UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(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, 2019
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: Not applicable
Commission file number 001-36484
HERMITAGE OFFSHORE SERVICES LTD.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
BERMUDA
(Jurisdiction of incorporation or organization)
LOM Building
27 Reid Street
Hamilton HM 11
Bermuda
(Address of principal executive offices)
Emanuele Lauro, Chairman and Chief Executive Officer
Tel No. +377-9798-5715
investors@hermitage-offshore.com
9, Boulevard Charles III Monaco 98000
(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
Trading Symbol(s)
Name of each exchange on which registered
 
 
Common Stock,  $0.01 par value
PSV
New York Stock Exchange
 
 
Preferred Stock Purchase Rights *
N/A
New York Stock Exchange
 
 
 
 
 
 
* The Preferred Stock Purchase Rights initially trade with, and are inseparable from, the Common Stock.
 
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:
As of December 31, 2019, there were 25,661,915 shares outstanding of the Registrant's common stock, $0.01 par value per share.
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 report 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
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
☒ 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 this 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 the definitions of "large accelerated filer," "accelerated filer" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☐
Non-accelerated filer ☒
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



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "may," "should," "expect," "pending" and similar expressions identify forward-looking statements.
The forward-looking statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, our management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including fluctuations in charter rates and vessel values, changes in demand in the offshore support vessel (the "OSV") market, changes in charter hire rates and vessel values, demand in OSVs, the length and severity of the recent novel coronavirus ("COVID-19") outbreak, including its impact on demand for OSVs, our operating expenses, including bunker prices, dry docking and insurance costs, governmental rules and regulations or actions taken by regulatory authorities as well as potential liability from pending or future litigation, general domestic and international political conditions, the availability of financing and refinancing, vessel breakdowns and instances of off-hire and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission (the "SEC").


TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

- i-

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


- ii-

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
Throughout this annual report, all references to "Hermitage Offshore," the "Company," "we," "our," and "us" refer to Hermitage Offshore Services Ltd. and its subsidiaries. Unless otherwise indicated, all references to "U.S. dollars," "USD," "dollars" and "$" in this annual report are to the lawful currency of the United States of America, references to "Norwegian Kroner" and "NOK" are to the lawful currency of Norway and references to "British Pounds" and "GBP" are to the lawful currency of the United Kingdom.
A. Selected Financial Data
In April 2019, we acquired 13 vessels consisting of two anchor handling tug supply vessels (the “AHTS vessels”) and 11 crew boats from Scorpio Offshore Holding Inc. (“SOHI”), a related party, in exchange for 8,126,219 of our common shares, which we refer to herein as the “Transaction.” As a result of the Transaction, SOHI and its affiliated entities, which are part of the Scorpio group of companies (collectively referred to as “Scorpio”), obtained a controlling voting interest in us. Accordingly, under the relevant accounting guidance, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition. Moreover, we determined that the Transaction constituted a reverse acquisition of assets rather than a reverse business combination. Under the applicable accounting guidance, a reverse asset acquisition results in a change in the basis of accounting on the Transaction date. As a result, the financial information presented following the Transaction is not directly comparable to historical periods and therefore we refer to the financial information prior to the Transaction as “Predecessor” information and financial information following the Transaction as “Successor” information. For more information regarding the Transaction and its effect on our accounting methods, please see “Note 1. Nature of Business” to our consolidated financial statements contained herein.
The following selected historical financial information should be read in conjunction with our audited financial statements and related notes, which are included herein, together with "Item 5. Operating and Financial Review and Prospects."  The Selected Consolidated Statements of Operations and Comprehensive Income (Loss) data for the periods January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor), and the years ended December 31, 2018 and 2017 (Predecessor) and the selected Consolidated Balance Sheet data as of December 31, 2019 (Successor) and 2018 (Predecessor) have been derived from our audited financial statements included elsewhere in this document. The Selected Consolidated Statements of Operations and Comprehensive Income (Loss) data for the years ended December 31, 2016 and 2015 (Predecessor), and the selected Consolidated Balance Sheet data as of December 31, 2017, 2016 and 2015 (Predecessor) have been derived from our audited financial statements not included in this annual report on Form 20-F.


1

SELECTED CONSOLIDATED FINANCIAL DATA 
All figures in thousands of USD except share data
 
Successor
 
 
Predecessor
 
April 9 - December 31, 2019
 
 
January 1 - April 8, 2019
 
Year ended December 31,
Consolidated Statements of Operations and Comprehensive Income (Loss) Data
 
 
 
2018
 
2017
 
2016
 
2015
Charter revenue
36,555

 
 
5,258

 
20,654

 
17,895

 
17,697

 
36,372

Vessel operating expenses
(27,230
)
 
 
(6,612
)
 
(25,173
)
 
(20,454
)
 
(24,137
)
 
(24,580
)
Voyage expenses
(1,124
)
 
 
(395
)
 
(2,215
)
 
(1,815
)
 
(1,448
)
 
(1,523
)
General and administrative expenses
(4,534
)
 
 
(1,207
)
 
(4,757
)
 
(4,222
)
 
(4,503
)
 
(4,261
)
Depreciation
(8,452
)
 
 
(2,205
)
 
(17,298
)
 
(17,472
)
 
(16,152
)
 
(14,379
)
Impairment loss on vessels
—

 
 
—

 
(160,080
)
 
—

 
—

 
—

Net operating loss
(4,785
)
 
 
(5,161
)
 
(188,869
)
 
(26,068
)
 
(28,543
)
 
(8,372
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
39

 
 
21

 
207

 
298

 
10

 
34

Interest expense
(6,571
)
 
 
(2,555
)
 
(8,031
)
 
(4,880
)
 
(3,467
)
 
(1,807
)
Other financial expenses, net
(136
)
 
 
32

 
(601
)
 
327

 
(151
)
 
(699
)
Net finance expenses
(6,668
)
 
 
(2,502
)
 
(8,425
)
 
(4,255
)
 
(3,608
)
 
(2,472
)
Income tax benefit
—

 
 
—

 
—

 
997

 
—

 
—

Net loss
(11,453
)
 
 
(7,663
)
 
(197,294
)
 
(29,326
)
 
(32,151
)
 
(10,844
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted loss per share
(0.56
)
 
 
(1.04
)
 
(31.50
)
 
(5.33
)
 
(15.35
)
 
(4.67
)
Cash dividends declared per share
—

 
 
—

 
0.21

 
0.8

 
2.8

 
9.4

Basic and diluted weighted average shares outstanding
20,481,174

 
 
7,374,069

 
6,263,094

 
5,499,561

 
2,093,926

 
2,320,314

 
 
 
 
 
 
 
 
 
 
 
 
 
Other Financial Data:
 
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
(10,298
)
 
 
(6,789
)
 
(21,807
)
 
(14,032
)
 
(16,262
)
 
5,987

Dividends paid
—

 
 
—

 
(1,860
)
 
(4,933
)
 
(5,997
)
 
(21,922
)
Selected Balance Sheet Data:
Successor
 
Predecessor
 
As of December 31,
 
As of December 31,
In thousands of U.S. dollars
2019
 
2018
 
2017
 
2016
 
2015
Cash and cash equivalents
12,681

 
8,446

 
31,506

 
2,953

 
5,339

Total assets
201,909

 
191,074

 
387,711

 
374,854

 
336,200

Total long-term debt
141,698

 
132,457

 
136,552

 
136,193

 
45,833

Total shareholders' equity
52,128

 
54,064

 
248,273

 
234,196

 
280,857

B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the offer and use of Proceeds


2

Not applicable.
D. Risk Factors
Some of the following risks relate principally to the industry in which we operate. Other risks relate principally to ownership of our common shares. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or cash available to service our debt or the trading price of our common shares.
Industry Specific Risk Factors
We rely on the oil and natural gas industry, and volatile oil and natural gas activity impacts demand for our services.
Our vessels are all focused on, and used primarily in, the oil and gas business, including in the installation, maintenance and movement of oil and gas platforms. Demand for our services, as well as our operations, growth, and stability in the value of our vessels, depend on activity in offshore oil and natural gas exploration, development and production. The level of exploration, development and production activity is affected by factors such as:
•
prevailing oil and natural gas prices;
•
the ability or willingness of the Organization of Petroleum Exporting Countries ("OPEC"), to control oil production levels and pricing, as well as the level of production by non-OPEC countries;
•
expectations about future oil and gas prices and price volatility;
•
cost of exploring for, producing and delivering oil and natural gas;
•
sale and expiration dates of available offshore leases;
•
demand for petroleum products;
•
current availability of oil and natural gas resources;
•
rate of discovery of new oil and natural gas reserves in offshore areas;
•
local and international political, environmental and economic conditions;
•
technological advances; and
•
the ability of oil and natural gas companies to obtain leases, permits or obtain funds for capital.
The level of offshore exploration, development and production activity has historically been characterized by volatility. The oil and gas drilling industry is cyclical, and the industry is currently amidst a down cycle that is marked by extreme volatility, with the price of Brent crude (and other worldwide benchmarks) falling to historic lows. In response to the decrease in the prices of oil and natural gas, expenditures for offshore drilling decreased over this period, and are experiencing an acute reduction in 2020 in response to the recent actions taken by Saudi Arabia and other OPEC members to increase the production of oil. While these countries subsequently agreed to production cuts, these production cuts have thus far done little to stem the volatility and oversupply that is plaguing the market.
This has consequently led to a decline in exploration and development of offshore areas and has resulted in a decline in demand for our offshore marine services. The lack of investment in offshore oil and gas exploration, development and production resulted in reductions in our day rates and utilization rates, and has had a material effect on our financial condition and results of operations. A prolonged period of depressed or volatile oil and gas prices could cause difficulties in finding charter parties for our vessels or achieving consistent utilization, or we may be compelled to charter out our vessels at lower rates, which may result in decreased revenues and/or profitability and result in losses due to idle vessels.
Volatility in economic conditions throughout the world could have an adverse impact on our results of operations and financial condition.
Our business and profitability are affected by the overall level of demand for our vessels, which in turn is affected by trends in global economic conditions. There has historically been a strong link between the development


3

of the world economy and demand for energy, including oil and gas. In the past, declines in global economic activity significantly reduced the level of demand for our vessels.  The world economy continues to face a number of challenges and an extended period of deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services. Since the beginning of the calendar year 2020, the COVID-19 outbreak has resulted in the implementation of numerous actions by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets which has reduced the global demand for oil and refined petroleum products. We expect that the impact of the COVID-19 pandemic and the uncertainty in the supply of oil will continue to cause volatility in the commodity markets. The scale and duration of the impact of these factors remain unknown but could have a material impact on our earnings, cash flow and financial condition for 2020.
If the COVID-19 pandemic continues on a prolonged basis or becomes more severe, day rates and utilization in the markets in which we operate may deteriorate further and our operations and cash flows may be negatively impacted. In addition, a prolonged negative rate environment could result in the value of our vessels being impaired which could in turn impair our ability to access credit and capital markets in the future on favorable terms or at all.
Any such changes could adversely affect our future performance, results of operations, cash flows and financial position.
We also face risks attendant to changes in interest rates, along with instability in the banking and securities markets around the world, among other factors. These risks factors may have a material adverse effect on our results of operations and financial condition and may cause the price of our common shares to decline.
Risks involved with operating ocean-going vessels could affect our business and reputation, which could have a material adverse effect on our results of operations and financial condition.
The operation of an ocean-going vessel carries inherent risks. These risks include the possibility of:
•
a marine disaster;
•
terrorism;
•
environmental accidents;
•
cargo and property losses or damage; and
•
business interruptions caused by mechanical failure, human error, war, terrorism, piracy, political action in various countries, labor strikes, or adverse weather conditions.
These hazards may result in death or injury to persons, loss of revenues or property, payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships and market disruptions, which may reduce our revenue or increase our expenses and also subject us to litigation. Additionally, the involvement of our vessels in an oil spill or other environmental disaster could harm our reputation as a safe and reliable vessel operator. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.
An increase in the supply of OSVs would likely have a negative effect on the demand for our vessels, which could in turn reduce the dayrates earned on our vessels.
Charter rates for OSVs, such as platform supply vessels ("PSVs"), AHTS vessels, and crew boats, depend in part on the supply of vessels. Changes in the demand for our vessels may result from:


4

•
the number of newbuilding orders and deliveries, including slippage in deliveries;
•
the scrapping rate of older vessels, depending, among other things, on scrapping rates and international scrapping regulations;
•
moving vessels from one offshore market area to another;
•
the number of vessels that are out of service, namely those that are laid up, drydocked, awaiting repairs or otherwise not available for hire;
•
the financial health of our competitors, certain of which in recent years have undergone consolidation, financial restructuring, or bankruptcy filings, thus impacting their ability to maintain the operating condition of their vessels; and
•
the converting of vessels formerly dedicated to services other than offshore marine services.
In the last ten years, construction of vessels of the type we operate has increased (albeit at a much slower pace in recent years). The addition of new capacity of various types to the worldwide offshore marine fleet, or the migration of vessels from other markets, is likely to increase competition in those markets where we presently operate which, in turn, could reduce dayrates, utilization rates and operating margins, which would affect our financial condition, results of operations, cash flows and ability to service our debt. The current market conditions stemming from the COVID-19 pandemic and volatility in oil prices may result in the scrapping or lay-up of older tonnage, but it is too early to assess the impact of this with a high degree of certainty.
We are dependent, and expect to continue to be dependent, on spot charters and term charters with short durations (less than one year) and any decrease in these rates may adversely affect our earnings and our ability to service our debt.
As of the date of this annual report, all of our vessels (with the exception of two PSVs, which were in warm lay-up) were operating in the spot market or on term charters that are expected to expire within 12 months, exposing us to fluctuations in spot market charter rates.  The spot charter market may fluctuate significantly based upon the supply and demand for OSVs such as ours. The successful operation of our vessels in the competitive spot charter market depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters. The spot market is very volatile, and there have been periods when spot charter rates have declined below the operating cost of vessels. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future.
Our business has inherent operational risks, which may not be adequately covered by insurance.
In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred.  We procure insurance for the vessels in our fleet against those risks that we believe the shipping and offshore industry commonly insures against.  This insurance includes marine hull and machinery insurance, protection and indemnity insurance, which includes pollution risks and crew liability insurance, and war risk insurance.  Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per such occurrence.
We may not be adequately insured against all risks.  We may not be able to obtain adequate insurance coverage for our fleet in the future, and we may not be able to obtain certain insurance coverages.  The insurers may not pay particular claims.  Our insurance policies may contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue.
We cannot assure you that we will be adequately insured against all risks or that we will be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future.  For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution.  Additionally, our insurers may refuse to pay particular claims.  Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition.


5

Our operating results are subject to seasonal fluctuations, which could affect our operating results.
The operation of our fleet may be subject to seasonal factors dependent upon which region of the world we are operating our vessels.  Our vessels currently operate primarily in the North Sea and West Africa, however, if the terms and conditions for operations in other regions become more favorable, we may employ our vessels in other markets.
Operations in the North Sea are generally at their highest levels during the months from April through August and at their lowest levels from December through February primarily due to lower construction activity and harsh weather conditions affecting the movement and servicing of drilling rigs. Our operations in West Africa are generally not subject to seasonality fluctuations.
If economic conditions throughout the world deteriorate or become more volatile, it could impede our operations.
Our ability to secure funding is dependent on well-functioning capital markets and on an appetite to provide funding to the shipping and offshore industry. We are currently facing adversity in both global economic conditions and economic conditions within our industry. If these conditions persist or worsen, lenders for any reason may decide not to provide debt financing to us, or we may not be able to secure additional financing to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
The world economy faces a number of challenges including, but not limited to the COVID-19 pandemic, trade wars, the effects of volatile oil prices, continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa and other geographic areas and countries. If one or more of the major national or regional economies should weaken, there is a substantial risk that such a downturn will impact the world economy.
In China, a transformation of the economy is underway, as the country transforms from a production-driven economy towards a service or consumer-driven economy. The Chinese economic transition implies that we do not expect the Chinese economy to return to double digit GDP growth rates in the near term. According to the International Monetary Fund, the growth rate of China's GDP is expected to decrease during 2020, in large part due to the COVID-19 pandemic. Furthermore, there is a rising threat of a Chinese financial crisis resulting from substantial personal and corporate indebtedness.
Credit markets in the United States and Europe have in the past experienced significant contraction, de-leveraging and reduced liquidity, and there is a risk that U.S. federal and state governments and European authorities continue to implement a broad variety of governmental action and/or new regulation of the financial markets. Global financial markets and economic conditions have been, and continue to be, volatile in light of the COVID-19 pandemic.
We face risks attendant to changes in economic environments, changes in interest rates and instability in the banking and securities markets around the world, among other factors. We cannot predict how long the current downturn in market conditions will last. These recent and developing economic and governmental factors may have a material adverse effect on our results of operations and financial condition and may cause the price of our common shares to decline.
Prospective investors should consider the potential impact, uncertainty and risk associated with developments in the global economy. Further economic downturn in any of these countries could have a material effect on our future performance, results of operations, cash flows and financial position.
The state of global financial markets and economic conditions may adversely impact our ability to obtain financing on acceptable terms, or at all, which may hinder or prevent us from expanding our business.
Global financial markets and economic conditions have been, and continue to be, volatile. In recent years, operating businesses in the global economy have faced tightening credit, weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets. Since 2008, there has been a general decline in the willingness of banks and other financial institutions to extend credit, particularly in the shipping and offshore industry, due to the historically volatile asset values of vessels. As the shipping and offshore industry is highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline.


6

As a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, additional financing may not be available if needed and to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to expand or meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Further, governments may turn and have turned to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, leaders in the United States and China have implemented certain increasingly protective trade measures, including tariffs, which have been somewhat mitigated by the recent trade deal (first phase trade agreement) between the United States and China in early 2020, which, among other things, requires China to purchase over $50 billion of energy products including crude oil. The results of the 2016 presidential election and the potential results of the upcoming 2020 presidential election in the United States have created significant uncertainty about the future relationship between the United States, China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. Protectionist developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on our charterers' business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could in turn have a material adverse effect on our business, results of operations or financial condition.
Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, on acceptable terms, or at all.
Outbreaks of epidemic and pandemic diseases, including COVID-19, and governmental responses thereto could adversely affect our business.
Public health threats, such as COVID-19 (as described more fully below), influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate could adversely impact our operations as well as the operations of our customers. The recent outbreak of COVID-19, a virus causing potentially deadly respiratory tract infections first identified in Hubei province in China, and that has since spread globally, being declared a global pandemic by the World Health Organization on March 11, 2020, has already caused severe global disruptions and may negatively affect economic conditions regionally as well as globally and otherwise impact our operations and the operations of our customers and suppliers. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures. In response to the virus, China, India, Italy, Spain, France, and the U.K. have implemented nationwide lockdown measures, and other countries and local governments may enact similar policies. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses. These restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic conditions, which could materially and adversely affect our future operations. As a result of these measures, our vessels may not be able to call on ports, or may be restricted from disembarking from ports, located in regions affected by the outbreak. Uncertainties regarding the economic impact of the COVID-19 outbreak is likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows. In addition we may experience severe operational disruptions and delays, unavailability of normal port infrastructure and services including limited access to equipment, critical goods and personnel, disruptions to crew change, quarantine of ships and/or crew, counterparty solidity, closure of ports and custom offices, as well as disruptions in the supply chain and industrial production, which may lead to reduced cargo demand, amongst other potential consequences attendant to epidemic and pandemic diseases. The extent of the COVID-19 outbreak’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. To our knowledge our vessel operations to date have not been materially affected by the COVID-19 outbreak as we have not had an outbreak of the virus on


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any of our vessels and we have been able to effectively execute crew changes, or successfully extend crew rotations, on all of our vessels. Nevertheless, the ultimate severity of the COVID-19 outbreak is uncertain at this time and therefore we cannot predict the impact it may have on our future operations, which impact is likely to be material and adverse, particularly if the pandemic continues to evolve into a prolonged severe worldwide health crisis.
The Company has revised its cash flow forecasts in light of current economic conditions, and has determined that there is substantial doubt about the Company's ability to continue as a going concern within 12 months of the date of this report. This determination, and the factors leading to it, are discussed further below under the risk factor entitled "There is substantial doubt about our ability to continue as a going concern".
The U.K.’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
In June 2016, a majority of voters in the U.K. elected to withdraw from the EU in a national referendum (informally known as “Brexit”), a process that the government of the U.K. formally initiated in March 2017. Since then, the U.K. and the EU have been negotiating the terms of a withdrawal agreement, which was approved in October 2019 and ratified in January 2020. The U.K. formally exited the EU on January 31, 2020, although a transition period remains in place until December 2020, during which the U.K. will be subject to the rules and regulations of the EU while continuing to negotiate the parties’ relationship going forward, including trade deals. There is currently no agreement in place regarding the aftermath of 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 to replace or replicate following the withdrawal. Brexit has also given rise to calls for the governments of other EU member states to consider withdrawal. These developments and uncertainties, or the perception that any of them may 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 have a material adverse effect on our business and on our consolidated financial position, results of operations and our ability to pay distributions. Additionally, Brexit or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business and operations.
Brexit contributes to considerable uncertainty concerning the current and future economic environment. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets.
We are subject to laws and regulations, which can adversely affect our business, results of operations, cash flows and financial condition, and our ability to service our debt.
Our operations are subject to numerous international, national, state and local laws, regulations, treaties and conventions in force in international waters and the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels.  These regulations include, but are not limited to, the treaties and conventions of the International Maritime Organization (the "IMO"), including the International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended and generally referred to as MARPOL, the International Convention for the Safety of Life at Sea of 1974 (the "SOLAS Convention"), and the International Convention on Load Lines of 1966 (the "LL Convention"). Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or implementation of operational changes and may affect the resale value or useful lives of our vessels. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition.  A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the impact of climate change, a number of countries and the IMO have adopted regulatory frameworks to reduce greenhouse gas 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. In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the


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Paris Agreement (discussed below), or the Kyoto Protocol to the United Nations Framework Convention on Climate Change, that required adopting countries to implement national programs to reduce emissions of certain gases, a new treaty may be adopted in the future that includes restrictions on shipping emissions.
We are subject to international safety standards and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the International Safety Management Code (the "ISM Code") promulgated by the IMO under the SOLAS Convention.  The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation of vessels and describing procedures for dealing with emergencies.  In addition, vessel classification societies impose significant safety and other requirements on our vessels.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to service our debt.
Our technical managers employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
World events could affect our results of operations and financial condition.
Continuing conflicts in the Middle East and North Africa, and the presence of the United States and other armed forces in several countries, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain financing on terms acceptable to us or at all.
We are subject to war, sabotage, piracy, cyber-attacks and terrorism risk.
War, sabotage, pirate, cyber and terrorist attacks or any similar risk may affect our operations in unpredictable ways, including changes in the insurance markets, disruptions of fuel supplies and markets, particularly oil, and the possibility that infrastructure facilities, including pipelines, production facilities, refineries, electric generation, transmission and distribution facilities, offshore rigs and vessels, and communications infrastructures, could be direct targets of, or indirect casualties of, a cyber-attack or an act of piracy or terror.  War or risk of war may also have an adverse effect on the world economy.  Insurance coverage can be difficult to obtain in areas of pirate and terrorist attacks resulting in increased costs that could continue to increase.  We continually evaluate the need to maintain this insurance coverage as it applies to our fleet.  Instability in the financial markets as a result of war, sabotage, piracy, cyber-attacks or terrorism could also affect our ability to raise capital and could also adversely affect the oil, natural gas and power industries and restrict their future growth.
Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.
A government could requisition one or more of our vessels for title or for hire.  Requisition for title occurs when a government takes control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates.  Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances.  Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain.  Government requisition of one or more of our vessels may negatively impact our revenues.
Company Specific Risk Factors
There is substantial doubt about our ability to continue as a going concern.
Since the beginning of calendar year 2020, the COVID-19 outbreak has resulted in the implementation of numerous actions by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial


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markets which has reduced the global demand for oil and related products. Additionally, in March 2020, output disagreements between OPEC producing nations (led by Saudi Arabia) and Russia triggered a price war sending the price of crude oil to lows not seen in decades. The confluence of these events has resulted in a precipitous pull back of production and capital expenditure outlays from major oil producers throughout the world. Consequently, the markets in which our vessels operate have come under significant pressure in the form of reduced spot market rates and utilization, higher lay-up activity, and contract cancellations and renegotiations.
Under these conditions, the Company projects that it might breach certain financial covenants under its credit facilities within 12 months from the date of this annual report. Additionally, under the terms of the New Equity Line of Credit (as defined below), the Company is precluded from issuing shares under the Company's common stock purchase agreement (the “New Equity Line of Credit”) with Scorpio Services Holding Limited ("SSH"), a related party, if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share. In March and April 2020, the price of the Company’s common stock fell below this threshold on certain occasions and for sustained periods of time. Additionally, we have received two deficiency notifications from the NYSE that could result in suspension or delisting of our common shares. As further described below, under the risk factor entitled "The market price of our common shares has recently declined significantly and our common shares could be delisted from the NYSE or trading could be suspended", we have until November 2020, and August 2021, subject to certain conditions, to cure each of these deficiencies. If our stock is delisted, then the Company is precluded from issuing shares under the New Equity Line of Credit. If additional liquidity under the New Equity Line of Credit is unavailable, the Company might breach covenants under its credit facilities, or face liquidity constraints, sooner than would otherwise occur under the revised projections.
The Company has commenced discussions with its lenders in an effort to find possible solutions and is also considering other strategic alternatives to meet the Company’s obligations, such as the sale of some or all of the vessels in the Company’s fleet. The Company has also engaged an advisor to provide consultation throughout this process. There can be no assurance that these or other measures will be successful.
Accordingly, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern within one year from the date of this annual report. The expression of such doubt or our inability to overcome the factors leading to such doubt could have a material adverse effect on our financial condition, stock price, our business relationships, the terms of our indebtedness, and ability to raise capital and therefore could have a material adverse effect on our business and financial prospects.
We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties, such as our vessel charterers, to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We have entered into, and may enter into in the future, various contracts, including charter agreements, shipbuilding contracts and credit facilities.  Such agreements subject us to counterparty risks.  The ability and willingness of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, prevailing charter rates, and various expenses.  For example, the combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. As a result, charterers may need to, or may use these instances as opportunities to, renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a charterer fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates. As a result, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with covenants in our credit facilities.
We may not be able to renew or replace expiring charters for our vessels.
We have a number of charters that will expire in 2020 or that may be renegotiated or cancelled given the current market conditions. Our ability to renew or replace expiring charters or obtain new charters, and the terms of any such charters, will depend on various factors, including market conditions and the specific needs of our customers.


