 14,012      $ 1,670,865  
  

 

 

    

 

 

    

 

 

 

Vessels Under Construction [Member]  
Vessels

     2017
(in thousands)
     2018
(in thousands)
 

Vessels under construction as of January 1

   $ 150,492      $ —  

Payments to shipyard

     174,131        —    

Other payments including initial stores and site costs

     4,783        —    

Capitalized interest

     1,715        —    

Transfer to vessels in operation

     (331,121      —    
  

 

 

    

 

 

 

Vessels under construction as of December 31

   $ —        $ —    
  

 

 

    

 

 

 

 

v3.19.1
Investment in Equity Accounted Joint Venture (Tables)
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Schedule of Investments in Equity Accounted Joint Venture

 

     (in thousands)  

Investment in equity accounted joint venture as of December 31, 2017

   $ —    

Equity contributions to joint venture entity

     41,000  

Share of results

     (38

Capitalized interest

     1,024  

Legal costs

     476  
  

 

 

 

Investment in equity accounted joint venture as of December 31, 2018

   $ 42,462  
  

 

 

 

v3.19.1
Group Subsidiaries (Tables)
12 Months Ended
Dec. 31, 2018
Schedule of Investments [Abstract]  
Group Subsidiaries

As of December 31, 2017, and 2018, the company had the following significant subsidiaries:

 

Corporation Name

   Percentage Ownership
as of December 31,
    Country of
Incorporation
  Subsidiary of Limited
Liability Company
     2017     2018          

- Navigator Gas US L.L.C.

     100     100   Delaware (USA)   Service company

- Navigator Gas L.L.C.

     100     100   Marshall Islands   Holding company

~ Navigator Aries L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Atlas L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Aurora L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Centauri L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceres L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Ceto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Copernico L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Capricorn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Eclipse L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Europa L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Galaxy L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gemini L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Genesis L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Glory L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Grace L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Gusto L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Jorf L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Leo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Libra L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Luga L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Magellan L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Mars L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Neptune L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Nova L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Oberon L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Pegasus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Phoenix L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Prominence L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Saturn L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Scorpio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Taurus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Triton L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Umbrio L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Venus L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Virgo L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ Navigator Yauza L.L.C.

     100     100   Marshall Islands   Vessel-owning company

~ NGT Services (UK) Ltd

     100     100   England   Service company

~ NGT Services (Poland) Sp. z.o.o.

     100     100   Poland   Service company

~ Navigator Gas Ship Management Ltd.

     100     100   England   Service company

~ Falcon Funding PTE Ltd

     100     100   Singapore   Service company

~ Navigator Gas Invest Ltd

     100     100   England   Investment company

- PT Navigator Khatulistiwa

     49     49   Indonesia   Vessel-owning company

~ Navigator Terminals L.L.C.

     100     100   Marshall Islands   Investment company

~ Navigator Terminal Invest Ltd

     100     100   England   Investment company

- Navigator Ethylene Terminals L.L.C.

     100     100   Delaware (USA)   Investment company

- Enterprise Navigator Ethylene Terminal L.L.C.

     50     50   Texas (USA)   Terminal operator
v3.19.1
Secured Term Loan Facilities and Revolving Credit Facilities (Tables)
12 Months Ended
Dec. 31, 2018
Schedule of Annual Principal Payments to Term Loans and Revolving Credit Facilities

The table below represents the annual principal payments to be made under our term loans and revolving credit facilities after December 31, 2018:

 

     December 31,
2017
(in thousands)
     December 31,
2018
(in thousands)
 

Due within one year

   $ 83,352      $ 70,600  

Due in two years

     70,600        128,725  

Due in three years

     128,725        60,600  

Due in four years

     60,600        302,461  

Due in five years

     302,461        113,352  

Due in more than five years

     126,452        —    
  

 

 

    

 

 

 

Total secured term loan facilities and revolving credit facility

   $ 772,190      $ 675,738  

Less: current portion

     83,352        70,600  
  

 

 

    

 

 

 

Secured term loan facilities and revolving credit facility, non-current portion

   $ 688,838      $ 605,138  
  

 

 

    

 

 

 

Schedule of Breakdown of Secured Term Loan Facilities and Total Deferred Financing Costs Split Between Current and Non-Current Liabilities

The following table shows the breakdown of secured term loan facilities and total deferred financing costs split between current and non-current liabilities as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Current Liability

     

Current portion of secured term loan facilities

   $ (83,352    $ (70,600

Less: current portion of deferred financing costs

     1,793        1,743  
  

 

 

    

 

 

 

Current portion of secured term loan facilities, net of deferred financing costs

   $ (81,559    $ (68,857
  

 

 

    

 

 

 

Non-Current Liability

     

Secured term loan facilities and revolving credit facilities net of current portion

   $ (688,838    $ (605,138

Less: non-current portion of deferred financing costs

     7,180        5,462  
  

 

 

    

 

 

 

Non-current secured term loan facilities and revolving credit facilities, net of current portion and non-current deferred financing costs

   $ (681,658    $ (599,676
  

 

 

    

 

 

 

Senior Secured Bonds [Member]  
Schedule of Breakdown of Secured Term Loan Facilities and Total Deferred Financing Costs Split Between Current and Non-Current Liabilities

The following table shows the breakdown of our senior secured bond and total deferred financing costs as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Senior Secured Bond

     

Total Bond

   $ —        $ (69,337

Less deferred financing costs

     —          959  
  

 

 

    

 

 

 

Total Bond, net of deferred financing costs

   $ —        $ (68,378
  

 

 

    

 

 

 

2017 Senior Unsecured Bonds [Member]  
Schedule of Breakdown of Secured Term Loan Facilities and Total Deferred Financing Costs Split Between Current and Non-Current Liabilities

The following table shows the breakdown of our senior unsecured bond and total deferred financing costs as of December 31, 2017 and 2018:

 

     December 31,
2017
     December 31,
2018
 
     (in thousands)  

Senior Unsecured Bond

     

Total Bond

   $ (100,000    $ (100,000

Less deferred financing costs

     1,416        961  
  

 

 

    

 

 

 

Total Bond, net of deferred financing costs

   $ (98,584    $ (99,039
  

 

 

    

 

 

 

v3.19.1
Earnings per Share (Tables)
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Calculation of Basic and Diluted Number of Weighted Average Outstanding Shares

The calculation of both basic and diluted number of weighted average outstanding shares of:

 

    December 31,
2016
    December 31,
2017
    December 31,
2018
 

Net income/(loss) available to common stockholders (in thousands)

    44,638       5,310       (5,739

Basic weighted average number of shares

    55,418,626       55,508,974       55,629,023  

Effect of dilutive potential share options:

    375,855       372,480       —    
 

 

 

   

 

 

   

 

 

 

Diluted weighted average number of shares

    55,794,481       55,881,454       55,629,023  

 

*

Due to a loss for the year ended December 31, 2018, no incremental shares are included because the effect would be antidilutive.

v3.19.1
Share-Based Compensation (Tables)
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Restricted Share Grant Activity

Restricted share grant activity for the year ended December 31, 2017 and 2018 was as follows:

 

     Number of non-
vested
restricted
shares
     Weighted
average grant
date fair value
     Weighted
average
remaining
contractual
term
     Aggregate
intrinsic value
 

Balance as of January 1, 2017

     75,120      $ 15.93        1.59 years      $ 698,616  

Granted

     93,675        12.77        

Vested

     (25,282      16.17        
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2017

     143,513        13.82        1.49 years      $ 1,413,603  

Granted

     131,542        12.04        

Vested

     (28,194      12.77        

Forfeit

     (3,673      14.16        
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2018

     243,188        12.98        1.30 years      $ 2,285,967  
  

 

 

    

 

 

    

 

 

    

 

 

 

Summary of Stock Option Activity

The movements in the existing share options during the years ended December 31, 2017 and 2018 were as follows:

 

Options    Number of non-
vested
options
     Weighted
average exercise
price per share
     Weighted
average
remaining
contractual
term years
     Aggregate
intrinsic value
 

Balance as of January 1, 2017

     373,740      $ 21.54        7.70        —    

Vested

     (214,055      24.19        —          —    

Forfeited during the period

     (5,000      23.85        —          —    
  

 

 

    

 

 

    

 

 

    

Balance as of December 31, 2017

     154,685        17.80        6.70      $ —    

Vested

     (148,387      23.85        —          —    

Forfeited during the period

     (6,298      —          —          —    
  

 

 

    

 

 

    

 

 

    

Balance as of December 31, 2018

     —          —          —        $ —    
  

 

 

    

 

 

    

 

 

    

v3.19.1
Commitments and Contingencies (Tables)
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Summary of Contractual Obligations

The contractual obligations schedule set forth below summarizes our contractual obligations as of December 31, 2018.