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Given the highly competitive and historically cyclical nature of our industry, we may not be able to renew or replace the charters or we may be required to renew or replace expiring charters or obtain new charters at rates that are below, and potentially substantially below, existing day rates, or that have terms that are less favorable to us than our existing charters, or we may be unable to secure charters for these vessels. This could have a material adverse effect on our financial condition, results of operations and cash flows.
As our vessels age, or if we acquire secondhand vessels in the future, we may be exposed to increased operating costs which could adversely affect our earnings and, as our fleet ages, the risks associated with our vessels could adversely affect our ability to obtain profitable charters.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel efficient than more recently constructed vessels due to improvements in engine technology. Governmental regulations, safety and other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to some of our vessels and may restrict the type of activities in which these vessels may engage. While our fleet currently consists of vessels that were all constructed after 2009, 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 useful lives. As a result, regulations and standards could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to pay dividends.
Additionally, we have acquired and may continue to acquire secondhand vessels. While we are entitled to inspect the secondhand vessels which we may acquire, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for, operated and maintained exclusively by us.  Generally, purchasers of secondhand vessels do not receive the benefit of warranties from the builders for the secondhand vessels that they acquire.
Governmental regulations, safety, environmental or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage.  As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
Because the market value of our vessels may fluctuate significantly, we may incur losses if we sell vessels which may adversely affect our earnings, or could cause us to incur impairment charges.
The fair market value of vessels may increase and decrease depending on but not limited to the following factors:
•
general economic and market conditions affecting the shipping and offshore industry;
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competition from other shipping companies;
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types, sizes and ages of vessels;
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the availability of other modes of transportation;
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the cost of newbuildings;
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shipyard capacity;
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governmental or other regulations;
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prevailing level of charter rates;
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ability to deploy to other markets; and
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technological advances in vessel design or equipment or otherwise.
During the period a vessel is subject to a time charter, we will not be permitted to sell it to take advantage of increases in vessel values without the charterers' agreement. If we sell a vessel at a time when ship prices have fallen, the sale may be at less than the vessel's carrying amount on our financial statements, with the result that we could incur a loss and a reduction in earnings. In addition, if we determine at any time that a vessel's future limited useful life and earnings require us to impair its value on our financial statements, that could result in a charge against our earnings and a reduction of our shareholders' equity. We recorded an impairment charge of $160.1 million in the year ended


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December 31, 2018 (Predecessor), in relation to our vessels. It is possible that the market value of our vessels will continue to decline in the future and could adversely affect our ability to comply with current or future financial covenants contained in our loan agreements or other financing arrangements. Any impairment charges incurred as a result of declines in charter rates and other market deterioration could negatively affect our business, financial condition, operating results or the trading price of our common shares.
Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of acquisition may increase and this could adversely affect our business, results of operations, cash flow and financial condition.
Current market conditions may result in the decision to stack certain of our vessels. As the markets recover, we change our marketing strategies or for other reasons, we may be required to incur higher than expected costs to return previously stacked vessels to active service.
We currently have two vessels that are in warm lay-up. Stacked vessels are not maintained with the same diligence as active vessels. Depending on the length of time the vessels are stacked, we may incur costs beyond normal drydock costs to return these vessels to active service. These costs are difficult to estimate and may be substantial and these expenditures may increase to a level at which they are not economically justifiable. Also, customers may prefer modern vessels over older vessels, especially in weaker markets. The cost of repairing and/or upgrading existing vessels or adding a new vessel to our fleet can be substantial. 
We derive a significant portion of revenues from a relatively small number of larger customers, the loss of any of which could adversely affect our business and operating results.
The portion of our revenues attributable to any single customer may change over time, depending on the level of relevant activity by any such customer, our ability to meet the customer's needs and other factors, many of which are beyond our control. In addition, our results of operations, financial condition and cash flows could be materially adversely affected if one or more of these customers decide to interrupt or curtail their activities, terminate their contracts with us, fail to renew existing contracts, and/or refuse to award new contracts, and we were unable to contract our vessels with new customers at comparable day rates.
The relationship of some of our shareholders and our directors and officers with the Scorpio group of companies may create conflicts of interest.
Three of our largest shareholders, SSH, SOHI and Scorpio Offshore Investments Inc. ("SOI") (related party affiliates of ours), are entities affiliated with Scorpio. Scorpio is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. In aggregate, SSH, SOI and SOHI own 67.5% of the Company and therefore have the ability to control the majority of the decisions put to a vote of the shareholders. The interests of these entities may differ from your interests and the interests of other shareholders. Additionally, all of our executive directors and officers, including Messrs. Emanuele Lauro, Robert Bugbee (our President and a director), Cameron Mackey (our Chief Operating Officer and a director) and Filippo Lauro, serve as directors and/or officers of other entities within Scorpio, in addition to Scorpio Bulkers Inc. (NYSE: SALT) and/or Scorpio Tankers Inc. (NYSE: STNG), which are not controlled by the Lolli-Ghetti family. These relationships may create conflicts of interest in matters involving or affecting us and such conflicts may not be resolved in our favor.
Certain of our officers do not devote all of their time to our business, which may hinder our ability to operate successfully.
Certain of our officers participate in business activities not associated with us, and as a result, they may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to our shareholders as well as the shareholders of other companies with which they may be affiliated, including companies within Scorpio, Scorpio Bulkers Inc. (NYSE: SALT), and/or Scorpio Tankers Inc. (NYSE: STNG). We expect that each of our officers will continue to devote a substantial portion of their business time to the management of the Company. However, their positions across multiple companies may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest will be resolved in our favor. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.


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We are exposed to volatility in the London Interbank Offered Rate ("LIBOR") which can result in higher than market interest rates and charges against our income.
LIBOR has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the disruptions in the international credit markets. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this volatility were to occur, it would affect the amount of interest payable on our debt, which in turn, could have an adverse effect on our profitability, earnings and cash flow.
Furthermore, interest in most financing agreements in our industry has been based on published LIBOR rates. Recently, however, there has been uncertainty relating to the LIBOR calculation process, which may result in the phasing out of LIBOR in the future. Indeed, the banks currently reporting information used to set LIBOR will likely stop such reporting after 2021, when their commitment to reporting information ends.
In the event of the continued or permanent unavailability of LIBOR, many of our financing agreements contain a provision requiring or permitting us to enter into negotiations with our lenders to agree to an alternative interest rate or an alternative basis for determining the interest rate. These clauses present significant uncertainties as to how alternative rates or alternative bases for determination of rates would be agreed upon, as well as the potential for disputes or litigation with our lenders regarding the appropriateness or comparability to LIBOR of any substitute indices. In the absence of an agreement between us and our lenders, most of our financing agreements provide that LIBOR would be replaced with some variation of the lenders’ cost-of-funds rate. The discontinuation of LIBOR presents a number of potential risks to our business, including volatility in applicable interest rates among our financing agreements, increased lending costs for future financing agreements or unavailability of or difficulty in attaining financing, which could in turn have an adverse effect on our profitability, earnings and cash flow.
In order to manage our exposure to interest rate fluctuations, we may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position.
Because we obtain some of our insurance through protection and indemnity associations, we may be required to make additional premium payments.
We may be subject to increased premium payments, or calls, in amounts based on our claim records, as well as the claim records of other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability.
A decision of our Board of Directors and the laws of Bermuda may prevent the declaration and payment of dividends.
Our ability to declare and pay dividends is subject at all times to the discretion of our Board of Directors, and compliance with Bermuda law, and may be dependent, among other things, on our having sufficient available distributable reserves. For more information, please see "Item 8. Financial Information—A. Consolidated Statements and other Financial Information—Dividend Policy".
If the United States Internal Revenue Service were to treat us as a "passive foreign investment company," that could have adverse tax consequences for United States shareholders.
A foreign corporation is treated as a "passive foreign investment company" ("PFIC") for United States federal income tax purposes, if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of passive income. For purposes of these tests, cash is treated as an asset that produces passive income, and passive income includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. Income derived from the performance of services does not constitute passive income. United States shareholders of a PFIC may be subject to a disadvantageous United States federal income tax regime with respect to the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.


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Based on our current and expected method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that income from our time chartering activities does not constitute "passive income," and the assets that we own and operate in connection with the production of that income do not constitute assets that produce, or are held for the production of, "passive income."
There is, however, no direct legal authority under the PFIC rules addressing our method of operation. We believe there is substantial legal authority supporting our position consisting of case law and United States Internal Revenue Service (the "IRS"), pronouncements concerning the characterization of income derived from time charters and spot charters as services income rather than rental income for other tax purposes.  However, there is also authority which characterizes time charter income as rental income rather than services income for other tax purposes.  Accordingly, no assurance can be given that the IRS or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.
If the IRS or a court of law were to find that we are a PFIC for any taxable year, our United States shareholders who owned their shares during such year would face adverse United States federal income tax consequences and certain information reporting obligations. Under the PFIC rules, unless those United States shareholders made or make an election available under the Internal Revenue Code (the "Code") (which election could itself have adverse consequences for such United States shareholders), such United States shareholders would be subject to United States federal income tax at the then highest income tax rates on ordinary income plus interest upon excess distributions (i.e., distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or the United States shareholder's holding period for our common shares) and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the United States shareholder's holding period of our common shares. In addition, non-corporate United States shareholders would not be eligible to treat dividends paid by us as "qualified dividend income" if we are a PFIC in the taxable year in which such dividends are paid or in the immediately preceding taxable year.
Risks Related to our Indebtedness
Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.
Borrowing under credit facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future.  Amounts borrowed under our $132.9 million term loan facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) (the "New Term Loan Facility"), and $9.0 million term loan facility with DVB Bank SE, (the "DVB Credit Facility"), and our future credit facilities may bear interest at variable rates.  Increases in prevailing interest rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease.  We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the OSV industry.  If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:
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seeking to raise additional capital;
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refinancing or restructuring our debt;
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selling our vessels; or
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reducing or delaying capital investments.
However, these alternative financing options, if necessary, may not be sufficient to allow us to meet our debt obligations.
Our New Term Loan Facility and DVB Credit Facility contain, and other debt agreements we may enter into in the future may contain, covenants which limit the amount of the facility available or that we may use for other corporate activities, which could negatively affect our growth and cause our financial performance to suffer.


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Our New Term Loan Facility and DVB Credit Facility impose, and debt agreements we may enter into in the future may impose, operating and financial restrictions on us.  These restrictions could limit our ability, or the ability of our subsidiaries that are party thereto, to:
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pay dividends and make capital expenditures if we do not repay amounts due under our debt agreements or if there is another default under our debt agreements;
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incur additional indebtedness, including the issuance of guarantees;
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create liens on our assets;
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change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to certain vessels;
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sell our vessels;
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merge or consolidate with, or transfer all or substantially all our assets to, another person; or
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enter into new lines of business.
Therefore, 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 pay dividends if we determine to do so in the future, finance our future operations or capital requirements, make acquisitions or pursue business opportunities.
Such operating and financial restrictions include, or may in the future include, a requirement on us to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet.
Events beyond our control, including changes in the economic and business conditions in the shipping and offshore markets in which we operate, may affect our ability to comply with these covenants. Should our charter rates or vessel values materially decline in the future, we may be required to take action to reduce our debt or to act in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants. We cannot assure you that we will meet these ratios or satisfy these covenants or that our lenders will waive any failure to do so.  A description of these covenants can be found in Note 7 to our consolidated financial statements included herein. A breach of any of the covenants in, or our inability to maintain the required financial ratios under our debt agreements would prevent us from borrowing additional money under debt agreements and could result in a default under the agreements governing our indebtedness such as our New Term Loan Facility, our DVB Credit Facility, or future debt agreements into which we may enter.  If a default occurs under our New Term Loan Facility, our DVB Credit Facility, or any debt agreement which we may enter into in the future, the lenders could elect to declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of our assets.
Risks Relating to Investing in Our Common Shares
The market price of our common shares has recently declined significantly and our common shares could be delisted from the NYSE or trading could be suspended.
We currently have two outstanding deficiency notifications from the NYSE that could result in suspension or delisting of our common shares from the NYSE. On December 2, 2019, we received notice from the NYSE that we were not in compliance with the NYSE’s continued listing standards because our average market capitalization over a 30-trading day period and stockholders’ equity were each below the NYSE’s $50 million minimum. As of November 29, 2019, our average market capitalization over a 30 trading-day period was approximately $23.7 million and as of September 30, 2019, we reported total stockholders’ equity of approximately $47.4 million. In accordance with NYSE rules, we submitted a business plan to the NYSE outlining the actions that we plan to take to regain compliance with the NYSE’s rules regarding market capitalization and stockholders’ equity. Pursuant and subject to the NYSE’s rules (which have recently been revised due to the COVID-19 pandemic), we have until August 11, 2021 to regain compliance with the NYSE’s minimum requirements for market capitalization and stockholders’ equity. However, we are subject to quarterly review by the NYSE and the NYSE, in its discretion, could initiate suspension and delisting procedures prior to the expiration of the 18-month cure period. While our stockholder's equity at December 31, 2019 was $52.1


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million, we must meet the $50 million minimum threshold for two consecutive fiscal quarters in order to regain compliance and no longer be considered deficient by NYSE standards.
On March 12, 2020, we received an additional notification from the NYSE stating that that we were no longer in compliance with the NYSE's minimum average closing price requirement because the average closing share price of our common stock over a consecutive 30 trading-day period ending March 10, 2020 had fallen below the $1.00 minimum requirement. Pursuant and subject to the NYSE’s rules (which have recently been revised due to the COVID-19 pandemic), we have until November 22, 2020 to regain compliance with the NYSE’s minimum average closing price requirements for our common shares.
During the cure periods, subject to further action by the NYSE, our common stock will continue to be listed and trade on the NYSE. As required by the NYSE, we have notified the exchange of our intent to cure the deficiencies and restore our compliance with the continued listing standards, however, we can give no assurance that we will be successful or that our common shares will continue to trade on the NYSE in the future. The commencement of suspension or delisting procedures by an exchange remains, at all times, at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, our ability to raise additional necessary capital through equity or debt financing would be greatly impaired. Furthermore, with respect to any suspended or delisted common shares, we would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such common shares. A suspension or delisting would likely preclude us from further sales of common shares under our New Equity Line of Credit, decrease the attractiveness of our common shares to investors and cause the trading volume of our common shares to decline, which could result in a further decline in the market price of our common shares.
Because we are a foreign corporation, you may not have the same rights that a shareholder of a U.S. corporation may have.
We are incorporated under the laws of Bermuda. Our Memorandum of Continuance, Bye-laws and the Bermuda Companies Act of 1981 (the "Companies Act") govern our affairs. The Companies Act does not as clearly establish your rights and the fiduciary responsibilities of our directors as do statutes and judicial precedent in some U.S. jurisdictions. Therefore, you may have more difficulty in protecting your interests as a shareholder in the face of actions by the management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction. There is a statutory remedy under Section 111 of the Companies Act which provides that a shareholder may seek redress in the courts as long as such shareholder can establish that our affairs are being conducted, or have been conducted, in a manner oppressive or prejudicial to the interests of some part of the shareholders, including such shareholder.
We are incorporated in Bermuda and it may not be possible for our investors to enforce U.S. judgments against us.
We are incorporated under the laws of Bermuda. Substantially all of our assets are located outside of the United States. In addition, most 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 U.S. investors to serve process within the United States upon us, or our directors and officers, or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we are incorporated or where we are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us based on those laws.
Anti-takeover provisions in our organizational documents could have the effect of discouraging, delaying or preventing a merger or acquisition, or could make it difficult for our shareholders to replace or remove our current board of directors, which could adversely affect the market price of our common shares.
Several provisions of our Memorandum of Continuance and Bye-laws could make it difficult for our shareholders to change the composition of our Board of Directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable. These provisions include:


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•
authorizing our Board of Directors to issue "blank check" preferred shares without shareholder approval;
•
providing for a classified Board of Directors with staggered, three-year terms;
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establishing certain advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted on by shareholders at shareholder meetings;
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prohibiting cumulative voting in the election of directors;
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limiting the persons who may call special meetings of shareholders;
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authorizing the removal of directors only for cause and only upon the affirmative vote of two-thirds of the votes cast at an annual meeting of shareholders by the holders of shares entitled to vote thereon; and
•
establishing supermajority voting provisions with respect to amendments to certain provisions of our Bye-laws.
Additionally, on December 21, 2018, our Board of Directors adopted a shareholders rights agreement and declared a dividend of one preferred share purchase right to purchase one one-thousandth of a Series A Participating Preferred Share of the Company for each outstanding common share. The dividend was payable on December 31, 2018 to shareholders of record on that date. Each right entitles the registered holder to purchase from us one one-thousandth of a Series A Participating Preferred Share of the Company at an exercise price of $10.00, subject to adjustment. The exercise price automatically increased to $100.00 as a result of our reverse stock split on January 28, 2019 and is subject to further adjustments in accordance with the terms of the shareholders rights agreement. We can redeem the rights under certain circumstances. The shareholders rights plan was designed to enable us to protect shareholder interests in the event that an unsolicited attempt is made for a business combination with, or a takeover of, the Company. Our shareholders rights plan is not intended to deter offers that our Board of Directors determines are in the best interests of our shareholders.
These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control and, as a result, may adversely affect the market price of our common shares and shareholders' ability to realize any potential change of control premium.
Future sales of our common shares could cause the market price of our common shares to decline.
The market price of our common shares may fluctuate significantly in response to many factors and could decline due to sales of a large number of our common shares in the market, including sales of shares by our large shareholders, or the perception that these sales could occur. These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of our common shares. For information on our New Equity Line of Credit under which we may, at our option, issue additional common shares, please see "Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Equity Issuances and Lines of Credit."
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Hermitage Offshore Services Ltd. and its subsidiaries, formerly "Nordic American Offshore Ltd." (together "we", "our", "us", or the "Company"), is an OSV company that owns 23 OSVs. The Company’s vessels primarily operate in the North Sea or the West Coast of Africa. The Company was initially formed on October 17, 2013 under the laws of the Republic of Marshall Islands. Effective September 26, 2016, we discontinued our existence as a company organized under the laws of the Republic of the Marshall Islands and continued our existence as an exempted company organized under the laws of the Islands of Bermuda.
Prior to the Transaction as defined below, the Company operated ten PSVs, primarily in the North Sea and surrounding areas that were acquired between 2013 and 2016. The Company also had administrative agreements with Nordic American Tankers Ltd. ("NAT").
On December 12, 2018, we entered into a share purchase agreement with SOI pursuant to which SOI invested $5.0 million in a private placement of the Company’s common shares at a price of $4.20 per share (the "Private Placement").  As part of the Private Placement, Mr. Emanuele Lauro was appointed Chairman and Chief Executive


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Officer of the Company. In addition, Mr. Robert Bugbee was appointed to the Company’s Board of Directors and to the office of President, Mr. Cameron Mackey was appointed Chief Operating Officer, and Mr. Filippo Lauro was appointed Vice President. Mr. Mackey was subsequently also appointed to the Company's Board of Directors. Concurrent with the Private Placement, the Company's former Chairman, Mr. Herbjørn Hansson, resigned from all of his positions at the Company.
On June 4, 2019, we changed our name to "Hermitage Offshore Services Ltd." and began trading on the NYSE under our new name and the ticker symbol "PSV" at the start of trading on June 7, 2019. Our operating fleet as of December 31, 2019 and as of the date of this annual report consisted of ten PSVs, two AHTS vessels, and 11 crew boats.  
We maintain our principal executive offices at the LOM Building, 27 Reid Street, Hamilton HM 11 Bermuda. Our telephone number at that address is +1 441 295 9671. We maintain an Internet site at www.hermitage-offshore.com. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. None of the information on these or any other websites is incorporated into this annual report.
Key Developments
In March 2019, we entered into a common stock purchase agreement (the "Initial Equity Line of Credit") with SOI, a related party, and Mackenzie Financial Corporation ("Mackenzie"). SOI is a closely held company that is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price.
In April 2019, we acquired 13 vessels consisting of two AHTS vessels and 11 crew boats from SOHI, a related party that is a closely held company also owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members, in exchange for 8,126,219 common shares of the Company. As part of this acquisition, we assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility relating to the two AHTS vessels. The assets acquired in this transaction are collectively referred to as the "SOHI Assets", and the transactions to acquire the SOHI Assets and the assumption of the related indebtedness, are referred to as the "Transaction".
As part of the aforementioned transactions, the lenders under our term loan facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) (the "Initial Credit Facility") extended waivers of certain financial covenants which we were not in compliance with until January 31, 2020.  As part of this agreement, we received commitments from the lenders under our Initial Credit Facility to refinance the Initial Credit Facility with the New Term Loan Facility (that has a maturity of December 6, 2023), which was subject to our satisfaction of certain conditions precedent, the most significant of which was the requirement to raise an additional $15 million of equity before January 31, 2020. In December 2019, the lenders agreed that we had satisfied this condition precedent with the agreement of the New Equity Line of Credit with SSH, a related party, which was executed in January 2020 and provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. In January 2020, we closed on the refinancing of the Initial Credit Facility with the New Term Loan Facility. Both the New Term Loan Facility and the New Equity Line of Credit are further described below under "Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources."
B. Business Overview
We are an OSV company that owns 23 vessels consisting of ten PSVs, two AHTS vessels, and 11 crew boats. As of the date of this annual report, all ten of our PSVs are operating in the North Sea and our AHTS vessels and crew boats are operating in West Africa.


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Our Fleet
The following table sets forth our operating fleet as of the date of this annual report:
Vessel name
Vessel Type
Year Built
Hermit Fighter
PSV
2012
Hermit Prosper
PSV
2012
Hermit Power
PSV
2013
Hermit Thunder
PSV
2013
Hermit Guardian
PSV
2013
Hermit Protector
PSV
2013
Hermit Viking
PSV
2014
Hermit Storm
PSV
2014
Hermit Galaxy
PSV
2016
Hermit Horizon
PSV
2016
Hermit Brilliance
AHTS
2009
Hermit Baron
AHTS
2009
Petrocraft 1605-1
Crew Boat
2012
Petrocraft 1605-2
Crew Boat
2012
Petrocraft 1605-3
Crew Boat
2012
Petrocraft 1605-5
Crew Boat
2012
Petrocraft 1605-6
Crew Boat
2012
Petrocraft 2005-1
Crew Boat
2015
Petrocraft 2005-2
Crew Boat
2015
Petrocraft 1905-1
Crew Boat
2019
Petrocraft 1905-2
Crew Boat
2019
Petrocraft 1905-3
Crew Boat
2019
Petrocraft 1905-4
Crew Boat
2019
Employment of Our Fleet
Our vessels are employed either in the spot market or on time charters.  A spot market charter is typically a short-term contract for specific use.  Under spot market charters, we pay certain expenses, such as harbor costs, fuel costs, and other off-hire related costs. Spot market charter rates are volatile and fluctuate based upon the supply and demand for OSVs such as ours. Time charters give us a fixed and stable cash flow for a known period of time.  Time charters also mitigate in part the volatility and seasonality of the spot market business. We opportunistically employ vessels under time charter contracts. As of the date of this annual report, all but two of our vessels (which were in warm lay-up) were employed in the spot market or on term charters with that are expected to expire within approximately 12 months.
Management of our Vessels
The ship management firms Remøy Shipping AS ("Remøy"), and V.Ships Offshore Limited ("V.Ships"), provide technical management for eight and two of our PSVs, respectively.  Scorpio Commercial Management S.A.M. ("SCM"), and Scorpio Ship Management S.A.M. ("SSM"), provide the commercial and technical management, respectively, for our two AHTS vessels and 11 crew boats. Commercial management for our ten PSVs is performed internally. SCM and SSM are related parties of ours. Please see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions" for additional information on our management agreements with SCM and SSM.
Company Management


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We have an agreement in place with SSH (a related party) for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services for the Company (the "Administrative Services Agreement"). For services under the Administrative Services Agreement, we pay an annual fee of $10,000 per vessel, and will reimburse SSH for the reasonable direct or indirect expenses it incurs in providing the Company with the administrative services described above.
We entered into this Administrative Services Agreement with SSH on June 19, 2019, with an effective date of October 28, 2019, which was the date on which our prior management agreement with NAT was terminated.
The International Offshore Market
International offshore support services are provided by a variety of companies both public and private. The vessels used vary significantly in size and specification depending on their expected role in supporting offshore drilling and production. Typically, the customer is either an oil company or an offshore oil rig operator. Employment of the vessels is categorized either as spot employment, where a vessel is hired anywhere from one month to 12 months, or long-term contract employment, where the customer has the vessel at their disposition for more than 12 months.
The employment terms tend to vary between vessel types. The two main categories of OSVs are PSVs and AHTS vessels. The majority of PSV employment is related the support of oil production, bringing supplies, chemicals and equipment to the rigs, and returning waste product to land. PSVs are also used to support exploration activities. PSVs are distinguished based on deck area/cargo capacity and technical specification. AHTS vessels are primarily used to support rig moves and tend to have more idle time than PSVs.  Crew boats are chartered to customers for use in transporting personnel and supplies from shore bases to offshore drilling rigs, platforms and other installations.
Offshore oil exploration and production is a global activity and a variety of vessel types and rig types are employed. Operating costs and regulatory requirements vary significantly from region to region. Oil prices have risen in each of the last two years.
The North Sea market has the highest standards of safety and specification for PSVs. The vast majority of the vessels operating in this market are European, primarily built in Norway. Vessels operating in the North Sea may move to other markets, but vessels operating in other, worldwide markets for the most part do not have access to the North Sea. The North Sea offshore market is subject to seasonality. Activity is typically lower in winter months and higher in summer months as rig operators are more active in maintenance, rig moves and other activities when weather conditions are less harsh.
The Offshore Support Vessel Market (Source: Fearnleys)
All of the information and data provided in this section has been provided by Fearnleys AS (“Fearnleys”). The statistical and geographical information contained herein is drawn from Fearnleys’ database and other sources.
2019 OSV Market Summary
Rates and utilization levels during 2019 were, on average, significantly up compared to last year, and the difference between the regions continue with Asian and US markets remaining depressed while the North Sea region has shown greater strength for certain assets. As a result of the elevated market in the North Sea, some OSV owners have, for the first time in many years, reported profitable quarters without gains from sales or other financial instruments.
Spot rates in the North Sea showed greater levels than in 2018, as were average utilization levels. In addition, the periods of very-high-utilization were longer than what we have registered in the last couple of years. Moreover, the peaks in terms of rates were also greater than in previous years, with high-end tonnage reaping the greatest gains in the spot market. Some anchor handlers were fixed at NOK 900,000 per day at times, while large PSVs were fixed at more than NOK 250,000 for spot employment. Mid-sized tonnage also gained as utilization rose in the busy periods, albeit not with the same momentum as their high-end peers. Spot rates remained relatively elevated going into the end of the year. The elevation was partly due to the fixture flurry by Allseas, which employed 11 vessels in support of the final stages of the Nord Stream 2 pipeline construction. Towards the end of 2019, however, the U.S. imposed sanctions against the project, and the North Sea spot market dropped back down due to the return of the vessels.
The S&P market has been less active during 2019 in terms of numbers, and particularly the end of 2019 saw a significant slowdown in activity and volume. Shipowners have adopted a wait-and-see strategy to the market. Of the vessels that were sold, there is a divide between high-end and medium- and smaller sized tonnage. Shipowners are


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demanding high prices for high-end tonnage, while for the lower-end segments and older vessels, sales have been executed at very low levels. Although we have recorded a lower number of vessels sent to recycling during 2019, we expected the actual figure to be higher than what we have now recorded due to shipowners delaying reporting of such sales in the market. Although this mostly being older vessels, we still register a mix of both older- and newer vessels being picked up by buyers outside the traditional OSV space, further helping the attrition of the overall fleet.
Transition into 2020
After a very slow start to 2020, with weeks between the rig moves, the market picked up considerably during end of February 2020 for the North Sea AHTS owners. The North Sea AHTS owners in general, finally experienced some profitable weeks, with peaking day rates at NOK 800,000 level (about GBP 62,500). At the same time, the North Sea PSV side became relatively healthy and for the Norwegian market, dayrates stabilized around NOK 150,000 per day. That being said, we did also register some fixtures closing in on NOK 200,000 per day on some occasions, although not quite hitting the mark. We noticed vessels reflagging to NOR due to the high activity level in the Norwegian sector compared to a slower UK market. AHTS and PSV owners were optimistic about the summer season and the rest of 2020. They saw the balance between demand and high-end tonnage supply, were getting tighter - actually, tighter than we have seen in many, many years.
This increased optimism suddenly changed to uncertainty and pessimism due to the rapid and massive drop in the oil price coupled with the Covid-19 crisis. The worldwide demand for oil decreased by 25% in only a few weeks, while OPEC countries increased their production and flooded the market. These two factors have resulted in a significant impact and the market has dropped like a stone resulting in spot fixtures back below vessels operating expense levels. We have seen rig contracts cancelled or postponed resulting in OSV contracts also being terminated. These rig and project cancellations have “forced” vessels to again go into lay-up.
Today, our industry has a more negative view for the rest of 2020 compared to only a few weeks ago. Oil companies have drastically cut their 2020 budgets, especially for exploration and maintenance work and the North West European rig count for 2020 is currently highly uncertain. As of today, it can be comparable with 2018 levels, in such case well below 2019 rig activity (about 20% difference). However, there are some rig programs still scheduled to commence in the time to come. Several PSVs have forward commitments in the months of April, May and June, at least for Norwegian PSVs, which should be somewhat positive amid all the negativism these days. We have seen a reasonably high amount of term deals during the first quarter. Large and leading oil companies such as Equinor and Lundin have in total secured over ten PSVs for longer durations. The Equinor contracts especially have had a direct impact on the spot market, where, during March, they released many of their spot PSVs due to some over-capacity in their term fleet.
Together with the abovementioned drop in oil prices and the unpredictability concerning Covid-19, there are a lot of PSVs prompt available in the spot market and unfortunately without any forward commitments. On average, the term fixtures for PSVs on the UK side was about GBP 10,000 while on the Norwegian side it was somewhat higher at around GBP 11,700 during the first quarter of 2020. However, the term market going forward is set to drop as planned exploration campaigns in particular, are likely to be postponed or cancelled, hence the need for term tonnage will in effect decline. We also have to acknowledge that there is an increasing likelihood that some of the existing term charters could be terminated or renegotiated due to cuts across the board for the oil companies.
West African AHTS Vessel and Crew Boat Market 2019 (Source: Maritime Strategies International Ltd.)
All of the information and data provided in this section has been provided by Maritime Strategies International Ltd. (“MSI”). The statistical and geographical information contained herein is drawn from MSI’s database and other sources
2019 saw most West African OSV markets consolidate and advance the gains which they had made over the second half of 2018, with earnings for AHTS vessels seeing further advances. MSI’s assessment of West African earnings for a 10,800 BHP AHTS increased by 7% on an annual average basis in 2019 relative to the previous year. This follows an increase of 7% of total annual average AHTS fleet utilization in West Africa. The increase in demand was mainly generated by a higher number of drilling rigs working in the region. While in 2018 on average 11 jack-ups and 12 floating rigs were working, these figures grew to 16 and 14, respectively, in 2019.


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The market of small crew boats in West Africa was very similar to its state in 2018. While demand remained the same, there were several newbuild vessels delivered to the region during 2019 (among others, four vessels by the Company). At the same time, Bourbon Mobility (which by far is the operator with the highest number of crew boats in the region) scrapped more than 20 of its crew boats and brought crew boats from other regions to West Africa. The annual average total utilization of crew boats (fast supply vessels not included) decreased by 2%, while annual average dayrates decreased by 3%. While the number of drilling rigs in West Africa increased in 2019, engineering, procurement and construction (EPC) activity such as platform installation decreased compared to 2018.
OSV operators in 2019 continued to expand the range of services which they offer, with integrated services - sometimes on a lump-sum basis - increasingly common, with larger operators typically more active in pushing these solutions. However, within the West African market a major unknown surrounds the attitude of the new owners of the Bourbon fleet, as the operator plays a significant role within West African markets and is the dominant operator of crew boats in the region.
Under more normal circumstances, we would argue that the increasingly tight supply situation in West Africa would leave markets well positioned to push on and make further improvements in earnings as 2020 rolls on. However, it is undeniable that the recent precipitous decline in oil prices, coupled with heightened geopolitical uncertainty and the wider impacts of COVID-19, means that earnings are likely to come under some significant pressure. Oil companies are in the process of revising capital budgets and have lowered expectations by approximately 30% on average, although offshore work has thus far been more resilient than the significant cuts made by US onshore-focused independents.
There are a couple of factors which may imply that the West African large AHTS and crew boat sectors may see some insulation from the full ramifications of the downturn. Firstly, crew boats are principally focused on serving the operational base of production infrastructure. In an environment where oil companies are making significant cuts to capital spending, operational expenditures are likely to be more resilient, particularly given their role in sustaining oil company cashflow. This is particularly the case as we believe that a significant proportion of West African crude production has been hedged at prices above current prices, so as such oil companies have little incentive to shut in existing production platforms, at least in the near term. More broadly, existing contracts will give operators some runway, but if the low oil price environment stays with us until the end of the year, vessel utilization and therefore dayrate levels are expected to fall substantially, especially for AHTS vessels.
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard ("USCG"), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change 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


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incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The IMO, the United Nations agency for maritime safety and the prevention of pollution by vessels has adopted MARPOL, the SOLAS Convention and the LL Convention. MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms.  MARPOL is applicable to drybulk, tanker and LNG carriers, among other vessels, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk, in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits "deliberate emissions" of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks, and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below.  Emissions of "volatile organic compounds" from certain vessels, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also prohibited.  We believe that all our vessels are currently compliant in all material respects with these regulations.
The Marine Environment Protection Committee (the "MEPC") adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010.  The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020.  This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels, or certain exhaust gas cleaning systems.  From January 1, 2020, ships were required to obtain bunker delivery notes and International Air Pollution Prevention Certificates from their flag states that specify sulfur content.  Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and took effect on March 1, 2020.  These regulations subject ocean-going vessels to stringent emissions controls, and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain Emission Control Areas ("ECAs"). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area.  Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations that impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide ("NOx") standards in ECAs will go into effect.  Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016.  Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen


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oxide for ships built on or after January 1, 2021. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection having commenced on January 1, 2019.  The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below. All vessels in our operating fleet are below 5,000 gross tonnages.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans, and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index (the "EEDI").  Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills.  The Convention of Limitation of Liability for Maritime Claims sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the ISM Code, our operations are also subject to environmental standards and 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 safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
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 the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. The Company has nominated Remøy, V.Ships and SSM to technically operate our vessels. The technical managers have obtained the DOC (document of compliance) in order to operate in accordance with the ISM Code.  The document of compliance and safety management certificate are renewed as required.
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code (the "IMDG Code"). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquid or gas.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (the "STCW").  As of February 2017, all seafarers are required to meet the STCW standards and be in possession of a valid STCW certificate.  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.


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The IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water (the "Polar Code"). The Polar Code, which entered into force on January 1, 2017, covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions.  The Polar Code applies to new ships constructed after January 1, 2017, and after January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO's Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to create additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures.  The impact of such regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments (the "BWM Convention") in 2004. The BWM Convention entered into force on September 8, 2017.  The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments.  The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention.  This, in effect, makes all vessels delivered before the entry into force date "existing vessels" and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (the "IOPP") renewal survey following entry into force of the BWM Convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention's implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards.  Ships over 400 gross tons generally must comply with a "D-1 standard," requiring the exchange of ballast water only in open seas and away from coastal waters.  The "D-2 standard" specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms.  Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3).  Costs of compliance with these regulations may be substantial.
Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the "Bunker Convention") to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the LLMC).  With respect to non-ratifying states,


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liability for spills or releases of oil carried as fuel in ship's bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States where the Bunker Convention 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.
Anti‑Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti‑fouling Systems on Ships (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. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when the anti‑fouling systems are altered or replaced. We have obtained Anti‑fouling System Certificates for all of our vessels that are subject to the Anti‑fouling Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship 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 USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively.  As of the date of this report, each of our vessels is ISM Code certified. The Company has nominated Remøy, V. Ships and SSM to technically operate our vessels. The technical managers have obtained the DOC (document of compliance) in order to operate in accordance with the ISM code. However, there can be no assurance that such certificates will be maintained in the future.  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.
United States Regulations
All the Company's vessels operate in the North Sea or in West Africa, and it is unlikely that they will operate in the U.S. at a later time.  However, if at some time in the future our vessels operate in the United States, we could be subject to strict environmental regulations, such as state environmental laws, the U.S. Oil Pollution Act of 1990, or OPA, which establishes an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills, and the Comprehensive Environmental Response, Compensation and Liability Act which applies to the discharge of hazardous substances other than oil, among others.  Other regulations, such as the U.S. Bureau of Safety and Environmental Enforcement's revised Production Safety Systems Rule, the U.S. Clean Water Act, and other ballast water regulations may also apply.  Should we operate in U.S. waters, compliance with OPA and other U.S. regulations could impact the cost of our operations and adversely affect our business.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.  Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater


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authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the European Union imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the English Channel (the so called “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
International Labour Organization
The International Labour Organization is a specialized agency of the UN that has adopted the Maritime Labor Convention 2006 (the “MLC 2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance is required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. We believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020.  International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions.  The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, the U.S. President announced that the United States intends to withdraw from the Paris Agreement, which provides for a four-year exit process, meaning that the earliest possible effective withdrawal date cannot be before November 4, 2020. The timing and effect of such action has yet to be determined.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships.  The initial strategy identifies "levels of ambition" to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emissions levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely.  The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition.  These regulations could cause us to incur additional substantial expenses.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states to 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol's second period from 2013 to 2020.  Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
Vessel Security Regulations
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facility Security Code (the "ISPS Code").


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The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate ("ISSC") from a recognized security organization approved by the vessel's flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain an ISSC.  The various requirements, some of which are found in the SOLAS Convention, include, for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel's hull; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, 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.
Future security measures could have a significant financial impact on us.  We intend to comply with the various security measures addressed by the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel and SOLAS. Most insurance underwriters make it a condition for insurance coverage and lending that a vessel be certified "in class" by a classification society which is a member of the International Association of Classification Societies, the IACS.  The IACS has adopted harmonized Common Structural Rules (the "Rules") which apply to oil tankers and bulk carriers contracted for construction on or after July 1, 2015.  The Rules attempt to create a level of consistency between IACS Societies.  All of our vessels are certified as being "in class" by all the applicable Classification Societies (e.g., American Bureau of Shipping, Lloyd's Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special survey, a vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 60 months for inspection of the underwater parts of the vessel.  If any vessel does not maintain its class and/or fails any annual survey, intermediate survey, drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition and results of operations.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade.
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental damage and pollution insurance and war risk insurance and freight, demurrage and defense insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we consider it appropriate), which covers business interruptions that result in the loss of use of a vessel.


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Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or "P&I Associations", and covers our third-party liabilities in connection with our shipping and offshore activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs."
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. The International Group's website states that the pool provides a mechanism for sharing all claims in excess of US $10 million up to, currently, approximately US $8.2 billion.  As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age of a vessel. We expect to be able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business.
Seasonality
Operations in the North Sea are generally at their highest levels during the months from April through August and at their lowest levels from December through February primarily due to lower construction activity and harsh weather conditions affecting the movement and servicing of drilling rigs. Operations in West Africa are not significantly impacted by seasonality. Nevertheless, operations in any market may be affected by seasonality often related to unusually long or short construction seasons due to, among other things, abnormal weather conditions, as well as market demand associated with increased drilling and development activities.
C. Organizational Structure
Hermitage Offshore Services Ltd. is a company organized under the laws of Bermuda. We own our vessels through separate wholly-owned subsidiaries that are incorporated in the Republic of the Marshall Islands. Please see Exhibit 8.1 to this annual report for a list of our significant subsidiaries.
D. Property, Plants and Equipment
Other than our vessels, we do not own any material property. Please see "Item 4. Information on the Company—B. Business Overview—Our Fleet", for a description of our vessels. All of our PSVs and crew boats are mortgaged as collateral under our New Term Loan Facility and our AHTS vessels are mortgaged as collateral under our DVB Credit Facility.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following presentation of management's discussion and analysis of results of operations and financial condition should be read in conjunction with our consolidated financial statements, accompanying notes thereto and other financial information appearing in "Item 18. Financial Statements." You should also carefully read the following discussion with the sections of this annual report entitled "Item 3. Key Information—D. Risk Factors," "Item 4. Information on the Company—B. Business Overview," and "Cautionary Statement Regarding Forward-Looking Statements." Our consolidated financial statements as of December 31, 2019 (Successor) and 2018 (Predecessor) and for the periods January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor), and the years ended December 31, 2018 and 2017 (Predecessor) have been prepared in accordance with U.S. GAAP. Our consolidated financial statements are presented in U.S. dollars ($) unless otherwise indicated.
We generate revenues by charging customers for the use of our vessels. These services are generally provided under the following basic types of contractual relationships:
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Spot market charters, which are charters for short intervals that are priced on current, or “spot,” market rates.
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Time or term charters, which are vessels chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates.
We are responsible for the crewing and other vessel operating costs under all of the contractual relationships that our vessels are currently employed.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts. These include the following:
Vessel revenues. Vessel revenues primarily include revenues from time and spot charters. Vessel revenues are affected by hire rates and the number of days a vessel operates. Revenues from vessels in the spot market are more volatile, as they are typically tied to prevailing market rates.
Voyage expenses. Voyage expenses primarily include bunkers, port charges, and brokerage commissions paid by us. These expenses are subtracted from charter revenues to calculate TCE revenue, a non-GAAP measure, which is defined below.
Vessel operating costs. We are responsible for vessel operating costs for all of our vessels, which include crewing, repairs and maintenance, insurance, spares and stores, lubricating oils, communication expenses, and technical management fees. The three largest components of our vessel operating costs are crewing, spares and stores and repairs and maintenance. Vessel operating costs per day represent vessel operating costs divided by the number of operating days during the period. Operating days are the total number of days (including off-hire days and days in layup) in a period.  Vessel operating expenses are lower while a vessel is in lay-up. 
Depreciation. Depreciation expense typically consists of:
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charges related to the depreciation of the historical cost of our vessels (less an estimated residual value) over the estimated useful lives of the vessels; and
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charges related to the amortization of drydocking or engine overhaul expenditures over the estimated number of years or engine hours to the next scheduled drydocking or engine overhaul.
Days. The types of days utilized in measuring the performance of our vessels are as follows:
On-hire days - the number of available days less the number of days the vessel is off-hire. 
Off-hire days - refers to the time a vessel is not in service. Off-hire days can be attributable to technical off-hire days, which are due primarily to scheduled and unscheduled repairs or drydockings or commercial off-hire days which are when a vessel is unemployed.


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Available days - the number of calendar days in a period less the number of days the vessel is in lay-up.
Operating days - operating days are the total number of days in a period including off-hire days and days in layup. 
Dayrates. Average dayrates are calculated by subtracting voyage expenses, including bunkers and other related charges, from charter revenue and dividing the net amount by the number of on-hire days in the period.  Average effective dayrates represent the average day rate multiplied by the utilization rate (defined below) for the respective period.
Utilization rates. Utilization rates are determined by the dividing the number of on-hire days by the total number of available days (including off-hire days) in the period. When calculating average effective dayrates, off-hire days for drydock or engine overhauls are considered part of the available days and days that a vessel is in lay-up are not considered part of the available days.
Items You Should Consider When Evaluating Our Results
Reverse Asset Acquisition and Change in Basis of Accounting
In April 2019, we acquired 13 vessels consisting of two AHTS vessels and 11 crew boats from SOHI, a related party, in exchange for 8,126,219 common shares of the Company. As part of this acquisition, the Company assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility relating to the two AHTS vessels. The assets acquired in this transaction are collectively referred to as the "SOHI Assets", and the transactions to acquire the SOHI Assets and the assumption of the related indebtedness, are referred to as the "Transaction".
As a result of the Transaction, SOHI and its affiliated entities, which are part of Scorpio, obtained a controlling voting interest in the Company.  Accordingly, under the relevant accounting guidance, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition.  Moreover, the Company determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination.
Under the applicable accounting guidance, a reverse asset acquisition results in a change in the basis of accounting on the Transaction date. As a result, the financial information presented following the Transaction is not directly comparable to historical periods.
Since it has been determined that the Transaction constitutes an acquisition of assets, the historical financial information prior to the date of the Transaction presented herein (and in future reports and filings) will continue to reflect that of the Company prior to the Transaction rather than that of the SOHI Assets as would be required in a business combination. The Company believes that the historical financial information of the Company prior to the Transaction is more relevant to investors than the historical financial information of the SOHI Assets due to the relative size of the Company's ten PSVs compared to the SOHI Assets and that the value and operating results of the PSVs are expected to be the ultimate driver of the Company's business in future periods. The results from the operations and cash flows of the SOHI Assets are included only in the Company's financial information from the Transaction date.
Accordingly, the Company's pre-Transaction financial information is presented for the period January 1, 2019 to April 8, 2019 (Predecessor), and for each of the years ended December 31, 2018 and 2017 (Predecessor). The Company’s post-Transaction financial information is presented for the period from April 9, 2019 to December 31, 2019 (Successor). The accounting implications of the Transaction are further described in "Note 3, Reverse Asset Acquisition" to our consolidated financial statements included herein.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). 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 our consolidated financial statements included herein.


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Use of Estimates
Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and costs during the reporting period. Actual results could differ from those estimates. The effects of changes in accounting estimates are accounted for in the same period in which the estimates are changed.
Reverse Asset Acquisition
We made several determinations regarding the appropriate accounting treatment for the Transaction which required the use of judgement. These determinations included (i) whether the Transaction constituted a single transaction or a set of individual transactions, (ii) which party was identified as the accounting acquirer, (iii) whether the Transaction should be considered a reverse acquisition, (iv) if the Transaction met the definition of a business combination or an asset acquisition, and (v) what are the financial reporting implications of the preceding determinations.
The first step was to determine if the Transaction constituted a single transaction or set of individual transactions. The crew boats and AHTS vessels were legally acquired via two separate transactions two days apart. As part of our accounting analysis, we determined that these transactions were both made in contemplation of one another and shared the same strategic objective, which was to grow and recapitalize the Company through the acquisition of complementary assets in exchange for newly issued common shares.  On this basis, we determined that these transactions should be viewed as a single transaction.
For the second step, we identified Scorpio as the accounting acquirer on the basis that Scorpio obtained voting control of the Company as a result of the Transaction.
In the third step we evaluated if the Transaction should be considered a reverse acquisition. Since Scorpio, as the former sole owner of the SOHI Assets, obtained control of the Company by obtaining a majority of the voting interest in the combined entity (which includes the SOHI Assets and the Company), we determined that the Transaction should be accounted for as the acquisition of the Company by Scorpio (i.e. a reverse acquisition in which SOHI effectively issued consideration equal to a noncontrolling ownership interest in the SOHI Assets in exchange for Scorpio’s acquisition of a controlling ownership interest in the Company).
For the fourth step, we assessed whether the Transaction should be accounted for as a business combination or an acquisition of assets. As part of this exercise, we assessed whether either the SOHI Assets and/or the Company met the definition of a business as defined under Accounting Standards Codification 805 -Business Combinations, and more specifically, the Financial Accounting Standard Board's Accounting Standards Update (“ASU”) 2017-01, which narrowed the definition of a business.
Under this guidance, we determined (i) the fair value of both asset sets, and (ii) whether a single asset, or a group of similar assets, constituted more than 90% of the fair value of the asset sets. The fair values of the vessels in each asset set were determined based on the average of two independent shipbroker valuations for the AHTS vessels and crew boats and the average of three independent shipbroker valuations for the PSVs. We also evaluated whether the assets in each asset set were similar. The factors that we considered as part of this evaluation were the technical specifications of each vessel, the remaining useful lives of each vessel at the date of the Transaction, the customer base that these assets serve, the geographies in which they operate, and the historical returns on invested capital for these assets. As a result of this evaluation, we determined that both the Company and the SOHI Assets do not meet the definition of a business but instead of two sets of assets, given the high concentration of similar identifiable assets within each asset set.  Based on the foregoing, we determined that the Transaction constitutes a reverse acquisition of assets.  ASC paragraph 805-40-45-1 indicates that consolidated financial statements prepared following a reverse acquisition are a continuation of the financial statements of the legal subsidiary (i.e. the accounting acquirer). However, this guidance does not address the financial reporting treatment with regards to historical financial statements when the reverse acquisition does not involve a business combination, but rather a combination of two groups of assets, neither of which constitutes a business under ASC Topic 805.
On this basis, and as the fifth step, we determined the financial reporting implications of these prior determinations. While the application of reverse business combination concepts under the applicable accounting guidance to the Transaction would, by analogy, result in the presentation of the historical financial statements of the


31

SOHI Assets, we determined that since, (i) this is an asset acquisition and not a business combination, and (ii) the relative size of the Company prior to the Transaction was over six times greater than the SOHI Assets in terms of total assets, that the most useful and informative presentation of the Company’s financial statements was to continue to present the Company as the predecessor entity prior to the Transaction and the combined entity for all periods subsequent.  The implications of the above determinations were as follows:
•
The SOHI Assets of Scorpio, as the accounting acquirer, were recorded at their historical carrying values. On the Transaction date, there were $1.3 million of cash and cash equivalents, $24.7 million of vessels, net, and $9.0 million of non-current debt.
•
The theoretical cost of the reverse acquisition is the fair value of the equity interests that the legal acquiree (the SOHI Assets) would theoretically have had to issue to give the Company’s shareholders the same percentage equity interest in the combined entity that results from the reverse acquisition. This theoretical cost was determined based on the price of the Company’s common shares on the date of the Transaction and was allocated to the Company's pre-Transaction assets and liabilities on a relative fair value basis.
•
This application of purchase accounting therefore resulted in several adjustments to the assets and liabilities of the Predecessor given the difference between the fair value and their carrying value on the date of the Transaction.
There were 7,373,989 common shares of the Predecessor outstanding as of the Transaction date, of which, 1,175,474 were owned by Scorpio as a result of the Private Placement. The fair values of the common shares owned by Scorpio, and of the 6,198,515 non-controlling common shares were determined separately based on the volume-weighted average price of the Company's common shares on the closing date of the Transaction of $3.23 per share. Accordingly, the fair value of the equity of the Predecessor on the Transaction date was determined to be $23.8 million.
The Transaction price was allocated to the Company's pre-Transaction identifiable assets and liabilities on a relative fair value basis as of April 8, 2019. The purchase price allocation of the identifiable assets acquired and liabilities assumed is set forth below:
In thousands of U.S. dollars
 
Cash and cash equivalents
$
1,657

Accounts receivable
3,212

Prepaid expenses
1,198

Fuel, lube oil, and consumables
981

Other current assets
1,098

Vessels, net (1)
154,744

Accounts payable
(1,836
)
Other current liabilities (2)
(4,151
)
Debt
(132,905
)
Other long-term liabilities (2)
(190
)
Net assets acquired and liabilities assumed
$
23,808

(1)  
Vessels, net - The difference between the Transaction price and the fair value of the net assets acquired, excluding vessels, was allocated to vessels which were the Company's only long-lived assets. This amount was allocated to the individual ten PSVs on a relative fair value basis (primarily by the age of each vessel). This resulted in a reduction of $20.7 million when comparing the aggregate carrying value of these vessels prior to and subsequent to the Transaction date. Additionally, a component of the cost of each vessel is related to drydock and engine overhaul costs which was estimated based on recent costs, adjusted for each individual vessel based on the estimated period until the next drydock or engine overhaul and are being depreciated on a straight-line basis over that period.
(2)  
Other current and other long-term liabilities (unfavorable contracts) - Other current liabilities and other long-term liabilities include liabilities of $1.4 million and $0.1 million respectively, as a result of an analysis of term contracts for PSVs at rates below market value at the Transaction date. The resulting liabilities are


32

recorded as an adjustment to revenues from the Transaction date until the end of the related term contracts, the last of which ends in December 2020.
Certain adjustments were made to the carrying values of the Company's pre-Transaction identifiable assets and liabilities to reflect their fair value. The most significant are described above. Most other balances were recorded at the historical carrying values of the Predecessor, as we determined that their carrying values approximated fair value. Since this was a reverse acquisition of assets rather than a business combination, there is no resultant goodwill (or bargain purchase) as a result of the purchase price allocation. Nominal transaction costs were incurred as part of the Transaction.
Impairment of Long-Lived Assets
As part of our impairment assessment at December 31, 2019 (Successor), we determined that impairment indicators existed because the market capitalization was less than 50% of shareholders' equity. Accordingly, we proceeded to assess whether the carrying values of the vessels were recoverable by estimating undiscounted future cash flows.
The assumptions that we, as the Successor company, use to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations and are forecast through the end of the expected useful life of each vessel, which is assumed to be 25 years from the delivery of the vessel from the shipyard for PSVs and AHTS vessels, and 15 years for crew boats.
The most significant assumption in preparing these undiscounted cash flows is our estimate of revenues, which are derived from our assumptions of utilization adjusted dayrates over the forecast period. Utilization and dayrates in our markets are highly volatile, adjust rapidly when confronted with changes in market conditions, and are difficult to predict. Accordingly, this assumption is highly subjective. In preparing our estimated undiscounted cash flows, we assumed a base case scenario that we believe reflects our undiscounted cash flows over time based upon a lower rate environment. In our base case scenario, our forecasted revenue estimates are primarily based on (i) a combination of the Company's forecast, published time charter rates (as of December 31, 2019, net of broker commissions) for the next year and a 2.0% growth rate (which is based on published historical and forecast inflation rates in the geographies in which we operate) in charter rates in each period through the vessel's 15th year of useful life for PSVs and AHTS vessels, and 10th year of useful life for crew boats, and assuming the growth in expenses over time thereafter will be offset by similar increases in charter revenues, and (ii) our estimated off-hire days and utilization which are based on management's experience and market data. Our revenue estimates are based on published time charter rates, which, in contrast with published spot market rates, already have a utilization component embedded within. Nevertheless, in addition to off-hire days for drydock or engine overhauls, we also forecast additional off-hire time in each year to account for unplanned off-hire. We believe that these dayrates are the most useful approximation of future dayrates as (i) they are derived from actual fixtures in the market and thus reflect a collective, forward looking view of market participants, and (ii) are consistent with activity that the Company has seen in its market activities (either through actual fixtures or tendering activity). Additionally, from a longer term perspective, we believe that the dayrate assumptions utilized in the base case scenario are reasonable as the average dayrates for the PSVs and AHTS vessels over the entire forecast period are approximately equal to the 10-year and 20-year historical average time charter rates.
Our revenue assumptions are supplemented by our best estimate of vessel operating expenses and drydock and engine overhaul costs, which are based on our most recent forecasts and actual experience in 2019 and a 2.0% growth rate in each period thereafter. Historical trends underlying these assumptions have been significantly less volatile than the assumptions underlying revenue over time, and therefore do not involve as high of a degree of subjectivity.
Based on the foregoing, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives in our base case would be sufficient to recover their respective carrying values. Moreover, we considered the estimates of vessel values from independent shipbrokers as a comparison to the undiscounted cash flows:
•
The estimates of vessel values from the independent shipbrokers for the PSVs exceeded their carrying values for each vessel, and by an aggregate of $17.2 million.


33

•
The estimates of vessel values from the independent shipbrokers for the crew boats and AHTS vessels was lower than their carrying values by an aggregate of $0.9 million. Six vessels had carrying values greater than their fair values by $3.0 million in aggregate and seven vessels had carrying value lower than their fair values by $2.1 million in aggregate.
For the vessels where the vessel values from the independent shipbrokers were less than their carrying values, we re-evaluated the inputs to the undiscounted cash flow analysis, and the sensitivities thereto, and determined that the inputs were reasonable. Accordingly, we determined that our vessels were not impaired.
In our impairment testing, we also examined the sensitivity of the estimated future cash flows and carrying values to be recovered by separately calculating the break-even charter rates, while holding all other assumptions constant. We then evaluated the outcome of the sensitivity analysis performed to assess their impact on our conclusions. Break-even charter rates were approximately 8% lower than the effective charter rates assumed in the testing for the PSVs, 5% lower for the AHTS vessels, and over 10% lower for the crew boats.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by any significant degree. Charter rates may decrease, which could adversely affect our revenue and profitability, and any future assessments of vessel impairment. We will continue to monitor developments in charter rates in the markets in which we participate with respect to the expectation of future rates that are utilized in the undiscounted cash flow analyses.
Our fleet as of December 31, 2018 (Predecessor) consisted of ten PSVs. As a result of a prolonged deterioration in market conditions, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives would not be sufficient to recover their respective carrying values. Accordingly, we determined that our vessels were impaired and an impairment charge of $160.1 million was recorded for the year ended December 31, 2018. This impairment charge was measured based upon the amount by which the carrying values of our vessels exceeded their fair values.
Our Fleet - Illustrative comparison of carrying amounts as compared to estimated charter-free market value of certain vessels
During the past few years, the market values of vessels have experienced particular volatility and as a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below the carrying amounts of those vessels. After undergoing the impairment analysis discussed above, we have concluded that no impairment is required at December 31, 2019.
The table set forth below indicates the carrying amount of each of our vessels as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor) and the aggregate difference between the carrying amount and the market value represented by such vessels (see footnotes to the table set forth below). This aggregate difference represents the approximate analysis of the amount by which we believe we would record a loss if we sold those vessels on December 31, 2019, on industry standard terms, in cash transactions and to a willing buyer where we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this calculation, we have assumed that the vessels would be sold at a price that reflects our estimate of their basic market values.
Our estimate of basic market value assumes that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from our various industry sources, including:
•
approximate market values for our vessels or similar vessels that we have received from ship brokers, whether solicited or unsolicited, or that ship brokers have generally disseminated;
•
vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping and offshore industry participants and observers;
•
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;
•
news and industry reports of similar vessel sales; and


34

•
offers that we may have received from potential purchasers of our vessels.
As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values and revenues are highly volatile; as such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
In millions of U.S. dollars
 
Carrying value as of
 
Vessel Name
Vessel Type
Year Built
December 31, 2019 (Successor)
 
December 31, 2018 (Predecessor)
 
 
 
 
 
 
 
 
PSV
 
 
 
 
 
 
Hermit Fighter
PSV
2012
15.5

(2) 
17.0

 
Hermit Prosper
PSV
2012
14.4

(2) 
17.0

 
Hermit Power
PSV
2013
14.3

(2) 
17.2

 
Hermit Thunder
PSV
2013
14.4

(2) 
17.2

 
NAO Guardian
PSV
2013
14.5

(2) 
17.2

 
Hermit Protector
PSV
2013
14.4

(2) 
17.2

 
Hermit Viking
PSV
2015
15.8

(2) 
17.5

 
Hermit Storm
PSV
2015
15.7

(2) 
17.5

 
Hermit Galaxy
PSV
2016
16.4

(2) 
19.4

 
Hermit Horizon
PSV
2016
16.4

(2) 
19.4

 
 
 
 
 
 
 
 
AHTS vessels
 
 
 
 
 
 
Hermit Brilliance
AHTS
2009
5.6

(1) 
N/A

(3) 
Hermit Baron
AHTS
2009
5.6

(1) 
N/A

(3) 
 
 
 
 
 
 
 
Crew boats
 
 
 
 
 
 
Petrocraft 1605-1
Crew Boat
2012
1.0

(2) 
N/A

(3) 
Petrocraft 1605-2
Crew Boat
2012
1.0

(2) 
N/A

(3) 
Petrocraft 1605-3
Crew Boat
2012
1.0

(2) 
N/A

(3) 
Petrocraft 1605-5
Crew Boat
2013
1.1

(1) 
N/A

(3) 
Petrocraft 1605-6
Crew Boat
2013
1.1

(1) 
N/A

(3) 
Petrocraft 2005-1
Crew Boat
2015
1.9

(1) 
N/A

(3) 
Petrocraft 2005-2
Crew Boat
2015
1.9

(1) 
N/A

(3) 
Petrocraft 1905-1
Crew Boat
2019
1.6

(2) 
N/A

(3) 
Petrocraft 1905-2
Crew Boat
2019
1.6

(2) 
N/A

(3) 
Petrocraft 1905-3
Crew Boat
2019
1.6

(2) 
N/A

(3) 
Petrocraft 1905-4
Crew Boat
2019
1.6

(2) 
N/A

(3) 
(1)
As of December 31, 2019, the basic charter-free market rate value is lower than each vessel's carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $3.0 million.
(2) 
As of December 31, 2019, the basic charter-free market rate value is higher than each vessel's carrying value. We believe that the aggregate carrying value of these vessels is lower than their aggregate basic charter-free market value by approximately $19.3 million.