 

    2019     2020     2021     2022     2023     Total  
    (in thousands)  

Ethylene terminal capital contributions *

    92,500       21,500       —         —         —         114,000  

Secured term loan facilities and revolving credit facilities

    70,600       128,725       60,600       302,461       113,352       675,738  

2017 Bonds

    —         —         100,000       —         —         100,000  

2018 Bonds **

    —         —         —         —         71,697       71,697  

Office operating leases

    1,493       1,280       1,128       109       —         4,010  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $ 164,593     $ 151,505     $ 161,728     $ 302,570     $ 185,049     $ 965,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

On January 8, February 19, and March 22, 2019, the Company made capital contributions of $18.0 million, $3.5 million and $10.0 million respectively, reducing the remaining contributions required for 2019 from $92.5 million to $61.0 million for the Company’s portion of the capital cost for the construction of the Marine Export Terminal.

**

The Company has NOK 600 million of 2018 Bonds that mature in 2023 issued in the Norwegian Bond market (see Note 11 (Senior Secured Bond) to the consolidated financial statements). The Company has entered into a cross-currency interest rate swap agreement, to swap all interest and principal payments of the 2018 Bonds into U.S. Dollars, with the interest payments at 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million (see Note 18 (Derivative Instruments) to the consolidated financial statements).

v3.19.1
Concentration of Credit Risks (Tables)
12 Months Ended
Dec. 31, 2018
Risks and Uncertainties [Abstract]  
Committed Time Charter Income

The committed time charter income for financial years ending December 31, 2018, is as follows:

 

     (in thousands)  

2019:

   $ 114,098  

2020:

   $ 77,370  

2021:

   $ 60,974  

2022:

   $ 43,961  

2023:

   $ 38,667  

2024 onwards:

   $ 69,810  

v3.19.1
Income Taxes (Tables)
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Summary of Income Tax Reconciliation

However, the Company’s UK, Polish and Singaporean subsidiaries are subject to local taxes.

 

     2016
(in thousands)
     2017
(in thousands)
     2018
(in thousands)
 

Net Income/(loss)

   $ 44,638      $ 5,310      $ (5,739

Tax expense at statutory rate

   $ —        $ —        $ —    
  

 

 

    

 

 

    

 

 

 

Total statutory tax charge

   $ —        $ —        $ —    

Tax charge in UK subsidiaries

   $ 669      $ 221      $ 254  

Tax credit in Polish subsidiary

   $ —        $ (130    $ (147

Tax charge in Singapore subsidiary

   $ 508      $ 306      $ 226  
  

 

 

    

 

 

    

 

 

 

Total Tax charge

   $ 1,177      $ 397      $ 333  
  

 

 

    

 

 

    

 

 

 