35

(3) 
These vessels were acquired during the year ended December 31, 2019.
As described elsewhere in this report, in the calendar year 2020, the markets in which we operate have experienced a precipitous decline in activity, charter rates, and utilization brought on by the confluence of a crash in oil prices along with the COVID-19 pandemic. Should these market conditions persist for an extended period of time, they are expected to have a consequential impact on the assumptions underlying our impairment testing.
Vessels, net
Vessels are stated at historical costs, less accumulated depreciation and impairment. Depreciation is provided by the straight-line method over the estimated useful life of 25 years for the PSVs and AHTS vessels, and 15 years for the crew boats based on upon the date the vessel is delivered from the yard.
Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessel. Repairs and maintenance are expensed as incurred. The vessels’ estimated residual values and useful life are reviewed when there has been a change in circumstances that indicate the original estimate may no longer be appropriate.
Drydocking and engine overhaul
Our PSVs and AHTS vessels are required to be drydocked approximately every 30 - 60 months (depending on vessel age), and to have engines overhauled after 10,000 - 12,000 running hours. We will capitalize a substantial portion of the costs incurred during drydocking and overhaul, and amortize those costs on a straight-line basis from the completion of a drydocking, intermediate survey or overhaul to the estimated completion of the next drydocking or overhaul. Drydocking costs include a variety of costs incurred while vessels are placed within drydock, including expenses related to the dock preparation and port expenses at the drydock shipyard, general shipyard expenses, expenses related to hull, external surfaces and decks, expenses related to machinery and engines of the vessel, as well as expenses related to the testing and correction of findings related to safety equipment on board. We also capitalize those costs incurred as part of the drydock to meet classification and regulatory requirements. The Company expenses costs related to routine repairs and maintenance performed during drydocking, and for annual class survey costs. The capitalized and unamortized drydocking costs are included in the book value of the vessels. Amortization expense of the drydocking costs is included in depreciation expense.
For an acquired or newly built vessel, a drydock component is estimated and accounted for as a separate component of the vessel’s cost. The drydock component is depreciated on a straight-line basis to the next estimated drydock. The estimated amortization period for a drydock is based on the estimated period between drydocks. When the drydock expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.
A. Operating Results
Reverse Asset Acquisition and Impact on Comparability between Historical Periods
In April 2019, we acquired 13 vessels consisting of two AHTS vessels and 11 crew boats from SOHI, a related party, in exchange for 8,126,219 common shares of the Company. As part of this acquisition, the Company assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility relating to the two AHTS vessels. The assets acquired in this transaction are collectively referred to as the "SOHI Assets", and the transactions to acquire the SOHI Assets and the assumption of the related indebtedness, are referred to as the "Transaction".
As a result of the Transaction, SOHI and its affiliated entities, which are part of Scorpio, obtained a controlling voting interest in the Company.  Accordingly, under the relevant accounting guidance, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition.  Moreover, the Company determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination. 
Under the applicable accounting guidance, a reverse asset acquisition results in a change in the basis of accounting on the Transaction date. As a result, the financial information presented following the Transaction is not directly comparable to historical periods.


36

Since it has been determined that the Transaction constitutes an acquisition of assets, the historical financial information prior to the date of the Transaction presented herein (and in future reports and filings) will continue to reflect the results and position of the Company prior to the Transaction rather than that of the SOHI Assets as would be required in a business combination. The Company believes that the historical financial information of the Company prior to the Transaction is more relevant to investors than the historical financial information of the SOHI Assets due to the relative carrying value of the Company's ten PSVs compared to the SOHI Assets and that the value and operating results of the PSVs are expected to be the ultimate driver of the Company's business in future periods. The results from the operations and cash flows of the SOHI Assets are included only in the Company's financial information from the Transaction date.
Accordingly, the Company's pre-Transaction financial information is presented for the period January 1, 2019 to April 8, 2019 (Predecessor), and for each of the years ended December 31, 2018 and 2017 (Predecessor). The Company’s post-Transaction financial information is presented for the period from April 9, 2019 to December 31, 2019 (Successor). The accounting implications of the Transaction are further described in "Note 3, Reverse Asset Acquisition" to our consolidated financial statements included herein.
We present our Statement of Operations and Comprehensive (Loss) Income using charter revenues and charter costs. During the periods January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor) and the years ended December 31, 2018 and 2017 (Predecessor), our PSVs were employed in the North Sea (the "North Sea" reporting segment) on both spot and term charters. During the period April 9, 2019 to December 31, 2019 (Successor), our AHTS vessels and crew boats were employed off the West Coast of Africa (the "West Coast of Africa" reporting segment) on both spot and term charters.
RESULTS OF OPERATIONS FOR THE PERIODS FROM JANUARY 1, 2019 TO APRIL 8, 2019 (PREDECESSOR), APRIL 9, 2019 TO DECEMBER 31, 2019 (SUCCESSOR), AND THE YEAR ENDED DECEMBER 31, 2018

Successor

 
Predecessor

April 9 - December 31, 2019

 
January 1 - April 8, 2019

Year ended December 31, 2018
In thousands of U.S. dollars

 

Charter revenue
36,555


 
5,258


20,654

Vessel operating expenses
(27,230
)

 
(6,612
)

(25,173
)
Voyage expenses
(1,124
)

 
(395
)

(2,215
)
General and administrative expenses
(4,534
)

 
(1,207
)

(4,757
)
Depreciation
(8,452
)

 
(2,205
)

(17,298
)
Impairment loss on vessels
—


 
—


(160,080
)
Interest income
39


 
21


207

Interest expense
(6,571
)

 
(2,555
)

(8,031
)
Other financial expense, net
(136
)

 
32


(601
)
Income taxes
—


 
—


—

Net loss
(11,453
)

 
(7,663
)

(197,294
)
Net loss. Net loss was $7.7 million for the period January 1, 2019 to April 8, 2019 (Predecessor) and $11.5 million for the period from April 9, 2019 to December 31, 2019 (Successor) and $197.3 million in for the year ended December 31, 2018 (Predecessor). The changes in these periods are discussed below.
Charter revenue. Charter revenues were $5.3 million for the period from January 1, 2019 to April 8, 2019 (Predecessor) and $36.6 million for the period from April 9, 2019 to December 31, 2019 (Successor) and were $20.7 million for the year ended December 31, 2018 (Predecessor).
The following is a summary of our consolidated revenue by vessel type, in addition to the average day rates and effective day rates.


37


Successor

 
Predecessor

April 9 - December 31, 2019

 
January 1 - April 8, 2019

Year ended December 31, 2018
In thousands of U.S. dollars

 

PSVs (North Sea)
29,911


 
5,258


20,654

AHTS vessels (West Coast of Africa)
3,729


 
—


—

Crew boats (West Coast of Africa)
2,915


 
—


—

Total charter revenue
36,555


 
5,258


20,654



Successor

 
Predecessor

April 9 - December 31, 2019

 
January 1 - April 8, 2019

Year ended December 31, 2018
North Sea
 
 
 
 
 
 
PSVs


 



Average dayrates per on-hire day
$
11,636


 
$
9,496


$
10,239

Utilization rate %
90.7
%

 
73.0
%

58.6
%
Effective dayrates
$
10,549


 
$
6,936


$
6,001





 




Available days
2,645


 
701


3,073

On-hire days
2,398


 
512


1,801

Lay-up days
25


 
279


577

 
 
 
 
 
 
 
West Coast of Africa
 
 
 
 
 
 
AHTS vessels



 




Average dayrates per on-hire day
$
8,647


 
N/A


N/A

Utilization rate %
73.7
%

 
N/A


N/A

Effective dayrates
$
6,371


 
N/A


N/A

 
 
 
 
 
 
 
Available days
532


 
N/A


N/A

On-hire days
392


 
N/A


N/A

Lay-up days
—


 
N/A


N/A





 




Crew boats



 




Average dayrates per on-hire day
$
2,492


 
N/A


N/A

Utilization rate %
39.2
%

 
N/A


N/A

Effective dayrates
$
977


 
N/A


N/A

 
 
 
 
 
 
 
Available days
2,948


 
N/A


N/A

On-hire days
1,155


 
N/A


N/A

Lay-up days
—


 
N/A


N/A



38

PSV revenue - PSV revenues were $5.3 million for the period January 1, 2019 to April 8, 2019 (Predecessor) and $29.9 million for the period April 9, 2019 to December 31, 2019 (Successor) and $20.7 million for the year ended December 31, 2018 (Predecessor).
The increase in PSV revenue was primarily driven by overall improvements in the North Sea market during 2019. The North Sea market is split between the Norwegian sector and the UK sector and our vessels operate in both sectors. During 2019, the number of working oil rigs increased in both sectors, driving higher dayrates and utilization across our entire PSV fleet.
Additionally, four of our PSVs were laid-up for a total of 577 days during the year ended December 31, 2018, whereas three PSVs were laid up for a total of (i) 279 days for the period January 1, 2019 to April 8, 2019 (Predecessor) and (ii) 25 days for the period April 8, 2019 to December 31, 2019 (Successor).
AHTS vessel revenue - AHTS vessel revenues were $3.7 million for the period April 9, 2019 to December 31, 2019 (Successor). There were no revenues for the Predecessor periods as our two AHTS vessels were acquired as part of the Transaction. Both vessels were drydocked in accordance with their scheduled, class required special surveys in 2019. While not presented, AHTS vessel dayrates were largely consistent with 2018.
Crew boat revenue - Crew boat revenues were $2.9 million for the period of April 9, 2019 to December 31, 2019 (Successor). There were no revenues for the Predecessor periods as the crew boats were acquired as part of the Transaction. Nevertheless, crew boat dayrates were largely consistent with 2018. Moreover, the Company's four 1905 series crew boats were delivered from the shipyard in January 2019 and immediately commenced long term charters at approximately $2,400 per vessel per day.
Vessel operating expenses. Vessel operating expenses were $6.6 million for the period from January 1, 2019 to April 8, 2019 (Predecessor) and $27.2 million for the period from April 9, 2019 to December 31, 2019 (Successor) and were $25.2 million for the year ended December 31, 2018 (Predecessor). The following is a summary of our consolidated vessel operating expenses per vessel type, in addition to vessel operating expenses per day and the number of operating days:

Successor

 
Predecessor
In thousands of U.S. dollars
April 9 to December 31, 2019

 
January 1 to April 8, 2019

Year ended December 31, 2018
Vessel operating expenses



 




PSVs (North Sea)
$
20,104


 
$
6,612


$
25,173

AHTS vessels (West Coast of Africa)
3,209


 
—


—

Crew boats (West Coast of Africa)
3,917


 
—


—

Total vessel operating expenses
27,230


 
6,612


25,173





 





Vessel operating expenses per day



 





PSVs (North Sea)
$
7,530


 
$
6,747


$
6,897

AHTS vessels (West Coast of Africa)
6,032


 
N/A


N/A

Crew boats (West Coast of Africa)
1,329


 
N/A


N/A





 





Operating days



 





PSVs (North Sea)
2,670


 
980


3,650

AHTS vessels (West Coast of Africa)
532


 
N/A


N/A

Crew boats (West Coast of Africa)
2,948


 
N/A


N/A

PSV vessel operating expenses - PSV vessel operating expenses were $6.6 million for the period from January 1, 2019 to April 8, 2019 (Predecessor) and $20.1 million for the period from April 9, 2019 to December 31, 2019


39

(Successor) and were $25.2 million for the year ended December 31, 2018 (Predecessor). The increase in vessel operating expenses and vessel operating expenses per day during 2019 is primarily the result of a reduction in the number of days that our vessels were in lay-up during 2019 compared with 2018. Vessel operating expenses are significantly reduced while a vessel is in lay-up. Our PSVs were in layup for 577 days during 2018 and 304 days during 2019 (with 279 days in the Predecessor period from January 1, 2019 to April 8, 2019 and 25 days for the Successor period from April 9, 2019 to December 31, 2019).
General and administrative expenses. General and administrative expenses were $1.2 million for the period from January 1, 2019 to April 8, 2019 (Predecessor) and $4.5 million for the period from April 9, 2019 to December 31, 2019 (Successor) and were $4.8 million for the year ended December 31, 2018 (Predecessor). This increase is primarily due to (i) the various strategic initiatives that the Company executed during 2019 which resulted in an increase in legal and professional fees , (ii) the transition of various back-office functions resulting from the change in the management of the Company, and (iii) the Transaction, which increased the size of the Company's fleet by 13 additional vessels.
Depreciation. Depreciation was $2.2 million for the period from January 1, 2019 to April 8, 2019 (Predecessor) and $8.5 million for the period from April 9, 2019 to December 31, 2019 (Successor) and $17.3 million for the year ended December 31, 2018 (Predecessor). As of December 31, 2018, the Company recorded an impairment loss on the ten PSVs of $160.1 million, which reduced the depreciable basis of the vessels, therefore decreasing the depreciation expense in the periods from January 1, 2019 to April 8, 2019 and April 9, 2019 to December 31, 2019. Additionally, as part of the Transaction, the carrying value of the ten PSVs was reduced by $20.7 million as a result of the reverse acquisition accounting treatment (as described in "Note 3, Reverse Asset Acquisition" to our consolidated financial statements included herein). Both of these events resulted in a reduction in depreciation expense for the ten PSVs in the Successor period when compared with the Predecessor period. This decrease was offset by an increase in depreciation expense resulting from the acquisition of the AHTS vessels and crew boats as part of the Transaction.
Impairment loss on vessels. As of December 31, 2018, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives would not be sufficient to recover their respective carrying values. Accordingly, we determined that our vessels were impaired and an impairment charge of $160.1 million was recorded for the year ended December 31, 2018. This impairment charge was measured based upon the amount by which the carrying values of our vessels exceeded their fair values. An impairment charge was not recorded in 2019.
Interest expense. Interest expense was $2.6 million for the period from January 1, 2019 to April 8, 2019 (Predecessor) and $6.6 million for the period from April 9, 2019 to December 31, 2019 (Successor) and $8.0 million for the year ended December 31, 2018. As part of the Transaction, we assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility (described below) relating to the AHTS vessels. The increase in interest expense was driven by the additional interest expense related to this new facility, which was partially offset by decreases in LIBOR rates throughout 2018 and into 2019.
Please see "Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates" for further information.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018 COMPARED TO THE YEAR ENDED DECEMBER 31, 2017
For a discussion of our results for the year ended December 31, 2018 compared to the year ended December 31, 2017, please see “Item 5. Operating and Financial Review and Prospects - A. Operating Results - Year Ended December 31, 2018 Compared to Year Ended December 31, 2017” contained in our annual report on Form 20-F for the year ended December 31, 2018, filed with the SEC on May 15, 2019.
B. Liquidity and Capital Resources
Our primary sources of funds for our short-term and long-term liquidity needs have historically been the raising of new equity in combination with loan financing, as discussed in further detail below. As of December 31, 2019 (Successor) and December 31, 2018 (Predecessor) we had cash and cash equivalents of $12.7 million and $8.4 million, respectively.
Equity Issuances and Equity Lines of Credit


40

In December 2018, we issued an aggregate of 1,175,474 common shares in a private placement with SOI, a related party, at $4.20 per share, resulting in net proceeds to us of $4.9 million.
In April 2019, we acquired 13 vessels (the SOHI Assets) from SOHI, a related party, in exchange for 8,126,219 common shares of the Company at approximately $2.78 per share for an aggregate consideration of $22.6 million.  As part of this acquisition, we assumed the aggregate outstanding indebtedness of $9.0 million relating to two of the acquired vessels.
In March 2019, we entered into an Initial Equity Line of Credit with SOI, a related party, and Mackenzie. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price. The issuances of common shares under the Initial Equity Line of Credit during the year ended December 31, 2019 were as follows:
•
In April 2019, 3,240,418 common shares were issued under the Initial Equity Line of Credit (split equally between SOI and Mackenzie) for approximately $2.78 per share and net proceeds of $9.0 million.
•
In June 2019, 1,421,472 common shares were issued under the Initial Equity Line of Credit (split equally between SOI and Mackenzie) for approximately $3.52 per share and net proceeds of $5.0 million.
•
In October 2019, 2,356,108 common shares were issued under the Initial Equity Line of Credit (split equally between SSH, a related party (as SOI’s nominee), and Mackenzie) for $1.06 per share for aggregate net proceeds of $2.5 million.
•
In December 2019, 3,143,709 common shares were issued under the Initial Equity Line of Credit for aggregate net proceeds of $3.5 million. 1,492,508 common shares were issued to Mackenzie and 1,651,201 common shares were issued to SSH, a related party (as SOI’s nominee), each for $1.11 per share.
Following the December 2019 issuance, the Initial Equity Line of Credit was fully drawn, and there is no further capacity thereunder.
In January 2020, the Company executed the New Equity Line of Credit with SSH, a related party, which provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. Under the terms of the New Equity Line of Credit, the Company is precluded from issuing shares under the New Equity Line of Credit if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share.
In March 2020, we issued 5,668,317 common shares to SSH for $0.88 per share under the New Equity Line of Credit for aggregate net proceeds of $5.0 million.
Our Borrowing Activities
Initial Credit Facility
On December 19, 2013, we entered into the Initial Credit Facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ). In March 2015, we expanded the availability under our Initial Credit Facility from $60.0 million to $150.0 million to partially finance the purchase of certain of the PSVs in our fleet.
As of December 31, 2016, as a result of a significant deterioration in market conditions, we were in breach of three of the financial covenants under this facility, (i) the minimum value adjusted amount of equity, (ii) the minimum value adjusted equity ratio clause and (iii) a minimum level of liquidity. In 2017 a waiver was obtained from the lenders lowering (i) the minimum value of equity and (ii) the minimum value adjusted equity ratio covenant requirements to levels at which the Company was in compliance, and suspending (iii) the minimum level of liquidity covenant. These waivers were effective until April 30, 2018. On April 30, 2018 we executed an amendment to the Initial Credit Facility that extended the waiver period until December 31, 2019. Under the terms of the waiver, we were unable to draw further on the Initial Credit Facility until we complied with the original terms and conditions set forth thereunder, and the interest rate increased from LIBOR plus a margin of 2.0% to LIBOR plus a margin of 4.0%.
In September 2018, we made an unscheduled payment of $1.575 million on our Initial Credit Facility to regain compliance with the security coverage ratio (requiring that the aggregate fair market value of the vessels securing the


41

loan does not fall below 150% of the outstanding loan) set forth thereunder.  At the end of September 2018, vessel values were remeasured and, given a further deterioration in such values, we were again in non-compliance of the security coverage ratio at September 30, 2018.
In December 2018, we executed the Private Placement with SOI whereby SOI invested $5 million in a private placement of the Company’s shares at a price of $4.20 per share. Effective upon closing of the Private Placement, $1.9 million of the proceeds were immediately used to repay a portion of the Initial Credit Facility and regain compliance with the security coverage ratio. Additional temporary waivers were granted under the Initial Credit Facility as a result of the Private Placement and corresponding debt repayment. As of December 31, 2018, we were in compliance with the modified terms under the Initial Credit Facility and the loan was not considered callable.
In April 2019, the lenders under the Initial Credit Facility agreed to extend the waivers of certain financial covenants with which the Company was not in compliance until January 31, 2020 as part of a broader set of agreements to recapitalize the Company.  This agreement included a commitment by the lenders under the Initial Credit Facility, for a new $132.9 million term loan facility with maturity of December 6, 2023 to refinance the Initial Credit Facility, subject to certain conditions precedent, the most significant of which was the requirement to raise an additional $15 million of equity before January 31, 2020. In December 2019, we reached an agreement with the lenders under the Initial Credit Facility to satisfy these conditions precedent with the New Equity Line of Credit with SSH, and thus we refinanced the Initial Credit Facility in full with the New Term Loan Facility in January 2020, as further described below.
$132.9 million was outstanding under our Initial Credit Facility at each of December 31, 2019 (Successor) and December 31, 2018 (Predecessor). We were in compliance with the covenants set forth under the waivers of the Initial Credit Facility at December 31, 2019. Additionally, the amount outstanding at December 31, 2019 was classified as non-current on consolidated balance sheet on the basis of the agreement and subsequent execution of the new term loan facility as described below.
New Term Loan Facility
As described above, in December 2019, we reached an agreement with the lenders under the Initial Credit Facility, whereby it was agreed that the New Equity Line of Credit satisfied the condition precedent required to refinance the Initial Credit Facility with the New Term Loan Facility. In January 2020, we completed the refinancing of the Initial Credit Facility with the New Term Loan Facility. The New Term Loan facility is collateralized by our ten PSVs and 11 crew boats, bears interest at LIBOR plus a margin 3.50% through December 2021, LIBOR plus a margin of 4.50% from December 2021 through December 2022 and LIBOR plus a margin of 5.5% from December 2022 through the maturity date of December 2023 (the margin in all periods can be reduced if the Company meets certain Net Debt to EBITDA thresholds). The New Term Loan Facility is repayable in equal, semi-annual installments of $7.5 million beginning in December 2021 with a balloon payment due upon the maturity date of December 6, 2023.  
The New Term Loan Facility is secured by:
•
a first priority mortgage over the relevant collateralized vessels under the specific facility;
•
a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility;
•
a pledge of earnings generated by the mortgaged vessels for the specific facility; and
•
a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
The New Term Loan Facility contains financial and restrictive covenants, as summarized below:
•
Cash and cash equivalents shall at all times be equal to or greater than $500,000 per vessel above 2,500 DWT. The Company’s two AHTS vessels and 11 crew boats are excluded from this definition. Accordingly, the minimum liquidity under the New Term Loan Facility is $5 million based on our fleet as of December 31, 2019.
•
The ratio of net debt (defined as total debt less cash) to total capitalization (defined below) shall be no greater than 0.70 to 1.00 from the date that the New Term Loan Facility is executed through December 31, 2020 and 0.65 to 1.00 thereafter through the maturity date of December 6, 2023. Undrawn amounts available under the


42

New Equity Line of Credit are included as part of the definition of total capitalization (defined as net debt plus equity plus amounts available under the New Equity Line of Credit).
•
Current assets shall at all times exceed current liabilities less the current portion of the long term liabilities;
•
The aggregate fair market value of the vessels collateralized under the New Term Loan Facility shall at all times be at least 115% of the aggregate outstanding principal amount until December 7, 2021, 125% of the aggregate outstanding principal amount until December 7, 2022, and 130% at all times thereafter.
•
We are restricted from paying dividends for 24 months following the date of the execution of the New Term Loan Facility.
The New Term Loan Facility also contains customary events of default, including cross default provisions and a subjective acceleration clause under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
DVB Credit Facility and Supplemental Agreement
As part of the Transaction, we assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility relating to the AHTS vessels. The DVB Credit Facility was supplemented on April 10, 2019 as part of the Transaction.
The borrowers under the DVB Credit Facility are the respective vessel owning entities of the AHTS vessels. The DVB Credit Facility bears interest at LIBOR plus a margin of 2.75% and contains a financial covenant whereby the Company must maintain minimum liquidity of an aggregate of $0.75 million in the bank accounts that are pledged as security under the facility (as described in "Note 4 - Cash and Cash Equivalents" to our consolidated financial statements included herein). 
For the first 36 months after the initial drawdown date (through September 2020), the terms of the DVB Credit Facility require that we fund any Excess Earnings (defined as each vessel's earnings less budgeted operating expenses, interest payments and the maintenance of the minimum liquidity requirement) related to such vessels, up to $3.6 million in aggregate, to a drydock reserve account, the proceeds of which are to be utilized for the vessel’s next scheduled drydock. Any Excess Earnings related to each vessel, after funding the minimum liquidity requirement and drydock reserve account, shall be utilized to repay the credit facility.  Starting 39 months after the initial drawdown date, the DVB Credit Facility shall be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022. 
This facility contains financial and restrictive covenants, which require the borrowers to, among other things, comply with certain financial tests (as described above).  This facility is secured by, among other things:
•
a first preferred mortgage over the two AHTS vessels which are collateralized under this facility;
•
an assignment of earnings, insurances and charters from the two mortgaged AHTS vessels;
•
a pledge of the related earnings accounts and drydock reserve accounts of the borrowers in respect of the two mortgaged AHTS vessels; and
•
a pledge of the equity interests in each of the borrowers.
The DVB Credit Facility also contains customary events of default, including a subjective acceleration clause under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
The outstanding balance under this credit facility was $9.0 million as of December 31, 2019, and we were in compliance with the financial covenants as of that date.
Liquidity Outlook
Cash on hand was $12.7 million as of December 31, 2019 (Successor), compared to $8.4 million as of December 31, 2018 (Predecessor).
Under ASC paragraph 205-40 (the "Standard"), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the


43

date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.  Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
The Company regularly performs cash flow projections to evaluate (i) whether it will be in a position to cover the liquidity needs for the next 12-month period and (ii) the compliance with financial and security ratios under the existing and future financing agreements. In developing estimates of future cash flows, the Company makes assumptions about the vessels’ future performance, market rates, operating expenses, capital expenditure, fleet utilization, general and administrative expenses, loan repayments and interest charges. The assumptions applied are based on historical experience and future expectations.  Nevertheless, volatility in the offshore market makes forecasting difficult, and there is the possibility that the Company’s actual trading performance during the coming year may be materially different from expectations. 
Economic conditions in the offshore market during 2019 reflected a gradual improvement from the lows of previous years and were showing signs that the industry was in the early stages of a broader recovery. The Company’s operating results during 2019 (in both the Predecessor and Successor periods) reflected this improvement, as losses from operations narrowed when compared to prior periods. Additionally, as highlighted elsewhere in these financial statements, the Company executed a series of transactions during 2019 and 2020, such as the Transaction, the New Term Loan Facility and the New Equity Line of Credit in an effort to recapitalize the Company and create a platform for future growth.
Nevertheless, since the beginning of calendar year 2020, the COVID-19 outbreak has resulted in the implementation of numerous actions by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets which has reduced the global demand for oil and related products. Additionally, in March 2020, output disagreements between OPEC producing nations (led by Saudi Arabia) and Russia triggered a price war sending the price of crude oil to lows not seen in decades. The confluence of these events has resulted in a precipitous pull back of production and capital expenditure outlays from major oil producers throughout the world. Consequently, the markets in which our vessels operate have come under significant pressure in the form of reduced spot market rates and utilization, higher lay-up activity, and contract cancellations and renegotiations.
These conditions have caused management to revisit its cash flow projections for the next 12-month period under revised assumptions. Under these revised assumptions, the Company projects that it might breach certain financial covenants under its credit facilities within 12 months from the date of the financial statements included herein. Additionally, under the terms of the New Equity Line of Credit, the Company is precluded from issuing shares under the New Equity Line of Credit if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share. In March and April 2020, the price of the Company’s common stock fell below this threshold on certain occasions and for sustained periods of time. Additionally, as described in Item 3. Key Information D. Risk Factors, we have received two deficiency notifications from the NYSE that could result in suspension or delisting of our common shares. We have until November 2020, and August 2021, subject to certain conditions, to cure each of these deficiencies. If our stock is delisted, then the Company is precluded from issuing shares under the New Equity Line of Credit. If additional liquidity under the New Equity Line of Credit is unavailable, the Company might breach covenants under its credit facilities, or face liquidity constraints, sooner than would otherwise occur under the revised projections.
The Company has commenced discussions with its lenders in an effort to find possible solutions and is also considering other strategic alternatives to meet the Company’s obligations, such as the sale of some or all of the vessels in the Company’s fleet. The Company has also engaged an advisor to provide consultation throughout this process. There can be no assurance that these or other measures will be successful.
As these discussions are currently in a preliminary phase, there are no remedies that can be considered as probable for purposes of the Standard.  Accordingly, substantial doubt is deemed to exist about the Company’s ability


44

to continue as a going concern within one year after the date the consolidated financial statements are issued.
Cash Flow
The table below summarizes our sources and uses of cash for the periods presented:

Successor


Predecessor
In thousands of U.S. dollars
April 9 - December 31, 2019


January 1 - April 8, 2019

Year ended December 31, 2018

Year ended December 31, 2017
Cash flow data
 
 
 
 
 
 
 
 
Net cash inflow/(outflow)
 
 
 
 
 
 
 
 
Operating activities
(10,298
)


(6,789
)

(21,807
)

(14,032
)
Investing activities
1,657



—


(45
)

(830
)
Financing activities
20,000



—


(1,010
)

43,403

For the periods January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor) and the year ended December 31, 2018 (Predecessor).
Cash outflows from operating activities were $6.8 million for the period January 1, 2019 to April 8, 2019 (Predecessor), $10.3 million for the period April 9, 2019 to December 31, 2019 (Successor), and $21.8 million for the year ended December 31, 2018.
For the period January 1, 2019 to April 8, 2019 (Predecessor), the cash outflows from operating activities consisted mainly of a net loss of $7.7 million along with drydocking and engine overhaul costs of $0.8 million, offset by $2.2 million of non-cash depreciation expense.
For the period April 9, 2019 to December 31, 2019 (Successor), the cash outflows from operating activities consisted mainly of:
•
net losses of $11.4 million for the period, as a result of operations of the PSVs, AHTS vessels, and crew boats; and
•
engine overhaul and drydock payments of $5.4 million, which consisted of $3.6 million for the drydocking of the two AHTS vessels and the remaining $1.8 million for the drydock and engine overhauls of four of the PSVs.
This activity was partially offset by non-cash depreciation expense of $8.5 million, which includes depreciation expense for the AHTS vessels and crew boats, as well as depreciation expense on the PSVs subsequent to the reduction of the net book values of the PSVs as a result of the purchase price allocation resulting from the Transaction.
For the year ended December 31, 2018 (Predecessor), the cash flows from operating activities were mainly driven by a net loss that was impacted by several vessels being laid-up throughout the year, offset by non-cash depreciation expenses of $17.3 million and a net increase in current assets and liabilities of $1.2 million.
Cash inflows from investing activities was zero for the period January 1, 2019 to April 8, 2019 (Predecessor), $1.7 million for the period April 9, 2019 to December 31, 2019 (Successor), and $0.1 million for the year ended December 31, 2018. Cash inflows from investing activities of $1.2 million for the period April 9, 2019 to December 31, 2019 (Successor) was driven by cash acquired from the Predecessor as part of the Transaction in April 2019.
Cash flows from financing activities were zero for the period January 1, 2019 to April 8, 2019 (Predecessor), an inflow of $20.0 million for the period April 9, 2019 to December 31, 2019 (Successor), and a net outflow of $1.0 million for the year ended December 31, 2018 (Predecessor). The cash inflows for the period April 9, 2019 to December 31, 2019 (Successor) reflect the drawdowns under the Initial Equity Line of Credit, which are discussed in further detail above. During the year ended December 31, 2018, we raised $5.0 million of net proceeds from the Private Placement, which was offset by principal repayments on our Initial Credit Facility of $4.1 million, in addition to the payment of approximately $1.9 million of cash dividends.


45

For the year ended December 31, 2018 compared to the year ended December 31, 2017
For a discussion of our cash flows for the year ended December 31, 2018 compared to the year ended December 31, 2017, please see “Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Cash Flow” contained in our annual report on Form 20-F for the year ended December 31, 2018, filed with the SEC on May 15, 2019.
C. Research and Development, Patents and Licenses, etc.
Not applicable.
D. Trend Information
The OSV industry is cyclical and changes in oil price and exploration activity are causing volatility in the charter hire rates. The market is subject to seasonality with lower activity in the winter months. See "Item 4. Information on the Company—B. Business Overview—The International Offshore Market."


46

E. Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
Our contractual obligations as of December 31, 2019, consist of our obligations as a borrower under our Initial Credit Facility and the DVB Credit Facility.
The following table sets out financial, commercial and other obligations outstanding as of December 31, 2019 (all figures in thousands of USD).
In thousands of U.S. dollars
Total

Less than 1 year

1-3 years

3-5 years

More than 5 years
Initial Credit Facility (1)
$
132,905


—


$
22,500


110,405


—

DVB Credit Facility (2)
9,000


207


8,793


—


—

Interest Payments (3)
27,915


5,783


14,492


7,640


—

Technical management fees (4)
2,211


1,417


794


—


—

Commercial management fees (5)
101


98


3


—


—

Total
$
172,132


$
7,505


$
46,582


$
118,045


—

(1)
Refers to obligations to repay indebtedness outstanding under the Initial Credit Facility as of December 31, 2019. The conditions precedent to refinance the Initial Credit Facility with the New Term Loan Facility were met as of December 31, 2019. Accordingly, the repayment obligations set forth reflect the terms and conditions under the New Term Loan Facility as of that date.
(2)
Refers to obligations to repay indebtedness outstanding under the DVB Credit Facility as of December 31, 2019.
(3)
Refers to estimated interest payments over the terms of the aggregate indebtedness outstanding as of December 31, 2019.
(4)
Our technical manager for the AHTS vessels and crew boats, SSM, a related party, charges fees for its services pursuant to a Master Agreement. Pursuant to this Master Agreement, the fixed annual technical management fee is $156,000 per AHTS vessel and $43,800 per crew boat. Under the terms of the Master Agreement, the termination fees are subject to a notice period of 24 months.
Our technical managers for the PSVs, Remøy, and V.Ships, charge fees for their services pursuant to the relevant Standard Ship Management Agreements. Pursuant to the agreement with Remøy, the fixed annual technical management fee is 2,000,000 NOK per PSV. Pursuant to the agreement with V.Ships, the fixed annual technical management fee is $300,000 per PSV. Under the terms of both agreements, the termination fees are subject to a notice period of three months.
(5)
We pay our commercial manager, SCM, a related party, a management fee equal to 1.25% of gross revenues per charter fixture, pursuant to the Master Agreement. Under the terms of the Master Agreement, the termination fees are subject to a notice period of 24 months.
As of December 31, 2019, we had $12.7 million in cash on hand.
G. Safe Harbor
See "Cautionary Statement Regarding Forward Looking Statements" at the beginning of this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers as of the date of this annual report. Our Board of Directors currently consists of seven directors and is elected annually on a staggered basis. Each director elected holds office for a three-year term or until his or her successor is 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. The term of our Class A directors will expire at our 2020 annual meeting of shareholders. The term of our Class B directors will expire at the 2021 annual meeting of shareholders. The term of our Class C directors will expire at the 2022 annual meeting of shareholders.


47

Officers are appointed from time to time by our Board of Directors and hold office until a successor is appointed. The business address of each of our directors and executive officers listed below is Hermitage Offshore Services Ltd., LOM Building, 27 Reid Street, Hamilton HM 11, Bermuda.
Name
Age
Position
Emanuele Lauro
41
Chairman, Class A Director, Chief Executive Officer
Robert Bugbee
59
Class C Director and President
Marianne Økland
57
Class B Director and Audit Committee Chair
Marianne Lie
58
Class C Director, Lead Independent Director and Nominating and Corporate Governance Committee Chair
Paul J. Hopkins
72
Class B Director and Compensation Committee Chair
Bjarte Boe
62
Class A Director
Cameron Mackey
51
Class B Director and Chief Operating Officer
Filippo Lauro
43
Vice President
Christopher Avella
41
Chief Financial Officer
Fan Yang
32
Secretary
David M. Workman resigned from the Board of Directors with effect from November 13, 2019. The Board of Directors has not yet filled the casual vacancy created by Mr. Workman's resignation.
Biographical information concerning the directors and executive officers listed above is set forth below.
Emanuele A. Lauro, Chairman, Class A Director and Chief Executive Officer
Mr. Emanuele A. Lauro has served as the Company's Chairman and Chief Executive Officer since December 2018. He has also served as Chairman and Chief Executive Officer of Scorpio Tankers Inc. (NYSE: STNG), since its initial public offering in 2010, and of Scorpio Bulkers Inc. (NYSE: SALT), since its formation in 2013. He served as director of the Standard Club from May 2013 to January 2019. Mr. Emanuele Lauro joined Scorpio in 2003 and has continued to serve there in a senior management position since 2004. Under his leadership, Scorpio has grown from an owner of three vessels in 2003 to become a leading operator and manager of more than 250 vessels in 2019. Over the course of the last several years, Mr. Emanuele Lauro has founded and developed all of the Scorpio Pools in addition to several other ventures such as Scorpio Logistics, which owns and operates specialized assets engaged in the transshipment of dry cargo commodities and invests in coastal transportation and port infrastructure developments in Asia and Africa since 2007. He has a degree in international business from the European Business School, London. Mr. Emanuele Lauro is the brother of our Vice President, Mr. Filippo Lauro.
Robert Bugbee, Class C Director and President
Mr. Robert Bugbee has served as a Director and President of the Company since December 2018.  He has also served as a Director and President of Scorpio Tankers Inc. since its initial public offering in April 2010, and as President and Director of Scorpio Bulkers Inc. since July and April 2013, respectively. He has more than 35 years of experience in the shipping industry. He joined Scorpio in March 2009 and has continued to serve there in a senior management position. Prior to joining Scorpio, Mr. Bugbee was a partner at Ospraie Management LLP between 2007 and 2008, a company which advises and invests in commodities and basic industry. From 1995 to 2007, Mr. Bugbee was employed at OMI Corporation, or OMI, a NYSE-listed tanker company which was sold in 2007. While at OMI, Mr. Bugbee served as President from January 2002 until the sale of the company, and before that served as Executive Vice President since January 2001, Chief Operating Officer since March 2000, and Senior Vice President from August 1995 to June 1998. Mr. Bugbee joined OMI in February 1995. Prior to this, he was employed by Gotaas-Larsen Shipping Corporation since 1984. During this time, he took a two-year sabbatical beginning 1987 for the M.I.B. Program at the Norwegian School for Economics and Business Administration in Bergen. He has a B.A. (Honors) from London University.
Cameron Mackey, Class B Director and Chief Operating Officer
Mr. Cameron Mackey has served as the Company's Chief Operating Officer since December 2018 and as a Director since July 2019. He has also served as Chief Operating Officer of Scorpio Tankers Inc. since 2010, and as a


48

Director since May 2013. Mr. Mackey has also served as Chief Operating Officer of Scorpio Bulkers Inc. since July 2013. He joined Scorpio in March 2009, where he continues to serve in a senior management position. Prior to joining Scorpio, he was an equity and commodity analyst at Ospraie Management LLC from 2007 to 2008. Prior to that, he was Senior Vice President of OMI Marine Services LLC from 2004 to 2007, where he was also in Business Development from 2002 to 2004. He has been employed in the shipping industry since 1994 and, earlier in his career, was employed in unlicensed and licensed positions in the merchant navy, primarily on tankers in the international fleet of Mobil Oil Corporation, where he held the qualification of Master Mariner. He has an M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology, a B.S. from the Massachusetts Maritime Academy and a B.A. from Princeton University.
Filippo Lauro, Vice President
Mr. Filippo Lauro has served as the Company's Vice President since December 2018. He has also served as Vice President of Scorpio Tankers Inc. since May 2015 and of Scorpio Bulkers Inc. since June 2016. Mr. Filippo Lauro joined Scorpio in 2010 and has continued to serve there in a senior management position. Prior to joining Scorpio, he was the founder of and held senior executive roles in several private companies, primarily active in real estate, golf courses and resorts development. Mr. Filippo Lauro is the brother of our Chairman and Chief Executive Officer, Mr. Emanuele Lauro.
Christopher Avella, Chief Financial Officer
Mr. Avella has served as the Company's Chief Financial Officer since June 2019. He has also served as Controller of Scorpio Tankers Inc. since 2014.  Prior to joining Scorpio Tankers Inc. in 2010, he was with Ernst & Young in its audit practice from 2002 through 2006 and its transaction advisory services practice from 2006 through 2010 where he was a senior manager.  Mr. Avella is a certified public accountant and has a B.S. in accounting from Rutgers University, an M.B.A. from Seton Hall University and an M.S. in finance from Georgetown University.
Fan Yang, Secretary
Ms. Fan Yang has served as the Company’s Secretary since June 2019. In addition to her position with the Company, Ms. Yang also serves as the secretary of Scorpio Bulkers Inc. and Scorpio Tankers Inc. She is admitted as a solicitor of the Supreme Court of England and Wales. Prior to joining Scorpio, Ms. Yang was in private practice in London at Travers Smith LLP and Freshfields Bruckhaus Deringer LLP, and led a law reform project at the Law Commission, an independent body that makes recommendations for the reform of the law of England and Wales to Parliament. She has a B.A. in Law from the University of Cambridge.
Marianne Økland, Class B Director
Ms. Økland has served as our Class B Director and Audit Committee Chair since January 2019. In addition, she has served as a non-executive director and member of the Audit Committee of Scorpio Tankers Inc. since April 2013. Between 2010 and 2019, she held various non-executive director positions at IDFC Limited, at IDFC Alternatives (India), NLB (Slovenia), the National Bank of Greece and Islandsbanki (Iceland). She was also a member of the Audit Committee of the National Bank of Greece, and Chair of the Audit Committee of each of IDFC Limited and NLB (Slovenia). In addition, Ms. Økland served as Managing Director of Avista Partners, a London based consultancy company that provides advisory services and raises capital, from 2009 to 2018. Between 1993 and 2008, she held various investment banking positions at JP Morgan Chase & Co. and UBS where she focused on debt capital raising and structuring. Ms. Økland has led many transactions for large Nordic banks and insurance companies, and worked on some of the most significant mergers and acquisitions in these sectors. Between 1988 and 1993, Ms. Økland headed European operations of Marsoft, a Boston, Oslo and London based consulting firm that advises banks and large shipping, oil and raw material companies on shipping strategies and investments. She holds a M.Sc. degree in Finance and Economics from the Norwegian School of Economics and Business Administration where she also worked as a researcher and taught mathematics and statistics.
Marianne Lie, Class C Director
Marianne Lie has served as our Class C Director since December 2013. From June 2016 until December 2018, Ms. Lie served as our Executive Vice Chairman.  Having broad international experience, she has been and still is a board member of several Norwegian companies mainly within the shipping, offshore business, energy and finance industries. She was until recently a member of the shareholders Committee of the Central Bank of Norway. She was


49

in the Norwegian Shipowners Association from 1988 until 1998, after which she was managing director of the Norwegian branch of Vattenfall, a Swedish based energy group. Ms. Lie was also a board member of the Finnish energy group Fortum. She was managing director of the Norwegian Shipowners Association from 2002 to 2008. Ms. Lie has studied law and political science at the University of Oslo.
Paul J. Hopkins, Class B Director
Paul J. Hopkins has been a Director of the Company since its inception and was a director of Nordic American Tankers Limited from June 2005 until December 2013. From 1995 through January 2008, Mr. Hopkins was also a Vice President and a director of Corridor Resources Inc., a Canadian publicly traded natural gas exploration and production company. From 1989 through 1993 he served with Lasmo as Project Manager during the development and start-up of the Cohasset/Panuke oilfield offshore Nova Scotia, the first offshore oil production in Canada. Earlier, Mr. Hopkins served as a consultant on frontier engineering and petroleum economic evaluations in the international oil industry. Mr. Hopkins was seconded to Chevron UK in 1978 to assist with the gas export system for the Ninian Field. He was part of the ranger team evaluating the Ninian Field economic and financing options with several large banks. Previously, beginning in 1973, Mr. Hopkins was employed with London based Ranger Oil (UK) Limited, being involved in the drilling and production testing of offshore wells in the North Sea. From 1969 through the end of 1972 he worked with Shell Canada as part of its Offshore Exploration Group.
Mr. Bjarte Boe, Class A Director
Mr. Boe has been a Director of the Company since July 2019 and has over thirty years of experience in the finance industry. He also currently serves as an independent director on the Board of Directors of Seadrill Limited (NYSE: SDRL) and as a member of the Nomination Committee of BW Offshore Ltd. Mr. Boe is Chairman of the Investment Committee at SEB Venture Capital, a subsidiary of Skandinaviska Enskilda Banken AB (publ), or SEB, a Nordic financial services group, where from 1995 to June 2019, he held a range of management positions. Mr. Boe most recently served as Head of Shipping and Offshore Finance at SEB and was Global Head of Investment Banking at SEB Stockholm between 2012 and 2016. He previously held various other bank related management positions at Christiania Bank between 1986 and 1995, a Norwegian bank that later merged with MeritaNordbanken to become Nordea, and was a shipbroker at R.S. Platou between 1983 and 1986. Mr. Boe has an M.B.A. from the Norway School of Economics and Business Administration.
B. Compensation
There are currently no employment agreements between Hermitage Offshore Services Ltd. and the CEO, CFO, COO, President, Vice President and Secretary. We have incurred an aggregate of $0.5 million in aggregate executive compensation expense for our senior executive officers for the year ended December 31, 2019.
Our current non-executive directors receive cash compensation annually in the amount of $37,500, plus an additional fee of $5,000 for each committee on which a director serves and for the lead independent director, plus reimbursement of their out-of-pocket expenses incurred while attending any meeting of the Board of Directors or any board committee.
We do not have a retirement benefit plan for our officers or directors. By law, our employees in Monaco are entitled to a one-time payment of up to two-months’ salary upon retirement if they meet certain minimum service requirements.
C. Board Practices
Our Board of Directors is elected annually, and each director elected holds office for a three-year term or until his or her successor is duly elected and qualified. Our Class A Directors will serve until the 2020 annual general meeting of shareholders. Our Class B Directors will serve until the 2021 annual general meeting of shareholders. Our Class C Directors will serve until the 2022 annual general meeting of shareholders.
Our Board of Directors consists of seven directors. In addition, there is currently one casual vacancy on the Board, created by Mr. Workman's resignation, which the Board has not yet filled. Four of our directors, Ms. Marianne Økland, Ms. Marianne Lie, Mr. Paul J. Hopkins, and Mr. Bjarte Boe, have been determined by our Board of Directors to be independent under the rules of the NYSE and the rules and regulations of the SEC. Our Board of Directors has


50

an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation Committee, each of which are comprised solely of certain of our independent directors. The Audit Committee, among other things, reviews our external financial reporting, engages our external auditors and oversees our internal controls activities, procedures, and the adequacy of our internal controls. The Nominating and Corporate Governance Committee is responsible for recommending to the Board of Directors nominees for director appointments and directors for appointment to board committees and advising the board with regard to corporate governance practices. The Compensation Committee recommends director and senior employee compensation.
Pursuant to an exemption for foreign private issuers, we are not required to comply with many of the corporate governance requirements of the NYSE that are applicable to U.S. listed companies. For more information, see "Item 16G. Corporate Governance."
There are no contracts between us and any of our directors providing for benefits upon termination of their employment.
D. Employees
As of December 31, 2019, we had nine onshore employees.
E. Share Ownership
With respect to the total amount of common shares owned by all of our officers and directors, please see "Item 7.  Major Shareholders and Related Party Transactions—A. Major Shareholders."
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information regarding beneficial ownership of our common shares for (i) owners of more than five percent of our common shares and (ii) our directors and officers, of which we are aware as of the date of this annual report.
Identity of Person
Number of
Shares
 
Percent of Class(1)
Entities within Scorpio
21,161,327

(2) 
67.5
%
Mackenzie Financial Corporation
5,001,507

(3) 
16.0
%
 
 
 
 
Directors and executive officers as a group (excluding Mr. Emanuele Lauro)
102,721

 
0.3
%
(1)
These percentages are based on 31,330,232 common shares outstanding as of April 28, 2020, unless otherwise indicated.
(2)
This information is derived from a Schedule 13D/A filed with the SEC on March 6, 2020, by Scorpio Holdings Limited, SSH, Scorpio Services Holding Two Limited, Culky Investments Inc., SOHI, SOI, Mr. Emanuele Lauro and Ms. Annalisa Lolli-Ghetti. Of the 21,161,327 common shares beneficially owned by Scorpio and its affiliated entities, 9,467,177 common shares are held directly by SSH, 8,126,219 common shares are held directly by SOHI and 3,567,931 common shares are held directly by SOI. SSH, Scorpio Holdings Limited, Scorpio Services Holding Two Limited and Culky Investments Inc. are members of Scorpio and have joint voting power, and therefore beneficial ownership, of certain of those common shares of the Company held by each of SSH, SOHI and SOI. Ms. Annalisa Lolli-Ghetti may be deemed to be the ultimate beneficial owner of 67.5% of our common shares outstanding by virtue of being the majority shareholder of Scorpio Holdings Limited and Scorpio Services Holding Two Limited. Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, may be deemed the ultimate beneficial owner of 25.9% of our common shares outstanding, by virtue of being the sole shareholder in Culky Investments Inc.
(3)
This information is derived from a Schedule 13G that was filed with the SEC on February 13, 2020, including common shares held by funds managed thereby.
As of April 27, 2020, we had 268 shareholders of record, 206 of which were located in the United States and held an aggregate of 6,136,333 shares of our common stock, representing 19.59% of our outstanding common shares. However, one of the U.S. shareholders of record is Cede & Co., a nominee of The Depository Trust Company, which held 6,133,134 shares of our common stock, as of that date. Accordingly, we believe that shares held by Cede & Co.
include common shares beneficially owned by holders in the United States and non-U.S. beneficial owners. We are not aware of any arrangements the operation of which may at a subsequent date result in our change of control.
B. Related Party Transactions
During the periods from January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor), and years ended December 31, 2018 and 2017 (Predecessor), we were party to a management agreement with Scandic American Shipping Ltd, or “Scandic”, a wholly owned subsidiary of NAT, for the provision of administrative services. Scandic and NAT were related parties of ours, due to NAT’s ownership interest in the Company at the time, along with certain shared management personnel.
As a result of the Transaction, along with a subsequent reduction in NAT’s ownership interest in the Company, both NAT and Scandic are no longer deemed related parties. On May 1, 2019, the Company tendered notice to NAT that it would terminate the management agreement with NAT upon the expiration of 180 days from the date of such notice (the “Transition Period”). The management agreement with NAT was terminated upon the expiration of the Transition Period on October 28, 2019.
Acquisition of AHTS Vessels and Crew Boats
In April 2019, as part of the Transaction (which is more fully described in "Item 4. Information on the Company - A. History and Development of the Company - Key Developments"), we acquired 13 vessels, including associated debt, consisting of two AHTS vessels and 11 crew boats from SOHI, a related party that is owned and controlled by certain members of the Lolli-Ghetti family, of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members, in exchange for 8,126,219 common shares of the Company at approximately $2.78 per share for aggregate net consideration of $22.6 million.
Equity Lines of Credit
In March 2019, we entered into an Initial Equity Line of Credit, with SOI, a related party, and Mackenzie. SOI is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price. The issuances of common shares under the Initial Equity Line of Credit during the year ended December 31, 2019 are described in "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Equity Issuances and Equity Lines of Credit."
In December 2019, we reached an agreement to enter into a New Equity Line of Credit with SSH, a related party. The New Equity Line of Credit was executed in January 2020 and provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. In March 2020, we issued 5,668,317 common shares to SSH for $0.88 per share under the New Equity Line of Credit for aggregate net proceeds of $5.0 million.
Administrative Services Agreement
On June 19, 2019, we entered into the Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is owned and controlled by certain members of the Lolli-Ghetti family, of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members.
The Administrative Services Agreement is on substantially the same terms as the previous management agreement with NAT. Under the terms of the Administrative Services Agreement, we shall pay an annual fee of $10,000 per vessel (the "Fee") and will reimburse SSH for the reasonable direct or indirect expenses it incurs in providing the Company with the administrative services described above. The Fee was not payable to SSH as it pertains to the ten PSVs in the Company’s fleet during the Transition Period. The Administrative Services Agreement may be terminated by the Company upon 180 days' notice.
Commercial and Technical Management


51

Our AHTS vessels and crew boats are commercially managed by SCM and technically managed by SSM pursuant to a Master Agreement, which may be terminated by either party upon 24 months' notice, unless terminated earlier in accordance with its provisions. SSM and SCM are related parties of ours and are owned and controlled by certain members of the Lolli-Ghetti family of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control of the AHTS vessels or crew boats, including a sale of all or substantially all of the AHTS vessels or crew boats, in which case a payment equal to 24 months of management fees will apply.
Additional vessels in our fleet, or that we may acquire, may potentially also be managed under the Master Agreement, or on substantially similar terms, at some point in the future.
SCM’s services include securing employment, in the spot market and on time charters, for our AHTS vessels and crew boats. We pay SCM a management fee equal to 1.25% of gross revenues per charter fixture. SCM may subcontract these services to third parties pursuant to the Master Agreement.
SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. SSM may subcontract these services to third-parties pursuant to the Master Agreement. We pay SSM an annual fee of $156,000 per vessel for the AHTS vessels and an annual fee of $43,800 per vessel for the crew boats plus additional amounts for certain itemized services per vessel to provide technical management services for each of our AHTS vessels and crew boats.
The following table represents the related party transactions recorded in our statements of operations for the Predecessor and Successor periods:
 
 
Successor


Predecessor
In thousands of U.S. dollars
April 9 to December 31, 2019


January 1 to April 8, 2019
 
Year ended December 31, 2018
 
Year ended December 31, 2017
Vessel operating expense:




 

 


 Scorpio Ship Management SAM
$
576



—

 
—

 
—

Voyage expense:




 

 


Scorpio Commercial Management SAM
82



—

 
—

 
—

General and administrative expense:




 

 


 Scorpio Services Holding Limited
353



—

 
—

 
—


 Scorpio Commercial Management SAM
69



—

 
—

 
—


 Scorpio Tankers Inc. (1)
33



—

 
—

 
—


 Nordic American Tankers Limited
—



$
323

 
$
2,324

 
$
2,426

Total general and administrative expense:
$
455



$
323

 
$
2,324

 
$
2,426

(1)    Relates to certain shared office expenses that were reimbursed to this entity.
The following table reflects the balances due to related parties as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):


52

In thousands of U.S. dollars
December 31, 2019 (Successor)

December 31, 2018 (Predecessor)
Liabilities



Accounts payable, related party:




Scorpio Ship Management SAM
$
480


$
—


Scorpio Services Holding Limited
265


—


Scorpio Commercial Management SAM
165


—


Scorpio Offshore Holding Inc
6


—


Nordic American Tankers Limited
—


492

Total accounts payable, related party:
$
916


$
492


C. Interest of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and other Financial Information


53

See "Item 18. Financial Statements."
Legal Proceedings
To our knowledge, we are not currently a party to any lawsuit that, if adversely determined, would have a material adverse effect on our financial position, results of operations or liquidity. As such, we do not believe that pending legal proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity.
Dividend Policy
The declaration and payment of dividends is subject at all times to the discretion of our Board of Directors. The timing and amount of dividends, if any, depends on, among other things, our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our loan agreements, the provisions of Bermuda law affecting the payment of dividends and other factors.
No dividends were paid in the periods January 1, 2019 to April 8, 2019 (Predecessor) or April 9, 2019 to December 31, 2019 (Successor). Total dividends paid in the years ended December 31, 2018 and 2017 were approximately $1.9 million and $4.9 million, or $0.30 and $0.80 per share, respectively.
B. Significant Changes
There have been no significant changes since the date of the consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Please see "—C. Markets" below.
B. Plan of Distribution
Not applicable.
C. Markets
Our common shares have been traded on the NYSE since June 12, 2014. These common shares are currently traded under the ticker symbol "PSV", and prior to June 7, 2019, were traded under the ticker symbol "NAO."
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Objects and Powers
As stated in our Memorandum of Continuance, the objects of the Company are unrestricted and it has the capacity, rights, powers and privileges of a natural person. The Bye-laws do not impose any limitations on the ownership rights of our shareholders.
Authorized capitalization
Under our Memorandum of Continuance our authorized share capital consists of 350,000,000 common shares, par value $0.01 per share, of which 31,330,232 common shares are issued and outstanding and 31,604,684 are issued, as of the date of this annual report, and 50,000,000 preferred shares, par value $0.01 per share, of which none are issued and outstanding as of the date of this annual report. We have 274,452 treasury shares as of the date of this annual report.