v3.19.1
Description of Business - Additional Information (Detail)
12 Months Ended
Dec. 31, 2018
Vessel
MT
Schedule Of Description Of Business [Line Items]  
Number of gas carriers owned & operated 38
Exporting capacity per year | MT 1,000,000
Semi Refrigerated [Member]  
Schedule Of Description Of Business [Line Items]  
Number of gas carriers owned & operated 31
Fully Refrigerated [Member]  
Schedule Of Description Of Business [Line Items]  
Number of gas carriers owned & operated 7
Minimum [Member]  
Schedule Of Description Of Business [Line Items]  
Gas carrier cargo capacity | m³ 20,600
Maximum [Member]  
Schedule Of Description Of Business [Line Items]  
Gas carrier cargo capacity | m³ 38,000
v3.19.1
Summary of Significant Accounting Policies - Additional Information (Detail)
12 Months Ended
Dec. 31, 2018
USD ($)
Company
Dec. 31, 2017
USD ($)
Summary Of Significant Accounting Policies [Line Items]    
Variable Interest Entity, consolidated 100.00%  
Performance obligation term Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, including ongoing time charters, as of December 31, 2018. ASU 2014-09 requires disclosure based on time bands that would be the most appropriate for the duration of the remaining performance obligations. The company uses one year time bands for contracts with up to two years in remaining duration, then up to and more than five years thereafter.  
Performance obligation amount $ 424,526,000  
Collateral amount held with swap provider $ 160,000  
Share based compensation, vesting period 3 years  
Foreign currency transaction gain (loss) $ 1,700,000 $ (100,000)
2018 Bonds [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Foreign currency exchange gain on senior secured bonds $ 2,400,000  
UNITED KINGDOM [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Base Tax rate 19.00%  
Number of subsidiaries | Company 4  
POLAND [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Base Tax rate 19.00%  
SINGAPORE [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Base Tax rate 17.00%  
Minimum [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Dry dock period 30 months  
Minimum [Member] | Enterprise Navigator Ethylene Terminals L.L.C. [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Equity method investment, ownership percentage 20.00%  
Maximum [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Dry dock period 60 months  
Cash in a U.S. financial institution, insured by the Federal Deposit Insurance Corporation $ 300,000  
Maximum [Member] | Enterprise Navigator Ethylene Terminals L.L.C. [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Equity method investment, ownership percentage 50.00%  
Vessels Under Construction [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Construction in progress- Depreciation provision $ 0  
Accounting Standards Update 2014-09 [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Effect of changes in accounting principle on shareholders' equity 3,400,000  
Accounting Standards Update 2016-02 [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Additional operating liabilities, less unamortized lease incentives 7,600,000  
ROU assets 7,600,000  
Expect to recognize an adjustment to opening balance of retained earnings for an expense on adoption 80,000  
Cargo Commences [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Performance obligation amount $ 1,500,000  
Cargo Commences [Member] | Jan 01,2018 [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Performance obligation period 1 year  
Common Stock [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Variable Interest Entity, consolidated 49.00%  
Vessel [Member]    
Summary Of Significant Accounting Policies [Line Items]    
Useful life of vessels 30 years  
v3.19.1
Summary of Significant Accounting Policies - Summary of Operating Revenue by Source of Revenue Stream (Detail) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Operating revenue      
Operating revenue $ 310,046 $ 298,595 $ 294,112
Time Charters [Member]      
Operating revenue      
Operating revenue 168,500 144,521  
Voyage Charters [Member]      
Operating revenue      
Operating revenue $ 141,546 $ 154,074  
v3.19.1
Summary of Significant Accounting Policies - Summary of Consolidated Balance Sheet (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
New Accounting Pronouncements or Change in Accounting Principle [Line Items]        
Accrued income $ 4,731 $ 15,791    
Prepaid expenses and other current assets 16,057 11,340    
Other 1,811,963      
Total assets 1,832,751 1,853,887    
Accrued expenses and other liabilities 12,798 12,478    
Other 864,843      
Total Liabilities 877,641 890,674    
Retained earnings 364,408 373,499    
Other 590,702      
Total stockholders' equity 955,110 963,213 $ 956,480 $ 910,091
Total liabilities and stockholders' equity 1,832,751 $ 1,853,887    
Difference between Revenue Guidance in Effect before and after Topic 606 [Member]        
New Accounting Pronouncements or Change in Accounting Principle [Line Items]        
Accrued income 3,854      
Prepaid expenses and other current assets (1,462)      
Total assets 2,392      
Accrued expenses and other liabilities 103      
Total Liabilities 103      
Retained earnings 2,289      
Total stockholders' equity 2,289      
Total liabilities and stockholders' equity 2,392      
Calculated under Revenue Guidance in Effect before Topic 606 [Member]        
New Accounting Pronouncements or Change in Accounting Principle [Line Items]        
Accrued income 8,585      
Prepaid expenses and other current assets 14,595      
Other 1,811,963      
Total assets 1,835,143      
Accrued expenses and other liabilities 12,901      
Other 864,843      
Total Liabilities 877,744      
Retained earnings 366,697      
Other 590,702      
Total stockholders' equity 957,399      
Total liabilities and stockholders' equity $ 1,835,143      
v3.19.1
Summary of Significant Accounting Policies - Summary of Consolidated Statements of Income (Detail) - USD ($)
$ / shares in Units, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenues      
Operating revenue $ 310,046 $ 298,595 $ 294,112
Expenses      
Broker commissions 5,142 5,368 5,812
Voyage expenses 61,634 55,542 42,201
Other 201,790    
Total operating expenses 268,566 251,413 216,155
Operating income 41,480 47,182 77,957
Other expense (46,886)    
Income/(loss) before income taxes (5,406) 5,707 45,815
Income taxes (333) (397) (1,177)
Net loss $ (5,739) $ 5,310 $ 44,638
Loss per share:      
Basic: $ (0.10) $ 0.10 $ 0.81
Diluted: $ (0.10) $ 0.10 $ 0.80
Difference between Revenue Guidance in Effect before and after Topic 606 [Member]      
Revenues      
Operating revenue $ (1,243)    
Expenses      
Broker commissions 60    
Voyage expenses (240)    
Total operating expenses (180)    
Operating income (1,063)    
Income/(loss) before income taxes (1,063)    
Net loss $ (1,063)    
Loss per share:      
Basic: $ (0.02)    
Diluted: $ (0.02)    
Calculated under Revenue Guidance in Effect before Topic 606 [Member]      
Revenues      
Operating revenue $ 308,803    
Expenses      
Broker commissions 5,202    
Voyage expenses 61,394    
Other 201,790    
Total operating expenses 268,386    
Operating income 40,417    
Other expense (46,886)    
Income/(loss) before income taxes (6,469)    
Income taxes (333)    
Net loss $ (6,802)    
Loss per share:      
Basic: $ (0.12)    
Diluted: $ (0.12)    
v3.19.1
Summary of Significant Accounting Policies - Summary of Consolidated Statements of Cash Flows (Detail) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Net loss $ (5,739) $ 5,310 $ 44,638
Adjustments to reconcile net income to net cash provided by operating activities      
Others 75,826    
Changes in operating assets and liabilities      
Prepaid expenses and other current assets 2,629 (5,079) (7,694)
Other 4,801    
Net cash provided by operating activities 77,517 75,921 86,748
Net cash used in investing activities (42,327) (183,025) (238,153)
Net cash provided used in financing activities (25,784) 111,941 120,898
Net increase in cash, cash equivalents and restricted cash 9,406 4,837 (30,507)
Cash, cash equivalents and restricted cash at beginning of year 62,109 57,272 87,779
Cash, cash equivalents and restricted cash at end of year 71,515 62,109 $ 57,272
Difference between Revenue Guidance in Effect before and after Topic 606 [Member]      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Net loss (1,063)    
Changes in operating assets and liabilities      
Prepaid expenses and other current assets 1,063    
Calculated under Revenue Guidance in Effect before Topic 606 [Member]      
New Accounting Pronouncements or Change in Accounting Principle [Line Items]      
Net loss (6,802)    
Adjustments to reconcile net income to net cash provided by operating activities      
Others 75,826    
Changes in operating assets and liabilities      
Prepaid expenses and other current assets 3,692    
Other 4,801    
Net cash provided by operating activities 77,517    
Net cash used in investing activities (42,327)    
Net cash provided used in financing activities (25,784)    
Net increase in cash, cash equivalents and restricted cash 9,406    
Cash, cash equivalents and restricted cash at beginning of year 62,109    
Cash, cash equivalents and restricted cash at end of year $ 71,515 $ 62,109  
v3.19.1
Summary of Significant Accounting Policies - Summary of Future Committed Revenue from Contracts with Customers, Arising from Remaining Performance Obligations (Detail)
$ in Thousands
Dec. 31, 2018
USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Total committed revenue $ 424,526
Less than 1 Year [Member]  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Total committed revenue 133,743
1 - 2 Years [Member]  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Total committed revenue 77,370
2 - 5 Years [Member]  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Total committed revenue 143,603
More than 5 Years [Member]  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]  
Total committed revenue $ 69,810
v3.19.1
Fair Value of Derivative Instruments - Additional Information (Detail)
Dec. 31, 2018
USD ($)
Fair Value Disclosures [Abstract]  
Derivatives designated as hedges held $ 0
v3.19.1
Fair Value of Derivative Instruments - Schedule of Estimated Fair Value and Carrying Value of Assets and Liabilities Measured at Fair Value on Recurring Basis, Non-recurring Basis (Detail)
$ in Thousands
Dec. 31, 2018
USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Carrying Amount Asset (Liability) $ 5,154
Cross Currency Interest Rate Contract [Member]  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Carrying Amount Asset (Liability) (5,154)
Fair Value Asset (Liability) $ (5,154)
v3.19.1
Fair Value of Financial Instruments Not Accounted For at Fair Value - Schedule of Estimated Fair Value and Carrying Value of Assets and Liabilities Measured at Fair Value on Recurring Basis, Non-recurring Basis (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Cash and cash equivalents, Carrying Amount Asset $ 71,515 $ 62,109
Secured term loan facilities and revolving credit facility, Carrying Amount (Liability) (675,738) (772,190)
Cash and cash equivalents, Fair Value Asset 71,515 62,109
2018 Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Bonds, Carrying amount (69,337)  
Secured term loan facilities and revolving credit facility, Carrying Amount (Liability) [1] (71,697)  
2017 Bonds [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Bonds, Carrying Amount (100,000) (100,000)
Secured term loan facilities and revolving credit facility, Carrying Amount (Liability) (99,039)  
Level 1 [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Senior unsecured bond, Fair Value (Liability) (66,004)  
Level 2 [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Senior unsecured bond, Fair Value (Liability) (96,481) (96,775)
Level 3 [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Secured term loan facilities and revolving credit facility, Fair Value (Liability) $ (588,713) $ (636,220)
[1] The Company has NOK 600 million of senior secured bonds (the '2018 Senior secured bonds') issued in the Norwegian Bond market that mature in 2023 (see Note 11 (Senior Secured Bond) to the consolidated financial statements). The Company has entered into a cross-currency interest rate swap agreement, to swap all interest and principal payments of the 2018 bonds into U.S. Dollars, with the interest payments at 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million (see Note 18 (Derivative Instruments) to the consolidated financial statements).
v3.19.1
Accounts Receivable Net - Additional Information (Detail) - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Accounts Receivable, Net [Abstract]    
Provision for doubtful accounts $ 0.3 $ 0.3
v3.19.1
Vessel in Operation, Net - Vessels (Detail) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Property, Plant and Equipment [Line Items]      
Net Book Value, ending balance $ 1,299 $ 1,611  
Vessels In Operation [Member]      
Property, Plant and Equipment [Line Items]      
Cost, beginning balance 2,092,997 1,761,440  
Cost, Additions 6,444 2,208  
Cost, Transfer in from vessels under construction   331,121  
Cost, Disposals (10,163) (1,492)  
Cost, Reduction in contract cost of newbuild vessels   (280)  
Cost, ending balance 2,089,278 2,092,997  
Accumulated Depreciation, beginning balance 352,858 281,081  
Accumulated Depreciation, Charge for the period 75,718 73,269  
Accumulated Depreciation, Disposals for the period (10,163) (1,492)  
Accumulated Depreciation, ending balance 418,413 352,858  
Net Book Value, ending balance 1,670,865 1,740,139 $ 1,480,359
Vessels In Operation [Member] | Vessel [Member]      
Property, Plant and Equipment [Line Items]      
Cost, beginning balance 2,056,722 1,727,491  
Cost, Additions 648 1,940  
Cost, Transfer in from vessels under construction   327,571  
Cost, Reduction in contract cost of newbuild vessels   (280)  
Cost, ending balance 2,057,370 2,056,722  
Accumulated Depreciation, beginning balance 332,708 268,677  
Accumulated Depreciation, Charge for the period 67,809 64,031  
Accumulated Depreciation, ending balance 400,517 332,708  
Net Book Value, ending balance 1,656,853 1,724,014 1,458,814
Vessels In Operation [Member] | Drydocking [Member]      
Property, Plant and Equipment [Line Items]      
Cost, beginning balance 36,275 33,949  
Cost, Additions 5,796 268  
Cost, Transfer in from vessels under construction   3,550  
Cost, Disposals (10,163) (1,492)  
Cost, ending balance 31,908 36,275  
Accumulated Depreciation, beginning balance 20,150 12,404  
Accumulated Depreciation, Charge for the period 7,909 9,238  
Accumulated Depreciation, Disposals for the period (10,163) (1,492)  
Accumulated Depreciation, ending balance 17,896 20,150  
Net Book Value, ending balance $ 14,012 $ 16,125 $ 21,545
v3.19.1
Vessel in Operation, Net - Additional Information (Detail)
$ in Thousands
12 Months Ended
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Vessel
Dec. 31, 2016
USD ($)
Property, Plant and Equipment [Line Items]      
Payment for property plant and equipment $ 648 $ 1,940 $ 1,733
Property, plant and equipment, net 1,299 $ 1,611  
Time Charter Agreements [Member]      
Property, Plant and Equipment [Line Items]      
Property, plant and equipment, cost 1,337,000    
Property, plant and equipment, net 1,084,000    
Semi Refrigerated [Member] | Midsize Carrier [Member]      
Property, Plant and Equipment [Line Items]      
Refrigerated gas carrier, acquired | Vessel   2  
Payment for property plant and equipment   $ 156,800  
Semi Refrigerated [Member] | Handysize Carrier [Member]      
Property, Plant and Equipment [Line Items]      
Refrigerated gas carrier, acquired | Vessel   2  
Payment for property plant and equipment   $ 152,500  
Fully Refrigerated [Member] | Liquefied Gas Carriers [Member]      
Property, Plant and Equipment [Line Items]      
Refrigerated gas carrier, acquired   1  
Collateralized Loan Obligations [Member]      
Property, Plant and Equipment [Line Items]      
Property, plant and equipment, net $ 1,509,000    
v3.19.1
Investment in Equity Accounted Joint Venture - Summary of Investment in Equity Accounted Joint Venture (Detail)
$ in Thousands
12 Months Ended
Dec. 31, 2018
USD ($)
Equity Method Investments and Joint Ventures [Abstract]  
Equity contributions to joint venture entity $ 41,000
Share of results (38)
Capitalized interest 1,024
Legal costs 476
Investment in equity accounted joint venture, ending balance $ 42,462
v3.19.1
Investment in Equity Accounted Joint Venture - Additional Information (Detail)
Jan. 31, 2018
Ethylene Marine Export Terminal [Member]  
Schedule of Equity Method Investments [Line Items]  
Economic interest in building and operating marine export terminal 50.00%
v3.19.1
Vessels Under Construction (Detail) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Property, Plant and Equipment [Line Items]      
Payments to shipyard   $ 180,629 $ 239,179
Capitalized interest $ 1,024    
Vessels Under Construction [Member]      
Property, Plant and Equipment [Line Items]      
Vessels under construction as of January 1   150,492  
Other payments including initial stores and site costs   4,783  
Capitalized interest   1,715  
Transfer to vessels in operation   (331,121)  
Vessels under construction as of December 31     $ 150,492
Vessels Under Construction [Member] | Shipyard [Member]      
Property, Plant and Equipment [Line Items]      
Payments to shipyard   $ 174,131  
v3.19.1
Group Subsidiaries - Group Subsidiaries (Detail)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
PT Navigator Khatulistiwa [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 49.00% 49.00%
Country of Incorporation Indonesia  
Subsidiary of Limited Liability Company Vessel-owning company  
Enterprise Navigator Ethylene Terminal L.L.C [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 50.00% 50.00%
Country of Incorporation Texas (USA)  
Subsidiary of Limited Liability Company Terminal operator  
Navigator Gas US L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Delaware (USA)  
Subsidiary of Limited Liability Company Service company  
Navigator Gas L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Holding company  