54

Common shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders.  Subject to preferences that may be applicable to any outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for dividends.  Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, the holders of our common shares are entitled to receive pro rata our remaining assets available for distribution.  Holders of common shares do not have conversion, redemption or pre-emptive rights to subscribe to any of our securities.  The rights, preferences and privileges of holders of our common shares are subject to the rights of the holders of any preferred shares, which we may issue in the future.
Preferred shares
The Bye-laws authorize our Board of Directors to establish one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
•
the designation of the series;
•
the number of shares of the series;
•
the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and
•
the voting rights, if any, of the holders of the series.
Directors
Our directors are elected by a simple majority of the votes cast by shareholders entitled to vote at a general meeting of shareholders.  There is no provision for cumulative voting.
The Bye-laws require our Board of Directors to consist of at least one member. Our Board of Directors currently consists of seven members. In addition, there currently is one casual vacancy on the Board, created by Mr. Workman's resignation, which the Board has not yet filled. The Bye-laws may be amended by a simple majority of the votes cast by shareholders entitled to vote at a general meeting of shareholders.
Directors are elected annually on a staggered basis, and each shall serve for a three year term 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 Board of Directors has the authority to fix the amounts which shall be payable to the members of the Board of Directors for attendance at any meeting or for services rendered to us.
Shareholder meetings
Under the Bye-laws, annual general meetings of our shareholders will be held at a time and place selected by our Board of Directors and special general meetings of our shareholders may be called at any time by our Board of Directors, provided that at least five days' notice is given of a meeting (other than an adjourned meeting), as required by the Companies Act, unless shorter notice is agreed by all shareholders entitled to attend and vote at an annual general meeting or by those shareholders holding not less than 95% of the nominal value of the shares giving a right to attend and vote at a special general meeting. The meetings can be held in or outside of Bermuda. Our Board of Directors may fix any date as the record date for the purpose of identifying the persons entitled to receive notices of any general meeting. Any such record date may be on or at any time before or after any date on which such notice is dispatched.   One or more shareholders representing at least one-third of the total voting rights of our total issued and outstanding shares present in person or by proxy at a shareholder meeting shall constitute a quorum for the purposes of the meeting.
Dissenters' rights of appraisal and payment
Under the Companies Act, in the event of an amalgamation or a merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation or merger and is not satisfied that fair value has been offered for such shareholder's shares may, within one month of notice of the annual or special general meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares.


55

Shareholders' derivative actions
Under the Companies Act, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of common shares both at the time the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on liability and indemnification of officers and directors
The Companies Act authorizes companies to limit or eliminate the personal liability of directors and officers to companies and their shareholders for monetary damages for breaches of directors' fiduciary duties. The Bye-laws include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.
The limitation of liability and indemnification provisions in the Bye-laws may discourage shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty.  These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders.  In addition, shareholders' investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our directors and officers pursuant to these indemnification provisions.
To our knowledge, there is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-takeover effect of certain provisions of the Bye-laws
Several provisions of the Bye-laws, 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 us.  However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Blank check preferred shares
Under the terms of the Bye-laws, our Board of Directors has the authority, without any further vote or action by our shareholders, to issue up to 50,000,000 blank check preferred shares.  Our Board of Directors may issue preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our management and might harm the market price of our common shares.  We have no current plans to issue any preferred shares.
Election and removal of directors
The Bye-laws require parties other than members of the Board of Directors to give advance written notice of nominations for the election of directors. The Bye-laws also provide that our directors may be removed for cause upon the affirmative vote of not less than two-thirds of the outstanding common shares entitled to vote for those directors.  These provisions may discourage, delay or prevent the removal of incumbent directors.
Limited actions by shareholders
The Bye-laws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special general meeting of the Company or by the unanimous written resolution of our shareholders.  The Bye-laws provide that, save for the ability of shareholders holding not less than 10% of the paid-up capital of the Company carrying the right of voting at general meetings of the Company to requisition the Board of Directors to convene a special general meeting, as set out in the Companies Act, only our Board of Directors may call special general meetings of the Company and the business transacted at the special general meeting is limited to the purposes stated in the notice.  Accordingly, save in the circumstances described above, a shareholder will be prevented from calling a special meeting for shareholder consideration of a proposal unless scheduled by our Board of Directors and shareholder consideration of a proposal may be delayed until the next annual general meeting of the Company.
Advance notice requirements for shareholder proposals and director nominations


56

The Bye-laws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual general meeting of the shareholders must provide timely notice of their proposal in writing to the office of the corporate secretary of the Company.  Generally, to be timely, a shareholder's notice must be received at our registered office not less than 120 days nor more than 180 days prior to the one-year anniversary of the immediately preceding annual general meeting of shareholders. The Bye-laws also specify requirements as to the form and content of a shareholder's notice.  These provisions may impede shareholders' ability to bring matters before an annual general meeting of the Company or make nominations for directors at an annual general meeting of the shareholders.
Classified Board of Directors
As described above, the Bye-laws provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms beginning on the expiration of the initial term for each class.  Accordingly, approximately one-third of our Board of Directors will be elected each year.  This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us.  It could also delay shareholders who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two years.
Business combinations
Although the Companies Act does not contain specific provisions regarding "business combinations" between companies incorporated under the laws of Bermuda and "interested shareholders," we have included these provisions in our Bye-laws.  Specifically, our Bye-laws prohibit us from engaging in a "business combination" with certain persons for three years following the date the person becomes an interested shareholder. Interested shareholders generally include:
•
any person who is the beneficial owner of 15% or more of our outstanding voting shares; or
•
any person who is our affiliate or associate and who held 15% or more of our outstanding voting shares at any time within three years before the date on which the person's status as an interested shareholder is determined, and the affiliates and associates of such person.
Subject to certain exceptions, a business combination includes, among other things:
•
certain amalgamations, mergers or consolidations of us or any direct or indirect majority-owned subsidiary of ours;
•
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets or of any subsidiary of ours having an aggregate market value equal to 10% or more of either the aggregate market value of all of our assets, determined on a combined basis, or the aggregate value of all of our outstanding shares;
•
certain transactions that result in the issuance or transfer by us of any shares of ours to the interested shareholder;
•
any transaction involving us or any of our subsidiaries that has the effect of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, of ours or any such subsidiary that is owned directly or indirectly by the interested shareholder or any affiliate or associate of the interested shareholder; and
•
any receipt by the interested shareholder of the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through us.
These provisions of the Bye-laws do not apply to a business combination if:
•
before a person became an interested shareholder, our Board of Directors approved either the business combination or the transaction in which the shareholder became an interested shareholder;
•
upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our voting shares outstanding at the time the transaction commenced, other than certain excluded shares;
•
at or following the transaction in which the person became an interested shareholder, the business combination is approved by our Board of Directors and authorized at an annual or special meeting of shareholders, and not


57

by written consent, by the affirmative vote of the holders of at least two-thirds of our outstanding voting shares that are not owned by the interested shareholder;
•
the shareholder was or became an interested shareholder prior to the closing of our initial public offering;
•
a shareholder became an interested shareholder inadvertently and (i) as soon as practicable divested itself of ownership of sufficient shares so that the shareholder ceased to be an interested shareholder; and (ii) would not, at any time within the three-year period immediately prior to a business combination between us and such shareholder, have been an interested shareholder but for the inadvertent acquisition of ownership; or
•
the business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required under our amended and restated Bye-laws which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an interested shareholder during the previous three years or who became an interested shareholder with the approval of the Board of Directors; and (iii) is approved or not opposed by a majority of the members of the Board of Directors then in office (but not less than one) who were directors prior to any person becoming an interested shareholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors.  The proposed transactions referred to in the preceding sentence are limited to:
◦
an amalgamation, merger or consolidation involving us (except for an amalgamation or merger in respect of which, pursuant to the Companies Act, no vote of our shareholders is required);
◦
a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of our assets or those of any direct or indirect majority-owned subsidiary of ours (other than to any direct or indirect wholly owned subsidiary or to us) having an aggregate market value equal to 50% or more of either the aggregate market value of all of our assets determined on a consolidated basis or the aggregate market value of all the outstanding shares; or
◦
a proposed tender or exchange offer for 50% or more of our outstanding voting shares.
Transfer Agent
The registrar and transfer agent for our common shares is Computershare Trust Company, N.A.
C. Material Contracts
We refer you to "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Our Borrowing Activities" and "Item 4. Information on the Company - B. Business Overview - Company Management” for a discussion of the contracts that we consider to be both material and outside the ordinary course of business during the two-year period immediately preceding the date of this annual report. Certain of these material agreements that are to be performed in whole or in part at or after the date of this annual report are attached as exhibits to this annual report.
Other than as set forth above, we have not entered into any material contracts outside the ordinary course of business during the past two years.
D. Exchange Controls
The Company has been designated as a non-resident of Bermuda for exchange control purposes by the Bermuda Monetary Authority.
The Company's common shares are currently listed on an appointed stock exchange. For so long as the Company's shares are listed on an appointed stock exchange the transfer of shares between persons regarded as resident outside Bermuda for exchange control purposes and the issuance of common shares to or by such persons may be effected without specific consent under the Bermuda Exchange Control Act of 1972 and regulations made thereunder. Issues and transfers of common shares between any person regarded as resident in Bermuda and any person regarded as non-resident for exchange control purposes require specific prior approval under the Bermuda Exchange Control Act of 1972 unless such common shares are listed on an appointed stock exchange.


58

Subject to the foregoing, there are no limitations on the rights of owners of shares in the Company to hold or vote their shares. Because the Company has been designated as non-resident for Bermuda exchange control purposes, there are no restrictions on its ability to transfer funds in and out of Bermuda or to pay dividends to United States residents who are holders of common shares, other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates may be issued only in the names of those with legal capacity. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, the Company is not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust.
The Company will take no notice of any trust applicable to any of its shares or other securities whether or not it had notice of such trust.
As an "exempted company," the Company is exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted company, the Company may not participate in certain business transactions including: (i) the acquisition or holding of land in Bermuda except for (a) land required for its business by way of lease for a term not exceeding 50 years, and (b) land by way of lease for a term not exceeding 21 years in order to provide accommodation or recreational facilities for its officers and employees, or otherwise, with the express authorization of the Minister of Finance of Bermuda; (ii) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Finance of Bermuda; (iii) the acquisition of securities created or issued by, or any interest in, any local company or business, other than certain types of Bermuda government securities or securities of another "exempted company, exempted partnership or other corporation or partnership resident in Bermuda but incorporated abroad"; or (iv) the carrying on of business of any kind in Bermuda, except in so far as may be necessary for the carrying on of its business outside Bermuda or under a license granted by the Minister of Finance of Bermuda.
The Bermuda government actively encourages foreign investment in "exempted" entities like the Company that are based in Bermuda but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, the Company is subject neither to taxes on its income or dividends nor to any exchange controls in Bermuda other than outlined above. In addition, there is no capital gains tax in Bermuda, and profits can be accumulated by the Company, as required, without limitation.  For more information, please see "Item 10. Additional Information—E. Taxation—Bermuda Tax Considerations."
E. Taxation
In the opinion of MJM Limited, our Bermuda counsel, the following are the material Bermuda tax consequences of the ownership of common shares.
Under current Bermuda law, there are no taxes on profits, income or dividends nor is there any capital gains tax.  Furthermore, the Company has received from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act of 1966, as amended, an undertaking that, in the event that Bermuda enacts any legislation imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax shall not be applicable to the Company or to any of its operations, or the common shares, debentures or other obligations of the Company, until March 31, 2035.  This undertaking does not, however, prevent the imposition of any such tax or duty on such persons as are ordinarily resident in Bermuda and holding such shares, debentures or obligations of the Company or of property taxes on Company-owned real property or leasehold interests in Bermuda.
The United States does not have a comprehensive income tax treaty with Bermuda. However, Bermuda has legislation in place (U.S.A. – Bermuda Tax Convention Act 1986) which authorizes the enforcement of certain obligations of Bermuda pursuant to the Convention Between The Government Of The United Kingdom of Great Britain And Northern Ireland (On Behalf Of The Government Of Bermuda) And The Government Of The United States Of America Relating To The Taxation Of Insurance Enterprises And Mutual Assistance In Tax Matters entered into on 11 July 1986 (the "Convention"). Article 5 of the Convention states that the U.S.A. and Bermuda "shall provide assistance as appropriate in carrying out the laws of the respective covered jurisdictions (Bermuda and U.S.A.) relating to the prevention of tax fraud and the evasion of taxes. In addition, the competent authorities shall, through consultations, develop appropriate


59

conditions, methods, and techniques for providing, and shall thereafter provide, assistance as appropriate in carrying out the fiscal laws of the respective covered jurisdictions other than those relating to tax fraud and the evasion of taxes.
U.S. Federal Income Tax Considerations
In the opinion of Seward & Kissel, LLP, our U.S. counsel, the following are the material U.S. federal income tax consequences of the ownership of common shares to U.S. Holders and Non-U.S. Holders, each as defined below.  The following discussion of U.S. federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the U.S. Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect.  The discussion below is based, in part, on the description of our business as described in this annual report and assumes that we conduct our business as described herein.  This discussion applies only to investors that hold our commons shares as a capital asset and not to all categories of investors to which special rules may apply.  All investors are urged to consult their own tax advisors with respect to the ownership of our common shares.
U.S. Federal Income Taxation of the Company
We are not currently subject to any U.S. federal income tax on our income.  However, in the future we may directly or through a subsidiary conduct activity which would give rise to U.S.-source income.  Depending on the nature of those activities, we may be subject to U.S. federal income tax on all or a portion of the income from such activities.
Gain on Sale of Vessels
We will not be subject to U.S. federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles.  In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States.  It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a holder that for U.S. federal income tax purposes is a beneficial owner of common shares and is an individual U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by the Company with respect to its common shares to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of the Company's current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of the Company's earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. Holder's tax basis in his common shares on a dollar-for-dollar basis and thereafter as capital gain. Because the Company is not a U.S. corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends-received deduction with respect to any distributions they receive from the Company. Dividends paid with respect to our common shares will generally be treated as foreign source dividend income and will generally constitute "passive category income" for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
Dividends paid to a U.S. Holder which is an individual, trust, or estate, referred to herein as a "U.S. Non-Corporate Holder," will generally be treated as "qualified dividend income" that is taxable to U.S. Holders at preferential U.S. federal income tax rates, provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the NYSE on which the common shares are listed); (2) the Company is not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which the Company does not believe it is, has been or will be); (3) the U.S. Non-Corporate Holder has


60

owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend; and (4) the U.S. Non-Corporate Holder is not under an obligation (whether pursuant to a short sale or otherwise) to make payments with respect to positions in substantially similar or related property.  There is no assurance that any dividends paid on our common shares will be eligible for these preferential rates in the hands of a U.S. Non-Corporate Holder. Any dividends paid by the Company which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Non-Corporate Holder.
Special rules may apply to any "extraordinary dividend" - generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder's adjusted tax basis (or fair market value in certain circumstances) or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder's adjusted tax basis (or fair market value upon the shareholder's election) in a common share - paid by us. If we pay an "extraordinary dividend" on our common shares that is treated as "qualified dividend income" to a non-corporate U.S. Holder, then any loss derived by such non-corporate U.S. Holders from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.
Sale, Exchange or Other Disposition of Common Shares
Assuming we do not constitute a passive foreign investment company for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such shares.  Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period is greater than one year at the time of the sale, exchange or other disposition.  Such capital gain or loss will generally be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes.  Long-term capital gains of certain non-corporate U.S. Holders are currently eligible for reduced rates of taxation.  A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
PFIC Status and Significant Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes. In general, the Company will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which such holder held the Company's common shares, either:
•
at least 75% of the Company's gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business), or
•
at least 50% of the average value of the assets held by the Company during such taxable year produce, or are held for the production of, such passive income.
For purposes of determining whether the Company is a PFIC, the Company will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its subsidiary corporations in which it owns at least 25% of the value of the subsidiary's stock. Income earned, or deemed earned, by the Company in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute passive income unless the Company is treated under specific rules as deriving its rental income in the active conduct of a trade or business.
Based on the Company's current operations and future projections, the Company does not believe that it is, nor does it expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, the Company's belief is based principally on the position that, for purposes of determining whether the Company is a PFIC, the gross income the Company derives or is deemed to derive from the time chartering and spot chartering activities of its wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, the Company believes that such income does not constitute passive income, and the assets that the Company or its wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, do not constitute assets that produce or are held for the production of passive income for purposes of determining whether the Company is a PFIC.  The Company believes there is substantial legal authority supporting its position consisting of case law and Internal Revenue Service, or the "IRS", pronouncements concerning the characterization of income derived from time charters and spot charters as services income for other tax purposes. However, there is also authority which characterizes time charter income as rental income rather than services income


61

for other tax purposes.  It should be noted that in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with the Company's position. In addition, although the Company intends to conduct its affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, there can be no assurance that the nature of its operations will not change in the future.
As discussed more fully below, if the Company were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different U.S. federal income taxation rules depending on whether the U.S. Holder makes an election to treat the Company as a "Qualified Electing Fund," which election is referred to as a "QEF Election." As discussed below, 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 the common stock, which election is referred to as a "Mark-to-Market Election". If the Company were to be treated as a PFIC, a U.S. Holder would be required to file IRS Form 8621 to report certain information regarding the Company.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF Election, which U.S. Holder is referred to as an "Electing Holder", the Electing Holder must report each year for U.S. federal income tax purposes his pro rata share of the Company's ordinary earnings and net capital gains, if any, for the Company's taxable year during which it is a PFIC that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received by the Electing Holder from the Company. The Electing Holder's adjusted tax basis in the common stock will be increased to reflect amounts included in the Electing Holder's income.  Distributions received by an Electing Holder that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that the Company incurs with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of the common stock. A U.S. Holder would make a timely QEF Election for our common shares by filing IRS Form 8621 with such holder's U.S. federal income tax return for the first year in which such holder held such shares when the Company was a PFIC. If the Company determines that it is a PFIC for any taxable year, it will provide each U.S. Holder with all necessary information in order to make the QEF Election described above.
Taxation of U.S. Holders Making a Mark-to-Market Election
Alternatively, if the Company were to be treated as a PFIC for any taxable year and, as anticipated, the common shares are treated as "marketable stock," a U.S. Holder would be allowed to make a Mark-to-Market Election with respect to the Company's common shares. 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 common shares at the end of the taxable year over such holder's adjusted tax basis in the common stock. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the common shares over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the Mark-to-Market Election. A U.S. Holder's tax basis in his common shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of the common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Holder.
Taxation of U.S. Holders Not Making a Timely QEF Election or Mark-to-Market Election
Finally, if the Company 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, whom is referred to as a "Non-Electing Holder", would be subject to special U.S. federal income tax rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three (3) preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of the common stock. 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;


62

•
the amount allocated to the current taxable year and any taxable years before the Company became a PFIC 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 taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
If a Non-Electing Holder who is an individual dies while owning the common shares, such holder's successor generally would not receive a step-up in tax basis with respect to such shares.
U.S. Federal Income Taxation of "Non-U.S. Holders"
As used herein, the term "Non-U.S. Holder" means a holder that, for U.S. federal income tax purposes, is a beneficial owner of common shares (other than a partnership) that is not a U.S. Holder.
If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership.  If you are a partner in a partnership holding our common shares, you are encouraged to consult your tax advisor.
Dividends on Common Shares
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to our common shares, unless that income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States.  In general, if the Non-U.S. Holder is entitled to the benefits of an applicable U.S. income tax treaty with respect to those dividends, that income is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Shares
A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:
(1)
the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States; in general, in the case of a Non-U.S. Holder entitled to the benefits of an applicable U.S. income tax treaty with respect to that gain, that gain is taxable only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
(2)
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
Income or Gains Effectively Connected with a U.S. Trade or Business
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, dividends on the common shares and gains from the sale, exchange or other disposition of the shares, that is effectively connected with the conduct of that trade or business (and, if required by an applicable U.S. income tax treaty, is attributable to a U.S. permanent establishment), will generally be subject to regular U.S. federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders.  In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively connected income, which are subject to certain adjustments, may be subject to an additional U.S. federal branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, and the payment of gross proceeds on a sale or other disposition of our common shares, made within the United States to a non-corporate U.S. Holder will be subject to information reporting.  Such payments or distributions may also be subject to backup withholding if the non-corporate U.S. Holder:
(1)
fails to provide an accurate taxpayer identification number;
(2)
is notified by the IRS that it has failed to report all interest or dividends required to be shown on its U.S. federal income tax returns; or


63

(3)
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 with respect to dividend payments or other taxable distributions on our common shares by certifying their status on an applicable IRS Form W-8. If a Non-U.S. Holder sells our common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless the Non-U.S. Holder certifies that it is a non-U.S. person, under penalties of perjury, or it otherwise establishes an exemption. If a Non-U.S. Holder sells our common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if a Non-U.S. Holder sells our common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that the Non-U.S. Holder is not a U.S. person and certain other conditions are met, or the Non-U.S. Holder otherwise establishes an exemption.
Backup withholding is not an additional tax.  Rather, a refund may generally be obtained of any amounts withheld under backup withholding rules that exceed the taxpayer's U.S. federal income tax liability by filing a timely refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in applicable Treasury Regulations, Non-U.S. Holders and certain U.S. entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations).  Specified foreign financial assets would include, among other assets, our common shares, unless the common shares are held in an account maintained with a U.S. financial institution.  Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect.  Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury Regulations, a Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations in respect of our common shares.
Other Tax Considerations
In addition to the tax consequences discussed above, we may be subject to tax in one or more other jurisdictions where we conduct activities.  The amount of any such tax imposed upon our operations may be material.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In accordance with these requirements we file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits are available from http://www.sec.gov. Our filings are also available on our website at www.hermitage-offshore.com. This web address is provided as an inactive textual reference only. Information contained on our website does not constitute part of this annual report.


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Shareholders may also request a copy of our filings at no cost, by writing or telephoning us at the following address:
Hermitage Offshore Services Ltd.
LOM Building
27 Reid Street
Hamilton HM 11
Bermuda
Tel:  +1 441 298 3535
Fax:  +1 441 298 3451
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks from changes in interest rates related to the variable rate of the Company's borrowings under our debt agreements, and to foreign currency risks related to the exchange rate between the USD and NOK and GBP, in respect of revenues generated and costs incurred in NOK and GBP.
Amounts borrowed under the New Term Loan Facility and the DVB Credit Facility bear interest at a rate equal to LIBOR plus a margin.  Increasing interest rates could affect our future profitability. In certain situations, the Company may enter into financial instruments to reduce the risk associated with fluctuations in interest rates.
A 100 basis points increase in LIBOR would have resulted in an increase of approximately $0.3 million in our interest expense for the period January 1, 2019 to April 8, 2019 (Predecessor) and approximately $1.1 million in our interest expense for the period April 9, 2019 to December 31, 2019 (Successor).
A 10% increase in the exchange rate between USD and NOK would have resulted in a decrease of $0.2 million in our operating result for the period January 1, 2019 to April 8, 2019 (Predecessor) and a decrease of $0.8 million for the period April 1, 2019 to December 31, 2019 (Successor).
A 10% increase in the exchange rate between USD and GBP would have resulted in an increase of $0.3 million in our operating result for the period January 1 to April 8, 2019 (Predecessor) and an increase of $2.3 million for the period April 9, 2019 to December 31, 2019 (Successor).
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.


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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures.
We carried out an evaluation under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e) ) as of December 31, 2019. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019 to provide reasonable assurance that (1) information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
B. Management's annual report on internal control over financial reporting.
In accordance with Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the management of the Company 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 the 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, 2019 based on the provisions of the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 2013. Based on our assessment, management determined that the Company’s internal controls over financial reporting was effective as of December 31, 2019 based on the criteria in the Internal Control-Integrated Framework issued by COSO (2013).
C. Attestation report of the registered public accounting firm.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  As a non-accelerated filer, we are exempt from having our independent auditors assess our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act.


66

D. Changes in internal control over financial reporting.
Rules 13a-15(f) and 15d-15(f) under the Exchange Act require that we disclose whether any changes in internal control over financial reporting have occurred during the year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As described in Item 7. Major Shareholders and Related Party Transactions. B. Related Party Transactions, on June 19, 2019, we entered into an Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. The Administrative Services Agreement replaced the previous management agreement with Scandic and NAT, which expired in October 2019 (after a 180-day transition period).
As part of the transition from the previous agreement with Scandic and NAT to the Administrative Services Agreement, our accounting systems and related functions were migrated to SSH's platforms. This transition was completed in October 2019 and included the migration of the historical information from the previous platform with Scandic and NAT to the new platform with SSH. The Company's financial results for the year ended December 31, 2019 were prepared on the new platform with SSH.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Ms. Marianne Økland, who serves as Chair of the Audit Committee, qualifies as an "audit committee financial expert" under SEC rules. Ms. Økland is "independent" as determined in accordance with the rules of the NYSE and the SEC.
ITEM 16B. CODE OF ETHICS
The Company has adopted a code of ethics (the "Code of Conduct and Ethics"), that applies to all of the Company's officers, directors, employees and agents, which complies with applicable guidelines issued by the SEC. Our Code of Conduct and Ethics is available on our website (www.hermitage-offshore.com). Additionally, any person, upon request, may ask for a hard copy or an electronic file of our Code of Conduct and Ethics.  If we make any substantive amendment to our Code of Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of our Code of Conduct and Ethics, we will disclose the nature of that amendment or waiver on our website.  During the year ended December 31, 2019, no such amendment was made or waiver granted.
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES
A. Audit Fees
Our principle accountant for the fiscal years ended December 31, 2019 and 2018 was KPMG AS and the audit fees for those periods were $696,783 and $488,273, respectively.
B. Audit-Related Fees
During the fiscal years ended December 31, 2019 and 2018 our principle accountant, KPMG AS, provided financial due diligence services in connection with a contemplated transaction for total fees of $105,370 and $53,696, respectively.
C. Tax Fees
Not applicable.
D. All Other Fees
Not applicable.
E. Audit Committee's Pre-Approval Policies and Procedures
Our Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditor and associated fees prior to the engagement of the independent auditor with respect to such services.
F. Not applicable


67

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
None.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
Pursuant to an exception for foreign private issuers, we, as a Bermuda company, are not required to comply with the corporate governance practices followed by U.S. companies under the NYSE listing standards. We believe that our established practices in the area of corporate governance are in line with the spirit of the NYSE standards and provide adequate protection to our shareholders. In this respect, we have voluntarily adopted NYSE required practices, such as (i) having a majority of independent directors, (ii) establishing audit, compensation and nominating committees, and (iii) adopting the Code of Conduct and Ethics.
There are two significant differences between our corporate governance practices and the NYSE standards applicable to listed U.S. companies:
Executive Sessions. The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also requires that all independent directors meet in an executive session at least once a year.  While Bermuda law and our Bye-laws do not require executive sessions, we do expect our independent directors to meet in executive session at least annually. During 2019 and through the date of this annual report, our non-management directors met in executive session three times.


68

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 Bermuda law and we have not adopted such guidelines.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
See "Item 18. Financial Statements."
ITEM 18. FINANCIAL STATEMENTS
The financial information required by this Item is set forth beginning on page F-1 and is filed as part of this annual report.


69

ITEM 19. EXHIBITS
1.1
1.2
1.3
2.1
2.2
2.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
8.1
12.1
12.2
13.1
13.2
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Schema Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Schema Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Schema Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Schema Presentation Linkbase Document
(1)
Incorporated by reference to the Company's Report of Foreign Private Issuer on Form 6-K filed with the SEC on September 28, 2016.
(2)
Incorporated by reference to the Company's Report of Foreign Private Issuer on Form 6-K filed with the SEC on November 14, 2016.
(3)
Incorporated by reference to the Company's Report of Foreign Private Issuer on Form 6-K filed with the SEC on January 29, 2019.
(4)
Incorporated by reference to the Company's Report of Foreign Private Issuer on Form 6-K filed with the SEC on December 21, 2018.
(5)
Incorporated by reference to the Company's Report of Foreign Private Issuer on Form 6-K filed with the SEC on February 15, 2019.
(6)
Filed as an Exhibit to the Company's Annual Report on Form 20-F on May 15, 2019, and incorporated by reference herein.