Navigator Aries L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Atlas L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Aurora LLC [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Centauri LLC [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Ceres L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Ceto L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Copernico L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Capricorn L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Eclipse LLC [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Europa L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Galaxy L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Gemini L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Genesis L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Glory L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Grace L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Gusto L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Jorf L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Leo L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Libra L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Luga L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Magellan L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Mars L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Neptune L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Nova LLC [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Oberon L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Pegasus L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Phoenix L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Prominence L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Saturn L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Scorpio L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Taurus L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Triton L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Umbrio L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Venus L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Virgo L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
Navigator Yauza L.L.C. [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Vessel-owning company  
NGT Services (UK) Ltd [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation England  
Subsidiary of Limited Liability Company Service company  
NGT Services (Poland) Sp. Z O.O [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Poland  
Subsidiary of Limited Liability Company Service company  
Navigator Gas Ship Management Ltd [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation England  
Subsidiary of Limited Liability Company Service company  
Falcon Funding PTE Ltd [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Singapore  
Subsidiary of Limited Liability Company Service company  
Navigator Gas Invest Ltd [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation England  
Subsidiary of Limited Liability Company Investment company  
Navigator Terminals LLC [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Marshall Islands  
Subsidiary of Limited Liability Company Investment company  
Navigator Terminals Invest Ltd [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation England  
Subsidiary of Limited Liability Company Investment company  
Navigator Ethylene Terminals L.L.C [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Percentage Ownership 100.00% 100.00%
Country of Incorporation Delaware (USA)  
Subsidiary of Limited Liability Company Investment company  
v3.19.1
Group Subsidiaries - Additional Information (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Subsidiary or Equity Method Investee [Line Items]    
Total assets $ 1,832,751 $ 1,853,887
Total liabilities 877,641 890,674
Variable Interest Entity, Primary Beneficiary [Member]    
Subsidiary or Equity Method Investee [Line Items]    
Total assets 125,300 132,200
Total liabilities $ 36,600 $ 54,400
v3.19.1
Secured Term Loan Facilities and Revolving Credit Facilities - Schedule of Annual Principal Payments to Term Loans and Revolving Credit Facilities (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Maturities of Long-term Debt [Abstract]    
Due within one year $ 70,600 $ 83,352
Due in two years 128,725 70,600
Due in three years 60,600 128,725
Due in four years 302,461 60,600
Due in five years 113,352 302,461
Due in more than five years   126,452
Total secured term loan facilities and revolving credit facility 675,738 772,190
Less: current portion 70,600 83,352
Secured term loan facilities and revolving credit facility, non-current portion 605,138 688,838
Total secured term loan facilities and revolving credit facility $ 675,738 $ 772,190
v3.19.1
Secured Term Loan Facilities and Revolving Credit Facilities - Additional Information (Detail)
12 Months Ended
Oct. 01, 2020
Oct. 28, 2016
USD ($)
Dec. 31, 2015
USD ($)
Jan. 27, 2015
USD ($)
Dec. 31, 2018
USD ($)
Repayments
Payments
Dec. 31, 2015
USD ($)
Dec. 31, 2017
USD ($)
Jun. 30, 2017
USD ($)
Debt Instrument [Line Items]                
Cash balance required         $ 71,515,000   $ 62,109,000  
April 2013 Loan Facility [Member]                
Debt Instrument [Line Items]                
Credit facility, refinancing       $ 120,000,000        
January 2015 Secured Term Loan Facility [Member]                
Debt Instrument [Line Items]                
Credit facility term       7 years 7 years      
Credit facility, maximum borrowing capacity       $ 278,100,000        
Credit facility, amount outstanding         $ 200,800,000      
Credit facility, number of repayments | Payments         4      
Debt instrument covenant description         The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5% of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%.      
January 2015 Secured Term Loan Facility [Member] | Scenario, Forecast [Member]                
Debt Instrument [Line Items]                
EBITDA to interest expense Ratio 300.00%              
January 2015 Secured Term Loan Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]                
Debt Instrument [Line Items]                
Basis spread on credit facility interest rate       2.70%        
January 2015 Secured Term Loan Facility [Member] | Minimum [Member]                
Debt Instrument [Line Items]                
Credit facility, periodic payment         $ 500,000      
Credit facility, final payment         15,600,000      
Aggregate fair value of collateral vehicles required for borrowings under facility       135.00%        
Cash balance required         $ 25,000,000      
Cash required as percent of indebtedness         5.00%      
Total equity to total assets         30.00%      
EBITDA to interest expense Ratio         200.00%      
January 2015 Secured Term Loan Facility [Member] | Maximum [Member]                
Debt Instrument [Line Items]                
Credit facility, periodic payment         $ 700,000      
Credit facility, final payment         18,300,000      
December 2015 Secured Revolving Credit Facility [Member]                
Debt Instrument [Line Items]                
Credit facility term     7 years          
Credit facility, maximum borrowing capacity     $ 290,000,000     $ 290,000,000    
Credit facility, amount outstanding         246,700,000      
Credit facility, periodic payment         4,100,000      
Credit facility, final payment         $ 185,100,000      
Credit facility, number of repayments | Repayments         15      
Debt instrument covenant description         The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%.      
Credit facility, expiring period           2022-12    
Debt payment end date         Dec. 21, 2022      
Commitment fee on credit facility         0.74%      
December 2015 Secured Revolving Credit Facility [Member] | Scenario, Forecast [Member]                
Debt Instrument [Line Items]                
EBITDA to interest expense Ratio 300.00%              
December 2015 Secured Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]                
Debt Instrument [Line Items]                
Basis spread on credit facility interest rate     2.10%          
December 2015 Secured Revolving Credit Facility [Member] | Minimum [Member]                
Debt Instrument [Line Items]                
Aggregate fair value of collateral vehicles required for borrowings under facility           125.00%    
Cash balance required         $ 25,000,000      
Cash required as percent of indebtedness         5.00%      
Total equity to total assets         30.00%      
EBITDA to interest expense Ratio         200.00%      
October 2016 Secured Revolving Credit Facility [Member]                
Debt Instrument [Line Items]                
Credit facility term   7 years            
Credit facility, maximum borrowing capacity   $ 220,000,000            
Credit facility, final payment         $ 21,000,000      
Credit facility, number of repayments | Repayments         17      
Debt instrument covenant description         The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 3:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%.      
Credit facility, expiring period   2023-12            
Commitment fee on credit facility         0.91%      
Credit facility   $ 130,000,000            
Drawdowns under the credit facility         $ 92,200,000      
Credit facility, remaining borrowing capacity         55,000,000      
October 2016 Secured Revolving Credit Facility [Member] | Scenario, Forecast [Member]                
Debt Instrument [Line Items]                
EBITDA to interest expense Ratio 300.00%              
October 2016 Secured Revolving Credit Facility [Member] | Quarterly Installment One [Member]                
Debt Instrument [Line Items]                
Credit facility, periodic payment         4,100,000      
October 2016 Secured Revolving Credit Facility [Member] | Quarterly Installment Two [Member]                
Debt Instrument [Line Items]                
Credit facility, periodic payment         1,000,000      
October 2016 Secured Revolving Credit Facility [Member] | Quarterly Installment Three [Member]                
Debt Instrument [Line Items]                
Credit facility, periodic payment         500,000      
October 2016 Secured Revolving Credit Facility [Member] | Revolving Credit Facility [Member]                
Debt Instrument [Line Items]                
Credit facility, amount outstanding   55,000,000            