70

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
 
HERMITAGE OFFSHORE SERVICES LTD.
April 30, 2020
 
 
 
 
/s/ Emanuele Lauro
 
 
Name: Emanuele Lauro
 
 
Title: Chairman and Chief Executive Officer


71

HERMITAGE OFFSHORE SERVICES LTD.
TABLE OF CONTENTS
 

Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


F- 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors
Hermitage Offshore Services Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Hermitage Offshore Services Ltd. and subsidiaries (the Company) as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor), the related consolidated statements of operations and comprehensive (loss) income, shareholders' equity, and cash flows for the period from April 9, 2019 to December 31, 2019 (Successor) and the period from January 1, 2019 to April 8, 2019 (Predecessor) and for each of the years in the two‑year period ended December 31, 2018 (Predecessor), 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, 2019 (Successor) and December 31, 2018 (Predecessor), and the results of its operations and its cash flows for the period from April 9, 2019 to December 31, 2019 (Successor), the period from January 1, 2019 to April 8, 2019 (Predecessor) and for each of the years in the two‑year period ended December 31, 2018 (Predecessor), in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, economic conditions have significantly reduced demand for the Company's services compared to 2019, and created uncertainty about the Company's ability to draw upon its New Equity Line of Credit and remain in compliance with financial covenants under its credit facilities. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 14. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Reverse Asset Acquisition
As discussed in Note 1 to the consolidated financial statements, effective April 9, 2019, the Company was acquired in a reverse asset acquisition which changed the basis of presentation for the periods following the transaction.
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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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.


F- 2


/s/ KPMG AS

We have served as the Company’s auditor since 2014.
Oslo, Norway
April 30, 2020


F- 3


HERMITAGE OFFSHORE SERVICES LTD
CONSOLIDATED BALANCE SHEETS

 
 
As of December 31,
In thousands of U.S. dollars
Notes
 
2019 (Successor)

2018 (Predecessor)
ASSETS
 
 



Current assets
 
 



Cash and cash equivalents
 
12,681


8,446

Accounts receivable
 
 
8,381


2,602

Prepaid expenses
 
 
427


755

Fuel, lube oil, and consumables
 
 
1,808


1,181

Other current assets
 
 
406


1,176

Total current assets
 
 
23,703


14,160


 
 





Non-current assets
 
 





Vessels, net
 
178,206


176,914

Total non-current assets
 
 
178,206


176,914

Total assets
 
 
201,909


191,074


 
 





LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 





Current liabilities
 
 





Accounts payable
 
 
4,192


843

Accounts payable, related party
 
 
916


492

Other current liabilities
 
2,768


3,147

Current portion of long-term debt
 
207


—

Total current liabilities
 
 
8,083


4,482


 
 





Long-term debt
 
141,698


132,457

Other non-current liabilities
 
 
—


71

Total non-current liabilities
 
 
141,698


132,528


 
 





Shareholders’ equity
 
 





Preferred shares, par value $0.01 per share, 50,000,000 shares authorized, none issued at December 31, 2019 and December 31, 2018.
 
—


—

Common shares, par value $0.01 per share, 350,000,000 shares authorized, 25,936,367 shares issued, 25,661,915 shares outstanding, and 274,452 treasury shares as of December 31, 2019; and Common shares, par value $0.10 per share, 35,000,000 shares authorized, 7,648,611 shares issued, 7,374,159 shares outstanding, and 274,452 treasury shares at December 31, 2018
 
257


764

Additional paid-in capital
 
66,741


322,914

Accumulated deficit
 
(14,870
)

(269,614
)
Total shareholders’ equity
 
 
52,128


54,064

Total liabilities and shareholders’ equity
 
 
201,909


191,074

The accompanying notes are an integral part of these consolidated financial statements.


F- 4

HERMITAGE OFFSHORE SERVICES LTD
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
 
 
 
Successor
 
 
Predecessor
In thousands of U.S. dollars except per share and share data
Notes
 
April 9 - December 31, 2019
 
 
January 1 - April 8, 2019

Year ended December 31, 2018

Year ended December 31, 2017
Charter revenue
 
36,555

 
 
5,258

 
20,654

 
17,895

Vessel operating expenses
 
 
(27,230
)
 
 
(6,612
)

(25,173
)

(20,454
)
Voyage expenses
 
 
(1,124
)
 
 
(395
)
 
(2,215
)
 
(1,815
)
General and administrative costs
 
 
(4,534
)
 
 
(1,207
)

(4,757
)

(4,222
)
Depreciation
 
 
(8,452
)
 
 
(2,205
)

(17,298
)

(17,472
)
Impairment loss on vessels
 
 
—

 
 
—


(160,080
)

—

Net operating loss
 
 
(4,785
)
 
 
(5,161
)

(188,869
)

(26,068
)
Interest income
 
 
39

 
 
21


207


298

Interest expense
 
(6,571
)
 
 
(2,555
)

(8,031
)

(4,880
)
Other financial expenses, net
 
 
(136
)
 
 
32


(601
)

327

Net finance expenses
 
 
(6,668
)
 
 
(2,502
)

(8,425
)

(4,255
)
Loss before income taxes
 
 
(11,453
)
 
 
(7,663
)

(197,294
)

(30,323
)
Income tax benefit
 
 
—

 
 
—


—


997

Net loss and comprehensive loss
 
 
(11,453
)
 
 
(7,663
)

(197,294
)

(29,326
)

 
 


 
 
 






Basic and diluted loss per share
 
(0.56
)
 
 
(1.04
)

(31.50
)

(5.33
)

 
 


 
 









 
 


 
 








Basic and diluted average number of common shares outstanding
 
20,481,174

 
 
7,374,069


6,263,094


5,499,561

The accompanying notes are an integral part of these consolidated financial statements.


F- 5

HERMITAGE OFFSHORE SERVICES LTD
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Predecessor
In thousands of U.S. dollars except share data
Number
of shares

Common stock

Additional paid-In capital

Accumulated deficit

Total shareholders’ equity
Balance at January 1, 2017
2,068,684


234


276,957


(42,995
)

234,196

Common shares issued, net of $0.9 million issuance cost
4,130,000


413


47,923


—


48,336

Dividends distributed
—


—


(4,933
)

—


(4,933
)
Net loss
—


—


—


(29,326
)

(29,326
)
Balance at December 31, 2017
6,198,684


647


319,947


(72,321
)

248,273

Common shares issued, private placement, net of $0.1 million of issuance costs
1,175,475


117


4,827


—


4,945

Dividends distributed
—


—


(1,860
)

—


(1,860
)
Net loss
—


—


—


(197,294
)

(197,294
)
Balance at December 31, 2018
7,374,159


764


322,914


(269,614
)

54,064

Reverse stock split - fractional share adjustment
(170
)

—


—


—


—

Net loss for the period
—


—


—


(7,663
)

(7,663
)
Ending balance at April 8, 2019
7,373,989


764


322,914


(277,277
)

46,401


Successor
In thousands of U.S. dollars except share data
Number
of shares

Common stock

Additional paid-In capital

Accumulated deficit

Total shareholders’ equity
Beginning balance as of April 9, 2019*
—


—


23,190


(3,417
)

19,773

Impact of reverse acquisition**
15,500,208


1,550


22,258


—


23,808

Issuance of common shares under equity line of credit
10,161,707


1,016


18,984


—


20,000

Change in par value
—


(2,310
)

2,310


—


—

Net loss for the period
—


—


—


(11,453
)

(11,453
)
Balance as of December 31, 2019
25,661,915


256


66,742


(14,870
)

52,128

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

*
Represents the beginning balance in equity of the SOHI Assets (as defined in Note 1), the accounting acquirer in the reverse acquisition that occurred in April 2019.
**
Includes reclassifications to align to the share capital of the Company (the legal acquirer).
The accompanying notes are an integral part of these consolidated financial statements.


F- 6

HERMITAGE OFFSHORE SERVICES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS

Successor
 
 
Predecessor
In thousands of U.S. dollars
April 9 - December 31, 2019
 
 
January 1 - April 8, 2019

Year ended December 31, 2018

Year ended December 31, 2017
Cash flows from operating activities

 
 





Net loss
(11,453
)
 
 
(7,663
)

(197,294
)

(29,326
)
Reconciliation of net loss to net cash used in operating activities
 
 
 








Depreciation
8,452

 
 
2,205


17,298


17,480

Amortization of deferred financing costs
—

 
 
90


359


359

Overhaul of engine costs and drydock payments
(5,389
)
 
 
(772
)

(3,610
)

(341
)
Amortization of acquired time charters
(1,226
)
 
 
 
 
 
 
 
Impairment loss on vessels
—

 
 
—


160,080


—

Foreign currency loss
—

 
 
—


198


(12
)
Changes in operating assets and liabilities
 
 
 








Accounts receivable
(3,748
)
 
 
(609
)

(506
)

(606
)
Fuel, lube oil, and consumables
687

 
 
200


329


(270
)
Prepaid and other current assets
1,496

 
 
(365
)

(326
)

262

Accounts payable, other current liabilities
276

 
 
308


1,902


(1,725
)
Accounts payable, related party
607

 
 
(183
)

(237
)

147

Net cash used in operating activities
(10,298
)
 
 
(6,789
)

(21,807
)

(14,032
)
Cash flows from investing activities
 
 
 








Investment in vessels
—

 
 
—


(45
)

(830
)
Cash acquired from Predecessor through reverse acquisition
1,657

 
 
—


—


—

Net cash provided by/ (used in) investing activities
1,657

 
 
—


(45
)

(830
)
Cash flows from financing activities
 
 
 








Proceeds from issuance of common stock
—

 
 
—


4,945


48,336

Repayment of credit facility
—

 
 
—


(4,095
)

—

Issuance of common stock - Equity Line of Credit
20,000

 
 
—


—


—

Cash dividends paid to shareholders
—

 
 
—


(1,860
)

(4,933
)
Net cash provided / (used in) by financing activities
20,000

 
 
—


(1,010
)

43,403

Net increase/(decrease) in cash and cash equivalents
11,359

 
 
(6,789
)

(22,862
)

28,541


 
 
 








Cash and cash equivalents at beginning of period
1,322

 
 
8,446


31,506


2,953

Effect of exchange rate changes on cash and cash equivalents
—

 
 
—


(198
)

12

Cash and cash equivalents at the end of period
12,681

 
 
1,657


8,446


31,506


 
 
 








Supplemental cash flow information












Cash paid for interest, net of amounts capitalized
6,241

 
 
2,289


7,090


4,417

The accompanying notes are an integral part of these consolidated financial statements.


F- 7

HERMITAGE OFFSHORE SERVICES LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.
NATURE OF BUSINESS
Hermitage Offshore Services Ltd. and its subsidiaries, formerly "Nordic American Offshore Ltd." (together "we", "our", "us", or the "Company"), is an offshore support vessel ("OSV") company organized under the laws of Bermuda that owns 23 vessels consisting of ten platform supply vessels ("PSVs"), two anchor handling tug supply vessels (the "AHTS vessels"), and 11 crew boats. The Company’s vessels primarily operate in the North Sea and in West Africa.
On December 12, 2018, the Company entered into a share purchase agreement with Scorpio Offshore Investments Inc. ("SOI"), a related party, pursuant to which SOI invested $5.0 million in a private placement of the Company’s common shares at a price of $4.20 per share (the "Private Placement").  As part of the Private Placement, Mr. Emanuele Lauro was appointed Chairman and Chief Executive Officer of the Company. In addition, Mr. Robert Bugbee was appointed to the Company’s Board of Directors and to the office of President, Mr. Cameron Mackey was appointed Chief Operating Officer, and Mr. Filippo Lauro was appointed Vice President. Mr. Mackey was subsequently also appointed to the Company's Board of Directors. Concurrent with the Private Placement, the Company's former Chairman, Mr. Herbjørn Hansson, resigned from all of his positions at the Company.
On June 4, 2019, the Company changed its name to "Hermitage Offshore Services Ltd." and began trading on the New York Stock Exchange (the "NYSE") under its new name and changed its ticker symbol from "NAO" to "PSV" at the start of trading on June 7, 2019. We maintain our principal executive offices at the LOM Building, 27 Reid Street, Hamilton HM 11 Bermuda.
Reverse Asset Acquisition and Change in Basis of Accounting
In April 2019, the Company acquired 13 vessels consisting of two AHTS vessels and 11 crew boats from Scorpio Offshore Holding Inc. ("SOHI"), a related party, in exchange for 8,126,219 common shares of the Company. As part of this acquisition, the Company assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility (defined below in Note 7) relating to the two AHTS vessels. The assets acquired in this transaction are collectively referred to as the "SOHI Assets", and the transactions to acquire the SOHI Assets and the assumption of the related indebtedness, are referred to as the "Transaction".
As a result of the Transaction, SOHI and its affiliated entities, which are part of the Scorpio group of companies (collectively referred to as "Scorpio"), obtained a controlling voting interest in the Company.  Accordingly, under the relevant accounting guidance, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition.  Moreover, the Company determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination. 
Under the applicable accounting guidance, a reverse asset acquisition results in a change in the basis of accounting on the Transaction date. As a result, the financial information presented following the Transaction is not directly comparable to historical periods.
Since it has been determined that the Transaction constitutes a reverse acquisition of assets, the historical financial information prior to the date of the Transaction presented herein (and in future reports and filings) will continue to reflect the results and position of the Company prior to the Transaction rather than that of the SOHI Assets as would be required in a business combination. The Company believes that the historical financial information of the Company prior to the Transaction is more relevant to investors than the historical financial information of the SOHI Assets due to the relative carrying value of the Company's ten PSVs compared to the SOHI Assets and that the value and operating results of the PSVs are expected to be the ultimate driver of the Company's business in future periods. The results from the operations and cash flows of the SOHI Assets are included only in the Company's financial information from the Transaction date.
Accordingly, the Company's pre-Transaction financial information is presented for the period January 1, 2019 to April 8, 2019 (Predecessor), and for each of the years ended December 31, 2018 and 2017 (Predecessor). The


F- 8

Company’s post-Transaction financial information is presented for the period from April 9, 2019 to December 31, 2019 (Successor).
This Transaction is further described in Note 3.
Reverse Stock Split
On January 28, 2019, the Company effected a one-for-ten reverse stock split. All share and per share information for all periods has been retroactively adjusted to reflect the reverse stock split. The par value was adjusted from $0.01 per share to $0.10 per share as a result of the reverse stock split. The par value was subsequently reduced to $0.01 per share with effect from June 5, 2019 through a reduction in the issued and paid-up share capital of the Company, as described in Note 8.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The consolidated financial statements incorporate the financial statements of Hermitage Offshore Services Ltd. and its subsidiaries. The consolidated financial statements have been presented in United States dollars, or USD or "$", which is the functional currency of Hermitage Offshore Services Ltd. and all its subsidiaries.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
Entities in which the Company has a controlling financial interest are consolidated. Subsidiaries are consolidated from the date on which control is obtained. The subsidiaries' accounting policies are in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated upon consolidation.
Use of Estimates
Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and costs during the reporting period. Actual results could differ from those estimates. The effects of changes in accounting estimates are accounted for in the same period in which the estimates are changed.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, nor to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. This topic is further discussed in Note 14.


Revenue Recognition
Revenues are generated from time charter contracts for which we provide a vessel and crew on a rate per day basis in the spot market and the term market.
We recognize revenue in accordance with the provisions of ASC 606, Revenue from Contracts with Customers. The standard provides a unified model to determine how revenue is recognized. Under this standard, revenues are recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In the application of this model, we make judgments including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price (if applicable), and allocating the transaction price to each performance obligation. Services provided under our contracts with customers represent a single performance obligation, which is received and consumed by our customers as we perform such services. Accordingly, revenues are recognized over time based on the daily rate of hire that is prescribed in each contract. The manner in which we recognize revenue did not change as a result of the adoption of this standard.
Leases
We adopted the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), Topic 842, “Leases” effective January 1, 2019. Under this new lease standard, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases and to disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The FASB has issued several amendments and practical expedients to the standard, including clarifying guidance, transition relief on comparative reporting at adoption, the lessee practical expedient, which allows lessees, as an accounting policy election made by class of underlying asset, to choose not to separate non-lease components from lease components and instead combine them and account for them as a single lease component, the lessor practical expedient, which similarly allows lessors to choose to combine lease and non-lease components and account for them as required by that practical expedient, and a practical expedient which allows lessees to elect, as an accounting policy, not to apply the provisions of ASC 842 to short term leases. 
The Company (Predecessor) applied the modified retrospective transition approach, which allowed the Company to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate its comparative prior year periods. The cumulative effect adjustment to the Predecessor’s opening balance of accumulated deficit was zero.
Additionally, we, as lessor of our vessels, have elected the practical expedient to not separate non-lease components from the associated lease component and instead to account for those components as a single component since both of the following criteria were met: (i) the timing and patterns of transfer of the non-lease component and associated lease are the same; and (ii) the lease component, if accounted for separately, would be classified as  an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and, is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and have accounted for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. The lease component consists of the vessels leased to our customers and the non-lease component consists of the technical management services provided to operate the vessel. The pattern of revenue recognition did not change as a result of the application of ASC 842.
We have also elected to apply the practical expedient to elect as an accounting policy not to apply the provisions of ASC 842 to short term leases. We are party to a lease for office space which qualifies as a short-term lease under ASC 842. Accordingly, lease expense under this lease is recognized in the period in which the obligation for those payments is incurred.
We own all of the vessels in our fleet and are therefore not a lessee of any vessels.
Voyage Expenses


F- 10

Voyage expenses primarily include bunkers consumed when a vessel is off-hire, and brokerage commissions paid by us under our charter agreements. These costs are recognized as incurred.
Vessel Operating Costs
Vessel operating costs include crewing, repair and maintenance, insurance, stores, lubricants, management fees, communication costs, and tonnage tax. These costs are recognized as incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments such as time deposits with an original maturity at acquisition of three months or less.
Accounts Receivable
If accounts receivable are determined uncollectible, after all means of collections have been exhausted and the potential for recovery is considered to be remote, they are charged against an allowance for doubtful accounts. There were no such charges during any of the historical periods presented (both Predecessor and Successor). Additionally, we did not record an allowance for doubtful accounts as of December 31, 2019 (Successor) and 2018 (Predecessor), as all amounts due at these dates were deemed collectible.
Fuel, Lube Oils, and Consumables
Fuel, lube oils, and consumables are stated at the lower of cost or net realizable value, which is determined on a first-in, first-out basis. Bunker fuel onboard at the time of delivery to a charterer is purchased by the charterer and re-purchased by the Company at the time of re-delivery.
Vessels, Net
Vessels are stated at historical costs, less accumulated depreciation and impairment. Depreciation is provided by the straight-line method over the estimated useful life of 25 years for the PSVs and AHTS vessels, and 15 years for the crew boats based on upon the date the vessel is delivered from the yard.
Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessel. Repairs and maintenance are expensed as incurred. The vessels’ estimated residual values and useful life are reviewed when there has been a change in circumstances that indicates that the original estimate may no longer be appropriate.
Drydocking and Engine Overhaul
Our PSVs and AHTS vessels are required to be drydocked approximately every 30 - 60 months (depending on vessel age), and to have engines overhauled after 10,000 – 12,000 running hours. We will capitalize a substantial portion of the costs incurred during drydocking and overhaul and amortize those costs on a straight-line basis from the completion of a drydocking, intermediate survey or overhaul to the estimated completion of the next drydocking or overhaul. Drydocking costs include a variety of costs incurred while vessels are placed within drydock, including expenses related to the dock preparation and port expenses at the drydock shipyard, general shipyard expenses, expenses related to hull, external surfaces and decks, expenses related to machinery and engines of the vessel, as well as expenses related to the testing and correction of findings related to safety equipment on board. We also capitalize those costs incurred as part of the drydock to meet classification and regulatory requirements. The Company expenses costs related to routine repairs and maintenance performed during drydocking, and for annual class survey costs. The capitalized and unamortized drydocking costs are included in the book value of the vessels. Amortization expense of the drydocking costs is included in depreciation expense.
For an acquired or newly built vessel, a drydock component is estimated and accounted for as a separate component of the vessel’s cost. The drydock component is amortized on a straight-line basis to the next estimated drydock. The estimated amortization period for a drydock is based on the estimated period between drydocks. When the drydock expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.
Impairment of Long-Lived Assets
We review long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, we review our assets for


F- 11

impairment on an asset by asset basis. As part of our process, we obtain vessel valuations for our operating vessels from leading, independent and internationally recognized ship brokers on a quarterly basis for the PSVs and crew boats and on a semi-annual basis for the AHTS vessels, or when there is an indication that an asset or assets may be impaired. We also take other facts and circumstances into consideration, such as general market conditions or prolonged weakness in the price of our common shares, in determining whether indicators of potential impairment exist.
If there is any such indication that the carrying amount of our vessels may not be recoverable, they are tested for recoverability by comparing the net carrying value of the asset to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we evaluate the asset for an impairment loss. The projection of cash flows related to vessels is complex and requires us to make various estimates including to charter rates, utilization, operating costs, capital expenditures, residual value and the estimated remaining useful life of each vessel. All of these items have been historically volatile.
If the estimate of undiscounted future net cash flows for any vessel is lower than the vessel’s carrying value, the carrying value is written down to the vessel’s fair market value. The impairment loss is determined by the difference between the carrying amount of the asset and fair value.
Operating Segments
As a result of the Transaction, the Company has a fleet of 23 vessels, which primarily operate in the North Sea and off the coast of West Africa. For the period from April 9, 2019 to December 31, 2019 (Successor), the Company determined it had two reportable segments, the North Sea segment and the West Africa segment. Prior to the Transaction, the Company did not present segment information as it considered its operations as one reportable segment, the OSV market in the North Sea and surrounding areas.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate carrying value because of the short-term nature of these instruments. The estimated fair values of our debt are considered to approximate their carrying values because the interest rates on these instruments change with, or approximate, market interest rates, the interest margins under each loan approximate market rates, and the fair values of the vessels collateralized under each facility equal or exceed the amount outstanding.
Income Taxes
The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not subject to corporate income taxes in that territory. The statutory applicable rate to consolidated corporate earnings is 0%.
Two of our subsidiaries, Delta PSV Norway AS, which was incorporated in 2019, and NAO Norway AS, are subject to income tax in Norway at a rate of 22% and 23% of their taxable results for the years ended December 31, 2019 and 2018, respectively. We have deferred tax assets of $5.7 million and $3.5 million from our net operating losses in Norway for these two entities, along with corresponding full valuation allowances of $5.7 million and $3.5 million as of December 31, 2019 and 2018, respectively.  A full valuation allowance has been recognized due to the uncertainty related to the utilization of any carried forward tax losses. The Norwegian net operating losses may be carried forward for an indefinite period according to Norwegian tax law. There are no other permanent or temporary differences for our two Norwegian subsidiaries as of December 31, 2019 and 2018.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash is primarily held in major banks and financial institutions in Norway, the Netherlands, and Germany, and are typically insured up to a set amount. Accordingly, we believe the risk of any potential loss on deposits held in these institutions is remote. Concentrations of credit risk related to accounts receivable are limited to our client base in the energy industry that may be affected by changes in economic or other external conditions. The Company does not require collateral for its accounts receivable.
Recently Issued Accounting Standard


F- 12

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit losses (ASC 326), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model known as the current expected credit loss (“CECL”) model that is based on expected losses rather than incurred losses. Under the new guidance, an entity is required to recognize as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. Unlike the incurred loss models under existing standards, the CECL model does not specify a threshold for the recognition of an impairment allowance. Rather, an entity will recognize its estimate of expected credit losses for financial assets as of the end of the reporting period. Credit impairment will be recognized as an allowance or contra-asset rather than as a direct write-down of the amortized cost basis of a financial asset. However, the carrying amount of a financial asset that is deemed uncollectible will be written off in a manner consistent with existing standards. The standard will be effective for the first reporting period within annual periods beginning after December 15, 2019 and early adoption is permitted. We do not expect the implementation of this standard to have a material impact on our consolidated financial statements.
3.
REVERSE ASSET ACQUISITION
As a result of the Transaction, Scorpio obtained a controlling voting interest in the Company.  Accordingly, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition.  Moreover, the Company determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination.  The implications of this determination are as follows:
•
The SOHI Assets of Scorpio, as the accounting acquirer, were recorded at their historical carrying values. On the Transaction date, there were $1.3 million of cash and cash equivalents, $24.7 million of vessels, net, and $9.0 million of non-current debt.
•
The theoretical cost of the reverse acquisition is the fair value of the equity interests that the legal acquiree (the SOHI Assets) would theoretically have had to issue to give the Company’s shareholders the same percentage equity interest in the combined entity that results from the reverse acquisition. This theoretical cost was determined based on the price of the Company’s common shares on the date of the Transaction and was allocated to the Company's pre-Transaction assets and liabilities on a relative fair value basis.
•
This application of purchase accounting therefore resulted in several adjustments to the assets and liabilities of the Predecessor given the difference between the fair value and their carrying value on the date of the Transaction.
There were 7,373,989 common shares of the Predecessor outstanding as of the Transaction date, of which, 1,175,474 were owned by Scorpio as a result of the Private Placement. The fair values of the common shares owned by Scorpio, and of the 6,198,515 non-controlling common shares were determined separately based on the volume-weighted average price of the Company's common shares on the closing date of the Transaction of $3.23 per share. Accordingly, the fair value of the equity of the Predecessor on the Transaction date was determined to be $23.8 million.
The Transaction price was allocated to the Company's pre-Transaction identifiable assets and liabilities on a relative fair value basis as of April 8, 2019. The purchase price allocation of the identifiable assets acquired and liabilities assumed is set forth below:
In thousands of U.S. dollars

Cash and cash equivalents
$
1,657

Accounts receivable
3,212

Prepaid expenses
1,198

Fuel, lube oil, and consumables
981

Other current assets
1,098

Vessels, net (1)
154,744

Accounts payable
(1,836
)
Other current liabilities (2)
(4,151
)
Debt
(132,905
)
Other long-term liabilities (2)
(190
)
Net assets acquired and liabilities assumed
$
23,808

(1)     Vessels, net - The difference between the Transaction price and the fair value of the net assets acquired, excluding vessels, was allocated to vessels which were the Company's only long-lived assets. This amount was allocated to the ten individual PSVs on a relative fair value basis (primarily by the age of each vessel). This resulted in a reduction of $20.7 million when comparing the aggregate carrying value of these vessels prior to and subsequent to the Transaction date. Additionally, a component of the cost of each vessel is related to drydock and engine overhaul costs which was estimated based on recent costs, adjusted for each individual vessel based on the estimated period until the next drydock or engine overhaul and are being depreciated on a straight-line basis over that period.
(2)     Other current and other long-term liabilities (unfavorable contracts) - Other current liabilities and other long-term liabilities include liabilities of $1.4 million and $0.1 million respectively, as a result of an analysis of term contracts for PSVs at rates below market value at the Transaction date. The resulting liabilities are recorded as an adjustment to revenues from the Transaction date until the end of the related term contracts, the last of which ends in December 2020.
Certain adjustments were made to the carrying values of the Company's pre-Transaction identifiable assets and liabilities to reflect their fair value. The most significant are described above. Most other balances were recorded at the historical carrying values of the Predecessor, as we determined that their carrying values approximated fair value. Since this was a reverse acquisition of assets rather than a business combination, there is no resultant goodwill (or bargain purchase) as a result of the purchase price allocation. Nominal transaction costs were incurred as part of the Transaction.
4.
CASH AND CASH EQUIVALENTS
The following table sets forth components of our cash and cash equivalents as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
Cash and cash equivalents
11,727


8,432

Cash and cash equivalents in DVB accounts (1)
927


—

Cash on vessels
27


14

Total cash and cash equivalents
12,681


8,446

(1)
We maintain bank accounts that are pledged under our DVB Credit Facility (as described in Note 7). Under the terms of the DVB Credit Facility, the earnings generated from the AHTS vessels must be deposited into these accounts. These accounts are subject to a minimum liquidity requirement of an aggregate of $750,000 and also require that the Company fund any Excess Earnings (defined as each vessel's earnings less budgeted operating expenses, interest payments and the maintenance of the minimum liquidity requirement) related to such vessels, up to $3.6 million in aggregate, to a drydock reserve account, the proceeds of which are to be utilized for the


F- 13

vessel’s next scheduled drydock. For the first 36 months after the initial drawdown date (through September 2020), any Excess Earnings related to each vessel, after funding the minimum liquidity requirement and drydock reserve account, shall be utilized to repay the credit facility.  Starting 39 months after the initial drawdown date, the DVB Credit Facility shall be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022.