October 2016 Secured Revolving Credit Facility [Member] | Navigator Jorf L.L.C. [Member] | Newbuilding Term Loan [Member]                
Debt Instrument [Line Items]                
Credit facility, amount outstanding   $ 35,000,000            
October 2016 Secured Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]                
Debt Instrument [Line Items]                
Basis spread on credit facility interest rate   2.60%            
October 2016 Secured Revolving Credit Facility [Member] | Minimum [Member]                
Debt Instrument [Line Items]                
Aggregate fair value of collateral vehicles required for borrowings under facility   125.00%            
Cash balance required         $ 25,000,000      
Cash required as percent of indebtedness         5.00%      
Total equity to total assets         30.00%      
EBITDA to interest expense Ratio         200.00%      
June 2017 Secured Term Loan Facility [Member] | Navigator Gas L.L.C. [Member]                
Debt Instrument [Line Items]                
Credit facility, maximum borrowing capacity         $ 100,000,000      
Credit facility, periodic payment         4,100,000      
Credit facility, final payment         $ 66,400,000      
Credit facility, number of repayments | Repayments         17      
Drawdowns under the credit facility         $ 136,100,000      
June 2017 Secured Term Loan and Revolving Credit Facility [Member] | Navigator Gas L.L.C. [Member]                
Debt Instrument [Line Items]                
Credit facility term         6 years      
Credit facility, maximum borrowing capacity         $ 160,800,000     $ 160,800,000
Debt instrument covenant description         The financial covenants each as defined within the credit facility are: a) the maintenance at all times of cash and cash equivalents in an amount equal to or greater than (i) $25.0 million and (ii) 5 per cent of the total indebtedness; b) a ratio of EBITDA to interest expense of not less than 2:1 up to and including September 30, 2020, after which it will revert to 2.5:1; and c) maintain a ratio of total stockholders’ equity to total assets of not less than 30%.      
Credit facility, expiring period         2023-06      
Commitment fee on credit facility         0.91%      
Credit facility, amount drawn during period         $ 0      
June 2017 Secured Term Loan and Revolving Credit Facility [Member] | Navigator Gas L.L.C. [Member] | Scenario, Forecast [Member]                
Debt Instrument [Line Items]                
EBITDA to interest expense Ratio 250.00%              
June 2017 Secured Term Loan and Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Navigator Gas L.L.C. [Member]                
Debt Instrument [Line Items]                
Basis spread on credit facility interest rate         2.30%      
June 2017 Secured Term Loan and Revolving Credit Facility [Member] | Minimum [Member] | Navigator Gas L.L.C. [Member]                
Debt Instrument [Line Items]                
Aggregate fair value of collateral vehicles required for borrowings under facility         125.00%      
Cash balance required         $ 25,000,000      
Cash required as percent of indebtedness         5.00%      
Total equity to total assets         30.00%      
EBITDA to interest expense Ratio         200.00%      
February 2013 Secured Term Loan Facility [Member] | Navigator Gas L.L.C. [Member]                
Debt Instrument [Line Items]                
Credit facility, maximum borrowing capacity               $ 270,000,000
June 2017 Revolving Credit Facility [Member] | Navigator Gas L.L.C. [Member]                
Debt Instrument [Line Items]                
Credit facility, maximum borrowing capacity         $ 60,800,000      
v3.19.1
Secured Term Loan Facilities and Revolving Credit Facilities - Schedule of Breakdown of Secured Term Loan Facilities and Total Deferred Financing Costs Split Between Current and Non-Current Liabilities (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current Liability    
Current portion of secured term loan facilities $ (70,600) $ (83,352)
Less: current portion of deferred financing costs 1,743 1,793
Current portion of secured term loan facilities, net of deferred financing costs (68,857) (81,559)
Non-Current Liability    
Secured term loan facilities and revolving credit facilities net of current portion (605,138) (688,838)
Less: non-current portion of deferred financing costs 5,462 7,180
Non-current secured term loan facilities and revolving credit facilities, net of current portion and non-currentdeferred financing costs $ (599,676) $ (681,658)
v3.19.1
Senior Secured Bond - Additional Information (Detail)
12 Months Ended
Nov. 02, 2018
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
NOK (kr)
Nov. 02, 2018
NOK (kr)
Dec. 31, 2017
USD ($)
Debt Instrument [Line Items]          
Minimum liquidity to be maintained, amount   $ 71,515,000     $ 62,109,000
2018 Senior Secured Bonds [Member]          
Debt Instrument [Line Items]          
Aggregate principal amount | kr       kr 600,000,000  
Variable interest rate on bond 6.00%        
Debt instrument maturity date Nov. 02, 2023        
Debt instrument variable rate description The 2018 Bonds bear interest at a rate of 3-month NIBOR plus 6.0% per annum, calculated on a 360-day year basis and mature on November 2, 2023.        
Interest payment description on bond Interest is payable quarterly in arrears on February 2, May 2, August 2 and November 2.        
Debt instrument redemption description The Company may redeem the 2018 Bonds, in whole or in part, at any time beginning on or after November 2, 2021. Any 2018 Bonds redeemed from November 2, 2021 until November 1, 2022, are redeemable at 102.4% of par, from November 2, 2022 until May 1, 2023, are redeemable at 101.5% of par, and from May 2, 2023 to the maturity date are redeemable at 100% of par, in each case, in cash plus accrued interest.        
Debt instrument covenant description   The financial covenants each as defined within the bond agreement are (a) The issuer shall ensure that the Group (meaning "the Company and its subsidiaries") maintains a minimum liquidity of no less than $25.0 million and (b) maintain a Group equity ratio of minimum 30% (as defined in the bond agreement). As of December 31, 2018, the Company was in compliance with all covenants for the 2018 Bonds.      
2018 Senior Secured Bonds [Member] | Minimum [Member]          
Debt Instrument [Line Items]          
Minimum liquidity to be maintained, amount   $ 25,000,000      
Gross Equity ratio   30.00%      
2018 Senior Secured Bonds [Member] | November 2, 2021 through November 1, 2022 [Member]          
Debt Instrument [Line Items]          
Debt instrument redeemable percentage 102.40%        
2018 Senior Secured Bonds [Member] | November 2, 2022 through May 1, 2023 [Member]          
Debt Instrument [Line Items]          
Debt instrument redeemable percentage 101.50%        
2018 Senior Secured Bonds [Member] | May 2, 2023 through Maturity Date [Member]          
Debt Instrument [Line Items]          
Debt instrument redeemable percentage 100.00%        
2018 Senior Secured Bonds [Member] | Redemption of Bonds [Member]          
Debt Instrument [Line Items]          
Debt instrument redeemable percentage   101.00%      
Senior Secured Bonds [Member] | Maximum [Member]          
Debt Instrument [Line Items]          
Dividend payable percentage   50.00%      
Nordea Bank Abp [Member] | 2018 Senior Secured Bonds [Member]          
Debt Instrument [Line Items]          
Aggregate principal amount $ 71,700,000   kr 600,000,000    
Variable interest rate on bond 6.608%        
Debt instrument variable rate description 6.608% plus 3-month U.S. LIBOR        
v3.19.1
Senior Secured Bond - Schedule of Breakdown of Senior Secured Bond and Total Deferred Financing Costs (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Debt Instrument [Line Items]    
Total Bond, net of deferred financing costs $ (675,738) $ (772,190)
Senior Secured Bonds [Member]    
Debt Instrument [Line Items]    
Total Bond (69,337)  
Less deferred financing costs 959  
Total Bond, net of deferred financing costs $ (68,378)  
v3.19.1
Senior Unsecured Bond - Additional Information (Detail) - USD ($)
12 Months Ended
Feb. 10, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Debt Instrument [Line Items]        
Minimum liquidity to be maintained, amount   $ 71,515,000 $ 62,109,000  
2017 Senior Unsecured Bonds [Member]        
Debt Instrument [Line Items]        
Aggregate principal amount $ 100,000,000      
Interest rate on bond 7.75% 7.75% 7.75% 7.75%
Debt instrument maturity date Feb. 10, 2021      
Debt instrument redemption description   The Company may redeem the 2017 Bonds, in whole or in part, at any time beginning on or after February 11, 2019. Any 2017 Bonds redeemed from February 11, 2019 up until February 10, 2020, are redeemable at 103.875% of par, from February 11, 2020 to August 10, 2020, are redeemable at 101.9375% of par, and from August 11, 2020 to the maturity date are redeemable at 100% of par, in each case, plus accrued interest.    
Additional bonds issuance option, maximum amount   $ 100,000,000    
Debt instrument covenant description   The financial covenants each as defined within the bond agreement are: (a) The issuer shall ensure that the Group (meaning “the Company and its subsidiaries”) maintains a minimum liquidity of no less than $25.0 million; (b) to maintain an interest coverage ratio (as defined in the bond agreement) of not less than 2.25:1; and (c) maintain a Group equity ratio of minimum 30% (as defined in the bond agreement). At June 30, 2018, the Company was in compliance with all covenants for the 2017 Bonds.    
2017 Senior Unsecured Bonds [Member] | February 11, 2019 through February 10, 2020 [Member]        
Debt Instrument [Line Items]        
Debt instrument redeemable percentage 103.875%      
2017 Senior Unsecured Bonds [Member] | February 11, 2020 through August 10, 2020 [Member]        
Debt Instrument [Line Items]        
Debt instrument redeemable percentage 101.9375%      
2017 Senior Unsecured Bonds [Member] | August 11, 2020 through Maturity Date [Member]        
Debt Instrument [Line Items]        
Debt instrument redeemable percentage 100.00%      
Interest payment description on bond   Interest is payable semi-annually in arrears on February 10 and August 10.    
2012 Senior Unsecured Bonds [Member]        
Debt Instrument [Line Items]        
Interest rate on bond 9.00% 9.00% 9.00% 9.00%
7.75% Senior Unsecured Bond [Member] | Minimum [Member]        
Debt Instrument [Line Items]        
Minimum liquidity to be maintained, amount   $ 25,000,000    
Interest coverage ratio   2.25%    
Gross Equity ratio   30.00%    
7.75% Senior Unsecured Bond [Member] | Maximum [Member]        
Debt Instrument [Line Items]        
Dividend payable percentage   50.00%    
v3.19.1
Senior Unsecured Bond - Schedule of Breakdown of Senior Unsecured Bond and Total Deferred Financing Costs (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Debt Instrument [Line Items]    
Total Bond, net of deferred financing costs $ (675,738) $ (772,190)
2017 Senior Unsecured Bonds [Member]    
Debt Instrument [Line Items]    
Total Bond (100,000) (100,000)
Less deferred financing costs 961 1,416
Total Bond, net of deferred financing costs $ (99,039) $ (98,584)
v3.19.1
Earnings per Share - Calculation of Basic and Diluted Number of Weighted Average Outstanding Shares (Detail) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Earnings Per Share [Abstract]      
Net income/(loss) available to common stockholders (in thousands) $ (5,739) $ 5,310 $ 44,638
Basic weighted average number of shares 55,629,023 55,508,974 55,418,626
Effect of dilutive potential share options:   372,480 375,855
Diluted weighted average number of shares 55,629,023 55,881,454 55,794,481
v3.19.1
Share-Based Compensation - Additional Information (Detail) - USD ($)
12 Months Ended
Nov. 28, 2018
Mar. 20, 2018
Mar. 17, 2018
Oct. 14, 2017
Apr. 14, 2017
Mar. 23, 2017
Mar. 17, 2015
Oct. 14, 2014
Dec. 31, 2018
Dec. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Restricted stock unit, vesting in period                 28,194 25,282
Weighted average grant value per share, vested                 $ 12.77 $ 16.17
Share-based compensation costs                 $ 1,173,580 $ 859,061
Vesting period                 3 years  
Options, vesting in period     153,185 20,000 194,055       148,387 214,055
Grant date option price, vested     $ 17.80 $ 23.18 $ 24.29          
Forfeited during the period     23,304           6,298 5,000
Options vested (in shares)                 343,936 18,506
Options forfeited (in shares)                 18,506  
Weighted average option price                 $ 24.17  
Minimum [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Expected term (in years)             4 years 4 years    
Maximum [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Expected term (in years)             6 years 6 months 6 years 6 months    
Restricted Stock [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Total compensation cost not yet recognized                 $ 1,387,104 $ 1,027,683
Total compensation cost not yet recognized period for recognition                 1 year 3 months 18 days 1 year 5 months 26 days
Total compensation cost not yet recognized                 $ 1,387,104 $ 1,027,683
2013 Long Term Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Maximum number of shares authorized for grant                 3,000,000  
Vesting term                 Shares under the 2013 Plan to non-employee directors with a weighted average value of $12.77 per share. These restricted shares vest on the first anniversary of the grant date.  
Total compensation cost not yet recognized                 $ 0 85,898
Total compensation cost not yet recognized                 0 85,898
2013 Long Term Incentive Plan [Member] | General and Administrative Costs [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Share-based compensation costs                 $ 99,902 $ 553,894
Non Employee Director [Member] | 2013 Long Term Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Granted, Number of shares   29,898       28,194        
Weighted average value, per share   $ 12.04       $ 12.77        
Vesting term                 Shares under the 2013 Plan to non-employee directors with a weighted average value of $12.04 per share. On November 28, 2018 the Company granted a further 5,000 shares to a newly appointed non-employee director with a weighted average value of $12.30. These restricted shares vest on the first anniversary of the grant date.  
Restricted stock unit, vesting in period                 28,194 22,782
Weighted average grant value per share, vested                 $ 12.77 $ 15.80
Share vested, total fair value                 $ 325,641 $ 305,279
Chief Executive Officer [Member] | 2013 Long Term Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Granted, Number of shares   63,728       42,023        
Weighted average value, per share   $ 12.04       $ 12.77        
Officers and Employees [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Vesting period                 3 years  
Share-based Compensation, expiration period                 10 years  
Officers and Employees [Member] | 2013 Long Term Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Granted, Number of shares   32,916       23,458        
Weighted average value, per share   $ 12.04       $ 12.77        
Newly Appointed Non-Employee Director[Member] | 2013 Long Term Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Restricted stock unit, vesting in period 5,000                  
Weighted average grant value per share, vested $ 12.30                  
Officer [Member] | 2013 Long Term Incentive Plan [Member]                    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                    
Restricted stock unit, vesting in period                   2,500
Weighted average grant value per share, vested                   $ 19.59
Share vested, total fair value                   $ 24,888
v3.19.1
Share-Based Compensation - Restricted Share Grant Activity (Detail) - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Number of RSUs      
Unvested, beginning balance 143,513 75,120  
Granted 131,542 93,675  
Vested (28,194) (25,282)  
Forfeited (3,673)    
Unvested, ending balance 243,188 143,513 75,120
Weighted-average grant date fair value      
Unvested, beginning balance $ 13.82 $ 15.93  
Granted 12.04 12.77  
Vested 12.77 16.17  
Forfeited 14.16    
Unvested, ending balance $ 12.98 $ 13.82 $ 15.93
Aggregated intrinsic value      
Aggregated intrinsic value $ 2,285,967 $ 1,413,603 $ 698,616
Weighted-average remaining contractual terms (Years)      
Weighted-average remaining contractual terms (Years) 1 year 3 months 18 days 1 year 5 months 26 days 1 year 7 months 2 days
v3.19.1
Share-Based Compensation - Summary of Stock Option Activity (Detail) - USD ($)
12 Months Ended
Mar. 17, 2018
Oct. 14, 2017
Apr. 14, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Options            
Beginning Balance       154,685 373,740  
Vested (153,185) (20,000) (194,055) (148,387) (214,055)  
Forfeited during the period (23,304)     (6,298) (5,000)  
Ending Balance         154,685 373,740
Weighted-Average Exercise Price            
Beginning Balance       $ 17.80 $ 21.54  
Vested       $ 23.85 24.19  
Forfeited during the period         23.85  
Ending Balance         $ 17.80 $ 21.54
Weighted-Average Remaining Contractual Term (years)            
Weighted-Average Remaining Contractual Term (years)       0 years 6 years 8 months 12 days 7 years 8 months 12 days
Aggregate Intrinsic Value       $ 0 $ 0 $ 0
v3.19.1
Commitments and Contingencies - Summary of Contractual Obligations (Detail) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Contractual Obligation Fiscal Year Maturity [Line Items]    
2019 $ 70,600 $ 83,352
2020 128,725 70,600
2021 60,600 128,725
2022 302,461 60,600
2023 113,352 302,461
Total 675,738 $ 772,190
2019 164,593  
2020 151,505  
2021 161,728  
2022 302,570  
2023 185,049  
Total 965,445  
Ethylene Marine Export Terminal [Member]    
Contractual Obligation Fiscal Year Maturity [Line Items]    
2019 [1] 92,500  
2020 [1] 21,500  
Total [1] 114,000  
Secured Term Loan Facilities and Revolving Credit Facilities [Member]    
Contractual Obligation Fiscal Year Maturity [Line Items]    
2019 70,600  
2020 128,725  
2021 60,600  
2022 302,461  
2023 113,352  
Total 675,738  
2017 Bonds [Member]    
Contractual Obligation Fiscal Year Maturity [Line Items]    
2021 100,000  
Total 99,039  
2018 Bonds [Member]    
Contractual Obligation Fiscal Year Maturity [Line Items]    
2023 [2] 71,697  
Total [2] $ 71,697  
[1] On January 8, February 19, and March 22, 2019, the Company made capital contributions of $18.0 million, $3.5 million and $10.0 million respectively, reducing the remaining contributions required for 2019 from $92.5 million to $61.0 million for the export terminal joint venture.
[2] The Company has NOK 600 million of senior secured bonds (the '2018 Senior secured bonds') issued in the Norwegian Bond market that mature in 2023 (see Note 11 (Senior Secured Bond) to the consolidated financial statements). The Company has entered into a cross-currency interest rate swap agreement, to swap all interest and principal payments of the 2018 bonds into U.S. Dollars, with the interest payments at 6.608% plus 3-month U.S. LIBOR and the transfer of the principal amount fixed at $71.7 million upon maturity in exchange for NOK 600 million (see Note 18 (Derivative Instruments) to the consolidated financial statements).
v3.19.1
Commitments and Contingencies - Summary of Contractual Obligations (Parenthetical) (Detail)
kr in Millions
12 Months Ended
Mar. 22, 2019
USD ($)
Feb. 19, 2019
USD ($)
Jan. 08, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
NOK (kr)
Contractual Obligation Fiscal Year Maturity [Line Items]          
Investment in equity accounted joint venture       $ 42,500,000  
Ethylene Marine Export Terminal [Member]          
Contractual Obligation Fiscal Year Maturity [Line Items]          
Investment in equity accounted joint venture       41,000,000  
Ethylene Marine Export Terminal [Member] | Scenario, Forecast [Member]          
Contractual Obligation Fiscal Year Maturity [Line Items]          
Investment in equity accounted joint venture $ 10,000,000 $ 3,500,000 $ 18,000,000    
Remaining contributions required   $ 61,000,000 $ 92,500,000    
2018 Bonds [Member] | NORWAY [Member]          
Contractual Obligation Fiscal Year Maturity [Line Items]          
Outstanding secured borrowings       $ 71,700,000 kr 600
Outstanding secured borrowings, maturity year       2023  
Outstanding secured borrowings ,interest rate       6.608% 6.608%
Outstanding secured borrowings ,interest rate terms       6.608% plus 3-month U.S. LIBOR  
v3.19.1
Commitments and Contingencies - Additional Information (Detail)
12 Months Ended
Dec. 31, 2018
USD ($)
POLAND [Member]  
Schedule Of Commitments And Contingencies [Line Items]  
Lease term 5 years
Operating lease future minimum payment per year $ 60,000
London [Member]  
Schedule Of Commitments And Contingencies [Line Items]  
Lease term 10 years
Lease term, mutual break clause 5 years
Operating lease future minimum payment per year $ 1,100,000
NEW YORK [Member]  
Schedule Of Commitments And Contingencies [Line Items]  
Operating lease future minimum payment per year $ 400,000
Lease expiration date May 31, 2020
v3.19.1
Concentration of Credit Risks - Additional Information (Detail)
12 Months Ended
Dec. 31, 2018
Item
Vessel
Dec. 31, 2017
Item
Concentration Risk [Line Items]    
Company's operated vessels (Including)chartered-in vessel 23  
Product Concentration Risk [Member] | Sales Revenue, Net [Member]    
Concentration Risk [Line Items]    
Percentage of operating revenue 55.10% 55.10%
Number of charterers | Item 4 4
Product Concentration Risk [Member] | One Time Charter [Member] | Sales Revenue, Net [Member]    
Concentration Risk [Line Items]    
Percentage of operating revenue 16.50% 16.50%
Product Concentration Risk [Member] | Two Time Charter [Member] | Sales Revenue, Net [Member]    
Concentration Risk [Line Items]    
Percentage of operating revenue 15.40% 16.30%
Product Concentration Risk [Member] | Three Time Charter [Member] | Sales Revenue, Net [Member]    
Concentration Risk [Line Items]    
Percentage of operating revenue 13.50% 11.90%
Product Concentration Risk [Member] | Four Time Charter [Member] | Sales Revenue, Net [Member]    
Concentration Risk [Line Items]    
Percentage of operating revenue 9.70% 10.40%
Time Charter [Member]    
Concentration Risk [Line Items]    
Company's operated vessels (Including)chartered-in vessel 38  
Time Charter [Member] | One Year [Member]    
Concentration Risk [Line Items]    
Company's operated vessels (Including)chartered-in vessel 15  
Time Charter [Member] | Three Year Term [Member]    
Concentration Risk [Line Items]    
Company's operated vessels (Including)chartered-in vessel 2  
Time Charter [Member] | Nine Year Term [Member]    
Concentration Risk [Line Items]    
Company's operated vessels (Including)chartered-in vessel 6  
v3.19.1
Concentration of Credit Risks - Committed Time Charter Income (Detail) - Fair Value, Concentration of Risk, Market Risk Management, Effects on Income or Net Assets [Member] - Time Charter [Member]
$ in Thousands
Dec. 31, 2018
USD ($)
Concentration Risk [Line Items]  
2019: $ 114,098
2020: 77,370
2021: 60,974
2022: 43,961
2023: 38,667
2024 onwards: $ 69,810
v3.19.1
Income Taxes - Summary of Income Tax Reconciliation (Detail) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Tax Contingency [Line Items]      
Net Income/(loss) $ (5,739) $ 5,310 $ 44,638
Tax expense at statutory rate 0 0 0
Total statutory tax charge 0 0 0
Total Tax charge 333 397 1,177
UNITED KINGDOM [Member]      
Income Tax Contingency [Line Items]      
Total Tax charge 254 221 669
POLAND [Member]      
Income Tax Contingency [Line Items]      
Total Tax charge (147) (130)  
SINGAPORE [Member]      
Income Tax Contingency [Line Items]      
Total Tax charge $ 226 $ 306 $ 508
v3.19.1
Derivative Instruments - Additional Information (Detail)
12 Months Ended
Nov. 02, 2018
NOK (kr)
Dec. 31, 2018
USD ($)
Dec. 31, 2018
NOK (kr)
Derivative Instruments, Gain (Loss) [Line Items]      
Derivative liabilities   $ 5,154,000  
Unrealized loss on non-designated derivative instruments   (5,154,000)  
2018 Senior Secured Bonds [Member]      
Derivative Instruments, Gain (Loss) [Line Items]      
Outstanding secured borrowings, principal | kr kr 600,000,000    
Outstanding secured borrowings, interest rate terms The 2018 Bonds bear interest at a rate of 3-month NIBOR plus 6.0% per annum, calculated on a 360-day year basis and mature on November 2, 2023.    
NORWAY [Member] | 2018 Senior Secured Bonds [Member]      
Derivative Instruments, Gain (Loss) [Line Items]      
Outstanding secured borrowings, principal   $ 71,700,000  
Outstanding secured borrowings | kr     kr 600,000,000
Spread on variable rate   6.608% 6.608%
Outstanding secured borrowings, interest rate terms   6.608% plus 3-month U.S. LIBOR  
Outstanding secured borrowings, maturity year   2023  
NORWAY [Member] | 2018 Senior Secured Bonds [Member] | NIBOR [Member]      
Derivative Instruments, Gain (Loss) [Line Items]      
Spread on variable rate   6.00% 6.00%
Outstanding secured borrowings, interest rate terms   6.0% plus 3-month NIBOR  
Cross Currency Interest Rate Contract [Member]      
Derivative Instruments, Gain (Loss) [Line Items]      
Derivative liabilities   $ (5,154,000)  
Cross Currency Interest Rate Contract [Member] | Not Designated as Hedging Instrument [Member]      
Derivative Instruments, Gain (Loss) [Line Items]      
Derivative liabilities   5,200,000  
Unrealized loss on non-designated derivative instruments   $ (5,200,000)  
v3.19.1
Subsequent Events - Additional Information (Detail) - USD ($)
1 Months Ended 12 Months Ended
Mar. 29, 2019
Mar. 25, 2019
Mar. 31, 2019
Feb. 28, 2019
Jan. 31, 2019
Dec. 31, 2018
Subsequent Event [Line Items]            
Investment in equity accounted joint venture           $ 42,500,000
Total expected capital cost of investment in joint venture           42,462,000
Ethylene Marine Export Terminal [Member]            
Subsequent Event [Line Items]            
Investment in equity accounted joint venture           41,000,000
Total expected capital cost of investment in joint venture           $ 155,000,000
Subsequent Event [Member] | Ethylene Marine Export Terminal [Member]            
Subsequent Event [Line Items]            
Investment in equity accounted joint venture     $ 10,000,000 $ 3,500,000 $ 18,000,000  
March 2019 Secured Term Loan [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Credit facility, maximum borrowing capacity   $ 107,000,000        
January 2015 Secured Term Loan Facility [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Credit facility term   6 years        
Credit facility, expiring period   2025-03        
Aggregate fair value of collateral vehicles required for borrowings under facility   130.00%        
Credit facility, final payment   $ 75,600,000        
Credit facility, net proceeds   $ 31,400,000        
Debt instrument covenant description   Under this agreement, liquidity must be no less (i) $35.0 million, or (ii) 5% of net debt or total debt, as applicable, whichever is greater; and the aggregate fair market value of the collateral vessels must be no less than 130% of the aggregate outstanding borrowing under the facility.        
Minimum liquidity requirement   $ 35,000,000        
Minimum liquidity requirement, as percentage of net debt   5.00%        
March 2019 Terminal Credit Agreement [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Credit facility, maximum borrowing capacity $ 75,000,000          
Minimum [Member] | January 2015 Secured Term Loan Facility [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Aggregate fair value of collateral vehicles required for borrowings under facility   130.00%        
London Interbank Offered Rate (LIBOR) [Member] | January 2015 Secured Term Loan Facility [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Basis spread on credit facility interest rate   2.40%        
London Interbank Offered Rate (LIBOR) [Member] | Minimum [Member] | March 2019 Terminal Credit Agreement [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Basis spread on credit facility interest rate 2.50%          
London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member] | March 2019 Terminal Credit Agreement [Member] | Subsequent Event [Member]            
Subsequent Event [Line Items]            
Basis spread on credit facility interest rate 3.00%