5.
VESSELS, NET
Vessels, net, consist of the carrying value of 23 vessels for the year ended December 31, 2019 (Successor) and ten vessels for the year ended December 31, 2018 (Predecessor). Vessels, net, includes drydocking, engine overhaul costs and capitalized interest when applicable. Residual values are estimated at $1.5 million for each PSV in the fleet at December 31, 2019 (Successor) and 2018 (Predecessor) and at $1.0 million for each AHTS vessel in the fleet at December 31, 2019. The crew boats do not have an estimated residual value. The following table sets forth the carrying values of our vessels for each vessel class:
 
As of December 31,
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
PSVs
158,413


413,949

AHTS vessels
12,071


—

Crew boats
16,165


—

Total
186,649


413,949

Less: accumulated depreciation and impairment charges
(8,443
)

(237,035
)
Vessels, net
178,206


176,914

Impairment of Vessels
As part of our impairment assessment at December 31, 2019 (Successor), we determined that impairment indicators existed because the market capitalization was less than 50% of shareholders' equity. Accordingly, we proceeded to assess whether the carrying values of the vessels were recoverable by estimating undiscounted future cash flows.
The assumptions that we, as the Successor company, use to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations and are forecast through the end of the expected useful life of each vessel, which is assumed to be 25 years from the delivery of the vessel from the shipyard for the PSVs and AHTS vessels, and 15 years for the crew boats.
The most significant assumption in preparing these undiscounted cash flows is our estimate of revenues, which are derived from our assumptions of utilization adjusted dayrates over the forecast period. Utilization and dayrates in our markets are highly volatile, adjust rapidly when confronted with changes in market conditions, and are difficult to predict. Accordingly, this assumption is highly subjective. In preparing our estimated undiscounted cash flows, we assumed a base case scenario that we believe reflects our undiscounted cash flows over time based upon a lower rate environment. In our base case scenario, our forecasted revenue estimates are primarily based on (i) a combination of the Company's forecast, published time charter rates (as of December 31, 2019, net of broker commissions) for the next year and a 2.0% growth rate (which is based on published historical and forecast inflation rates in the geographies in which we operate) in charter rates in each period through the vessel's 15th year of useful life for PSVs and AHTS vessels, and 10th year of its useful life for crew boats, and assuming the growth in expenses over time thereafter will be offset by similar increases in charter revenues, and (ii) our estimated off-hire days and utilization which are based on management's experience and market data. We believe that these dayrates are the most useful approximation of future dayrates as (i) they are derived from actual fixtures in the market and thus reflect a collective, forward looking view of market participants, and (ii) are consistent with activity that the Company has seen in its market activities


F- 14

(either through actual fixtures or tendering activity). Additionally, from a longer term perspective, we believe that the dayrate assumptions utilized in the base case scenario are reasonable as the average dayrates for the PSVs and AHTS vessels over the entire forecast period are approximately equal to the 10-year and 20-year historical average time charter rates.
Our revenue assumptions are supplemented by our best estimate of vessel operating expenses and drydock and engine overhaul costs, which are based on our most recent forecasts and actual experience in 2019 and a 2.0% growth rate in each period thereafter. Historical trends underlying these assumptions have been significantly less volatile than the assumptions underlying revenue over time, and therefore do not involve as high of a degree of subjectivity.
Based on the foregoing, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives in our base case would be sufficient to recover their respective carrying values. Moreover, we considered the estimates of vessel values from independent shipbrokers as a comparison to the undiscounted cash flows:
•
The estimates of vessel values from the independent shipbrokers for the PSVs exceeded their carrying values for each vessel, and by an aggregate of $17.2 million.
•
The estimates of vessel values from the independent shipbrokers for the crew boats and AHTS vessels was lower than their carrying values by an aggregate of $0.9 million. Six vessels had carrying values greater than their fair values by $3.0 million in aggregate and seven vessels had carrying value lower than their fair values by $2.1 million in aggregate.
For the vessels where the vessel values from the independent shipbrokers were less than their carrying values, we re-evaluated the inputs to the undiscounted cash flow analysis, and the sensitivities thereto, and determined that the inputs were reasonable. Accordingly, we determined that our vessels were not impaired.
In our impairment testing, we also examined the sensitivity of the estimated future cash flows and carrying values to be recovered by separately calculating the break-even charter rates, while holding all other assumptions constant. We then evaluated the outcome of the sensitivity analysis performed to assess their impact on our conclusions. Break-even charter rates were approximately 8% lower than the effective charter rates assumed in the testing for the PSVs, 5% lower for the AHTS vessels, and over 10% lower for the crew boats.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by any significant degree. Charter rates may decrease, which could adversely affect our revenue and profitability, and any future assessments of vessel impairment. We will continue to monitor developments in charter rates in the markets in which we participate with respect to the expectation of future rates that are utilized in the undiscounted cash flow analyses.
Our fleet as of December 31, 2018 (Predecessor) consisted of ten PSVs. As a result of a prolonged deterioration in market conditions, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives would not be sufficient to recover their respective carrying values. Accordingly, we determined that our vessels were impaired and an impairment charge of $160.1 million was recorded for the year ended December 31, 2018. This impairment charge was measured based upon the amount by which the carrying values of our vessels exceeded their fair values.
6.
OTHER CURRENT LIABILITIES
The following table sets forth the components of our other current liabilities as of December 31, 2019 and 2018:
 
As of December 31,
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
Accrued interest
$
1,169


$
1,274

Other accrued liabilities
1,327


1,873

Unamortized portion of fair value assessment of acquired time charter contracts
272


—

Total other current liabilities
$
2,768


$
3,147



7.
DEBT
Initial Credit Facility
On December 19, 2013, we entered into a $60.0 million revolving credit facility (the “Initial Credit Facility”) with DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ). In March 2015, we expanded the availability under our Initial Credit Facility from $60.0 million to $150.0 million to partially finance the purchase of certain of the PSVs in our fleet.


F- 15

As of December 31, 2016, as a result of a significant deterioration in market conditions, we were in breach of three of the financial covenants under this facility, (i) the minimum value adjusted amount of equity, (ii) the minimum value adjusted equity ratio clause and (iii) a minimum level of liquidity. In 2017 a waiver was obtained from the lenders lowering (i) the minimum value of equity and (ii) the minimum value adjusted equity ratio covenant requirements to levels at which the Company was in compliance, and suspending (iii) the minimum level of liquidity covenant. These waivers were effective until April 30, 2018. On April 30, 2018 we executed an amendment to the Initial Credit Facility that extended the waiver period until December 31, 2019. Under the terms of the waiver, we were unable to draw further on the Initial Credit Facility until we complied with the original terms and conditions set forth thereunder, and the interest rate increased from LIBOR plus a margin of 2.0% to LIBOR plus a margin of 4.0%.
In September 2018, we made an unscheduled payment of $1.575 million on our Initial Credit Facility to regain compliance with the security coverage ratio (requiring that the aggregate fair market value of the vessels securing the loan does not fall below 150% of the outstanding loan) set forth thereunder.  At the end of September 2018, vessel values were remeasured and, given a further deterioration in such values, we were again in non-compliance of the security coverage ratio at September 30, 2018.
In December 2018, we executed the Private Placement with SOI whereby SOI invested $5 million in a private placement of the Company’s shares at a price of $4.20 per share. Effective upon closing of the Private Placement, $1.9 million of the proceeds were immediately used to repay a portion of the loan and regain compliance with the security coverage ratio. Additional temporary waivers were granted under the Initial Credit Facility as a result of the Private Placement and corresponding debt repayment. As of December 31, 2018, we were in compliance with the modified terms under the Initial Credit Facility and the loan was not considered callable.
In April 2019, the lenders under the Initial Credit Facility agreed to extend the waivers of certain financial covenants with which the Company was not in compliance, until January 31, 2020, as part of a broader set of agreements to recapitalize the Company.  This agreement included a commitment by the lenders under the Initial Credit Facility to refinance the Initial Credit Facility with a new $132.9 million term loan facility with a maturity of December 6, 2023 (the "New Term Loan Facility"), subject to certain conditions precedent, the most significant of which was the requirement to raise an additional $15 million of equity before January 31, 2020. In December 2019, the lenders under the Initial Credit Facility agreed that we had satisfied these conditions precedent with the New Equity Line of Credit (as defined in Note 8). The New Term Loan Facility was executed in January 2020 and is described below.
Under our Initial Credit Facility $132.9 million was outstanding at each of December 31, 2019 (Successor) and 2018 (Predecessor). We were in compliance with the covenants set forth under the waivers of the Initial Credit Facility at December 31, 2019. Additionally, the amount outstanding at December 31, 2019 was classified as non-current on consolidated balance sheet on the basis of the agreement and subsequent execution of the new term loan facility as described below.


F- 16

New $132.9 Million Term Loan Facility
As described above, in December 2019, the lenders under the Initial Credit Facility agreed that the New Equity Line of Credit (as defined in Note 8) satisfied the condition precedent that the Company raise $15 million of additional equity in order to refinance the Initial Credit Facility with the $132.9 million New Term Loan Facility. In January 2020, the Company closed on the refinancing of the Initial Credit Facility with the New Term Loan Facility. The New Term Loan facility is collateralized by our ten PSVs and 11 crew boats, bears interest at LIBOR plus a margin 3.50% through December 2021, LIBOR plus a margin of 4.50% from December 2021 through December 2022 and LIBOR plus a margin of 5.5% from December 2022 through the maturity date of December 2023 (the margin in all periods can be reduced if the Company meets certain Net Debt to EBITDA thresholds). The New Term Loan Facility is repayable in equal, semi-annual installments of $7.5 million beginning in December 2021 with a balloon payment due upon the maturity date of December 6, 2023.  
The New Term Loan Facility is secured by:
•
a first priority mortgage over the relevant collateralized vessels under this facility;
•
a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility;
•
a pledge of earnings generated by the mortgaged vessels for the specific facility; and
•
a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
The New Term Loan Facility contains financial and restrictive covenants, as summarized below:
•
Cash and cash equivalents shall at all times be equal to or greater than $500,000 per vessel above 2,500 DWT. The Company’s two AHTS vessels and 11 crew boats are excluded from this definition. Accordingly, the minimum liquidity under the New Term Loan Facility is $5 million based on the Company's fleet as of December 31, 2019;
•
The ratio of net debt (defined as total debt less cash) to total capitalization (defined below) shall be no greater than 0.70 to 1.00 from the date that the New Term Loan Facility is executed through December 31, 2020 and 0.65 to 1.00 thereafter through the maturity date of December 6, 2023. Undrawn amounts available under the New Equity Line of Credit are included as part of the definition of total capitalization (defined as net debt plus equity plus amounts available under the New Equity Line of Credit);
•
Current assets shall at all times exceed current liabilities less the current portion of the long term liabilities;
•
The aggregate fair market value of the vessels collateralized under the New Term Loan Facility shall at all times be at least 115% of the aggregate outstanding principal amount until December 7, 2021, 125% of the aggregate outstanding principal amount until December 7, 2022, and 130% at all times thereafter; and
•
The Company is restricted from paying dividends for 24 months following the date of the execution of the New Term Loan Facility.
The New Term Loan Facility also contains customary events of default, including cross default provisions and a subjective acceleration clause under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
DVB Credit Facility and Supplemental Agreement
As part of the Transaction, we assumed the aggregate outstanding indebtedness of $9.0 million under a term loan facility with DVB Bank SE, Nordic Branch ("DVB") relating to the AHTS vessels (the "DVB Credit Facility"). The DVB Credit Facility was supplemented on April 10, 2019 as part of the Transaction.
The borrowers under the DVB Credit Facility are the respective vessel owning entities of the AHTS vessels. The DVB Credit Facility bears interest at LIBOR plus a margin of 2.75% and contains a financial covenant whereby the Company must maintain minimum liquidity of an aggregate of $0.75 million in the bank accounts that are pledged as security under the facility (as described in Note 4). 
For the first 36 months after the initial drawdown date (through September 2020), the terms of the DVB Credit Facility require that the Company fund any Excess Earnings (defined as each vessel's earnings less budgeted operating


F- 17

expenses, interest payments and the maintenance of the minimum liquidity requirement) related to such vessels, up to $3.6 million in aggregate, to a drydock reserve account, the proceeds of which are to be utilized for the vessel’s next scheduled drydock. Any Excess Earnings related to each vessel, after funding the minimum liquidity requirement and drydock reserve account, shall be utilized to repay the credit facility.  Starting 39 months after the initial drawdown date, the DVB Credit Facility shall be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022. 
This facility contains financial and restrictive covenants, which require the borrowers to, among other things, comply with certain financial tests (as described above).  This facility is secured by, among other things:
•
a first preferred mortgage over the two AHTS vessels which are collateralized under this facility;
•
an assignment of earnings, insurances and charters from the two mortgaged AHTS vessels;
•
a pledge of the related earnings accounts and drydock reserve accounts of the borrowers in respect of the two mortgaged AHTS vessels; and
•
a pledge of the equity interests in each of the borrowers.
The DVB Credit Facility also contains customary events of default, including a subjective acceleration clause under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
The outstanding balance under this credit facility was $9.0 million as of December 31, 2019, and we were in compliance with the financial covenants as of that date.
As of December 31, 2019, the aggregate annual principal payments required to be made under the Company's debt facilities are as follows (in thousands of U.S. dollars):

Principal repayments
2020
$
207

2021
8,309

2022
22,984

2023
110,405

2024
—

Total
141,905



8.
SHAREHOLDERS’ EQUITY
Reverse Stock Split
On January 28, 2019, the Company effected a one-for-ten reverse stock split. Pursuant to this reverse stock split, the common shares outstanding were reduced from 73,741,595 shares to 7,373,989 shares (which reflects adjustments for fractional share settlements). The par value was adjusted to $0.10 per share as a result of the reverse stock split, which was subsequently adjusted to $0.01 with effect from June 5, 2019, as described below.
Reduction in par value
With effect from June 5, 2019, the Company reduced the issued and paid-up share capital of the Company from $1,901,512 to $190,151 by canceling the paid-up share capital of the Company to the extent of $0.09 on each of the issued shares of par value $0.10 in the share capital of the Company, so that each issued share of par value $0.10 shall have a par value of $0.01 and be treated in all respects as one fully paid-up share of par value $0.01. This reduction in par value also resulted in an increase in the number of authorized common shares from 35,000,000 to 350,000,000.
Common shares authorized and issued
On December 11, 2018 at the annual general meeting of the shareholders it was resolved to increase the Company’s authorized share capital from $2,000,000 to $4,000,000. As a result of this increase, the Company’s


F- 18

authorized share capital was changed to 35,000,000 common shares, par value $0.10 per share (or $3,500,000) and 50,000,000 preferred shares, par value $0.01 per share (or $500,000). As a result of the reduction in par value of the Company's common shares from $0.10 to $0.01 per share with effect from June 5, 2019, as described above, the number of authorized common shares was increased from 35,000,000 to 350,000,000.
In December 2018, we issued an aggregate of 1,175,474 common shares as part of the Private Placement at $4.20 per share, resulting in net proceeds to us of $4.9 million. 
In March 2017, the Company completed an underwritten public follow-on offering of 4,130,000 common shares for net proceeds of $48.3 million.
Equity Lines of Credit
In March 2019, the Company entered into an Initial Equity Line of Credit with SOI, a related party, and Mackenzie Financial Corporation ("Mackenzie"). SOI is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price. The issuances of common shares under the Initial Equity Line of Credit during the year ended December 31, 2019 were as follows:
•
In April 2019, 3,240,418 common shares were issued under the Initial Equity Line of Credit (split equally between SOI and Mackenzie) for approximately $2.78 per share and aggregate net proceeds of $9.0 million.
•
In June 2019, 1,421,472 common shares were issued under the Initial Equity Line of Credit (split equally between SOI and Mackenzie) for approximately $3.52 per share and aggregate net proceeds of $5.0 million.
•
In October 2019, 2,356,108 common shares were issued under the Initial Equity Line of Credit (split equally between Scorpio Services Holding Limited, a related party, ("SSH") (as SOI’s nominee) and Mackenzie) for $1.06 per share for aggregate net proceeds of $2.5 million.
•
In December 2019, 3,143,709 common shares were issued under the Initial Equity Line of Credit for aggregate net proceeds of $3.5 million. 1,492,508 common shares were issued to Mackenzie and 1,651,201 common shares were issued to SSH, a related party, (as SOI’s nominee) for $1.11 per share.
Following the December 2019 issuance, the Initial Equity Line of Credit was fully drawn, and there is no further capacity thereunder.
In January 2020, the Company entered into a new common stock purchase agreement with SSH, a related party, (the “New Equity Line of Credit”) which provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. Under the terms of the New Equity Line of Credit, the Company is precluded from issuing shares under the New Equity Line of Credit if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share. In March 2020, we issued 5,668,317 common shares to SSH for $0.88 per share under the New Equity Line of Credit for aggregate net proceeds of $5.0 million.

9.
SEGMENT REPORTING
For the periods January 1, 2019 to April 8, 2019, and for the years ended December 31, 2018 and 2017 (Predecessor), the Company consisted of ten PSVs, all of which primarily operated in the North Sea and surrounding areas, and therefore was considered as one reportable segment, the OSV market. Therefore, the financial information for these periods can be found in the Predecessor periods of the Consolidated Statements of Operations and Comprehensive (Loss) Income and the Consolidated Balance Sheets.
Effective April 9, 2019, for the Successor period, we reported two operating segments - the North Sea segment (where our ten PSVs operate) and the West Coast of Africa segment (where our two AHTS vessels and 11 crew boats operate), which is consistent with how our chief operating decision maker reviews operating results for purposes of allocating resources and assessing performance. Certain expenses incurred by the Company are not attributable to any specific segment. Accordingly, these costs are not allocated to the North Sea or West Africa segments and are included in the results below as "Corporate".
The following schedule presents segment information about the Company's operations for the period April 9, 2019 to December 31, 2019 (Successor):
In thousands of U.S. dollars
North Sea

West Coast of Africa

Corporate

Total
Charter Revenue
$29,911

$6,644

—


$36,555
Vessel operating expenses
(20,104
)

(7,126
)

—


(27,230
)
Voyage expenses
(783
)

(341
)

—


(1,124
)
General and administrative expenses
(1,068
)

(184
)

(3,282
)

(4,534
)
Depreciation expense
(6,578
)

(1,874
)

—


(8,452
)
Interest income
—


—


39


39

Interest expense
—


(347
)

(6,224
)

(6,571
)
Other financial income (expense)
—


—


(136
)

(136
)
Segment income / (loss)
$1,378

$(3,228)

$(9,603)

$(11,453)
    
The following schedule presents the Company's assets by segment as of December 31, 2019 (Successor):


In thousands of U.S. dollars
North Sea

West Coast of Africa

Corporate

Total
Total assets
$
170,229


$
28,133


$
3,547


$
201,909




10.
REVENUE AND CUSTOMER CONCENTRATIONS
Our revenues are generated from time charter contracts for which we provide a vessel and crew on a rate per day basis in the spot market and the term market. The lease component consists of the vessel leased to our customers and the non-lease component consists of the technical management services provided to operate the vessel.
We, as lessor of our vessels, have elected the practical expedient under ASC 842 to not separate non-lease components from the associated lease component and instead to account for those components as a single component since both of the following criteria were met: (i) the timing and patterns of transfer of the non-lease component and associated lease are the same; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and, is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and have accounted for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. Accordingly, all of revenues for the historical periods presented (both Predecessor and Successor) have been recognized over time based on the daily rate of hire that is prescribed in each contract.
The following table sets forth the breakout of revenue by vessel type:

Successor

 
Predecessor
In thousands of U.S. dollars except per share and share data
April 9 - December 31, 2019

 
January 1 - April 8, 2019

Year ended December 31, 2018

Year ended December 31, 2017
Charter revenues - PSVs
29,911


 
5,258


20,654


17,895

Charter revenues - AHTS vessels
3,729


 
—


—


—

Charter revenues - crew boats
2,915


 
—


—


—

Total charter revenue
36,555


 
5,258


20,654


17,895

As of December 31, 2019, we were party to long-term time charter contracts, which were greater than one year in duration, for four of our crew boats with commitments through early 2021. Expected term charter revenues for these contracts is $3.4 million in 2020 and $0.2 million in 2021. The aggregate carrying value of these vessels was $6.3 million as of December 31, 2019. As of December 31, 2018, the Company had entered into two long-term time charter contracts for two of its PSVs with commitments through 2020. Expected time charter revenues for these contracts was $3.7 million in 2020. The aggregate cost of these vessels was $82.7 million and the aggregate accumulated depreciation (including impairment charges) and carrying value as of December 31, 2018 was $47.9 million and $34.8 million, respectively. As of December 31, 2017, there were no long-term time charter contracts.
As of December 31, 2019, there were no unamortized deferred costs of obtaining or fulfilling a contract.
Customer Concentrations
Set forth below are figures summarizing our customer concentrations for the historical periods presented:
•
For the Successor period from April 9, 2019 to December 31, 2019, we had one customer which accounted for 13% of total revenues.


F- 20

•
For the Predecessor period from January 1, 2019 to April 8, 2019, we had four customers which accounted for an aggregate of 63% of total revenues (20%, 18%, 13%, and 12%, respectively).
•
For the year ended December 31, 2018, (Predecessor), we had two customers which accounted for an aggregate of 25% of total revenues (13% and 12%, respectively).
•
For the year ended December 31, 2017 (Predecessor), we had three customers which accounted for an aggregate of 44% of total revenues (21%, 13%, and 10%, respectively).
•
As of December 31, 2019 (Successor), we had three customers which accounted for an aggregate of 44% of our outstanding accounts receivable (16%, 14%, and 14% respectively).
•
As of December 31, 2018 (Predecessor), we had three customers which accounted for an aggregate of 76% of our outstanding accounts receivable (32%, 30%, and 14%, respectively).

11.
INTEREST COSTS
Interest costs consist of interest incurred on the long-term debt, the commitment fee and amortization of the deferred financing cost related to the Initial Credit Facility and the DVB Credit Facility described in Note 7.
 
Successor
 
 
Predecessor
 
For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Interest costs
$
6,571


 
$
2,445

 
$
7,574


$
4,428

Amortization of deferred financing costs
0


 
90

 
359


359

Commitment fee
0


 
20

 
98


93

Total interest costs
$
6,571


 
$
2,555

 
$
8,031


$
4,880

12.
EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and potentially dilutive common share equivalents outstanding during the period. There were no potentially dilutive common share equivalents for any of the periods presented.
 
Successor
 
 
Predecessor
 
For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Numerator

 
 

 



Net Loss
(11,453
)
 
 
(7,663
)
 
(197,294
)

(29,326
)
Denominator


 
 


 





Basic and diluted - Weighted Average Common Shares Outstanding
20,481,174

 
 
7,374,069

 
6,263,094


5,499,561




 
 


 





Loss per Common Share


 
 


 





Basic and diluted
(0.56
)
 
 
(1.04
)
 
(31.50
)

(5.33
)
13.
RELATED PARTY TRANSACTIONS


F- 21

During the periods from January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor), and years ended December 31, 2018 and 2017 (Predecessor), we were party to a management agreement with Scandic American Shipping Ltd (“Scandic”), a wholly owned subsidiary of Nordic American Tankers Ltd. (“NAT”), for the provision of administrative services. Scandic and NAT were related parties of ours due to NAT’s ownership interest in the Company at the time, along with certain shared management personnel.
As a result of the Transaction, along with a subsequent reduction in NAT’s ownership interest in the Company, both NAT and Scandic are no longer deemed related parties. On May 1, 2019, the Company tendered notice to NAT that it shall terminate the management agreement with NAT upon the expiration of 180 days from the date of such notice (the “Transition Period”). The management agreement with NAT and Scandic was terminated upon the expiration of the Transition Period on October 28, 2019.
Acquisition of AHTS Vessels and Crew Boats
In April 2019, as part of the Transaction (which is described in Note 1), we acquired 13 vessels, including associated debt, consisting of two AHTS vessels and 11 crew boats from SOHI, a related party that is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro and our Vice President, Mr. Filippo Lauro, are members, in exchange for 8,126,219 common shares of the Company at approximately $2.78 per share for aggregate net consideration of $22.6 million.
Equity Lines of Credit
In March 2019, the Company entered into an Initial Equity Line of Credit with SOI, a related party, and Mackenzie. SOI is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price. The issuances of common shares under the Initial Equity Line of Credit during the year ended December 31, 2019 are described in Note 8.
In December 2019, the Company reached an agreement to enter into the New Equity Line of Credit with SSH, a related party. The New Equity Line of Credit was executed in January 2020 and provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. In March 2020, we issued 5,668,317 common shares to SSH for $0.88 per share under the New Equity Line of Credit for aggregate net proceeds of $5.0 million.
Administrative Services Agreement
On June 19, 2019, the Company entered into an agreement with SSH, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services (the “Administrative Services Agreement”). SSH is majority owned by the Lolli-Ghetti family, of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members.
The Administrative Services Agreement is on substantially the same terms as the previous management agreement with NAT. Under the terms of the Administrative Services Agreement, the Company shall pay an annual fee of $10,000 per vessel (the “Fee”), and will reimburse SSH for the reasonable direct or indirect expenses it incurs in providing the Company with the administrative services described above. The Fee was not payable to SSH as it pertains to the ten PSVs in the Company’s fleet during the Transition Period. The Administrative Services Agreement may be terminated by the Company upon 180 days' notice.
Commercial and Technical Management
The Company’s AHTS vessels and crew boats are commercially managed by Scorpio Commercial Management S.A.M. ("SCM") and technically managed by Scorpio Ship Management S.A.M. ("SSM") pursuant to a Master Agreement, which may be terminated by either party upon 24 months' notice, unless terminated earlier in accordance with its provisions. SSM and SCM are related parties of ours and are owned and controlled by certain members of the Lolli-Ghetti family of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members. In the event of the sale of one or more vessels, a notice period of three


months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control of the AHTS vessels or crew boats, including a sale of all or substantially all of the AHTS vessels or crew boats, in which case a payment equal to 24 months of management fees will apply.
Additional vessels in our fleet, or that we may acquire, may potentially also be managed under the Master Agreement, or on substantially similar terms, at some point in the future.
SCM’s services include securing employment, in the spot market and on time charters, for our AHTS vessels and crew boats. We pay SCM a management fee equal to 1.25% of gross revenues per charter fixture. SCM may subcontract these services to third-parties pursuant to the Master Agreement.
SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. SSM may subcontract these services to third-parties pursuant to the Master Agreement. We pay SSM an annual fee of $156,000 per vessel for the AHTS vessels and an annual fee of $43,800 per vessel for the crew boats plus additional amounts for certain itemized services per vessel to provide technical management services for each of our AHTS vessels and crew boats.
The following table represents the related party transactions recorded in our statements of operations for the Predecessor and Successor periods:
 
 
Successor


Predecessor
In thousands of U.S. dollars
April 9 to December 31, 2019


January 1 to April 8, 2019
 
Year ended December 31, 2018
 
Year ended December 31, 2017
Vessel operating expense:




 

 


 Scorpio Ship Management SAM
$
576



—

 
—

 
—

Voyage expense:




 

 


Scorpio Commercial Management SAM
82



—

 
—

 
—

General and administrative expense:




 

 


 Scorpio Services Holding Limited
353



—

 
—

 
—


 Scorpio Commercial Management SAM
69



—

 
—

 
—


 Scorpio Tankers Inc. (1)
33



—

 
—

 
—


 Nordic American Tankers Limited
—



$
323

 
$
2,324

 
$
2,426

Total general and administrative expense:
$
455



$
323

 
$
2,324

 
$
2,426

(1)    Relates to certain shared office expenses that were reimbursed to this entity.
The following table reflects the balances due to related parties as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):


In thousands of U.S. dollars
December 31, 2019 (Successor)

December 31, 2018 (Predecessor)
Liabilities



Accounts payable, related party:




Scorpio Ship Management SAM
$
480


$
—


Scorpio Services Holding Limited
265


—


Scorpio Commercial Management SAM
165


—


Scorpio Offshore Holding Inc
6


—


Nordic American Tankers Limited
—


492

Total accounts payable, related party:
$
916


$
492


14.    GOING CONCERN
Under ASC paragraph 205-40 (the "Standard"), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.  Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
The Company regularly performs cash flow projections to evaluate (i) whether it will be in a position to cover the liquidity needs for the next 12-month period and (ii) the compliance with financial and security ratios under the existing and future financing agreements. In developing estimates of future cash flows, the Company makes assumptions about the vessels’ future performance, market rates, operating expenses, capital expenditure, fleet utilization, general and administrative expenses, loan repayments and interest charges. The assumptions applied are based on historical experience and future expectations.  Nevertheless, volatility in the offshore market makes forecasting difficult, and there is the possibility that the Company’s actual trading performance during the coming year may be materially different from expectations. 
Economic conditions in the offshore market during 2019 reflected a gradual improvement from the lows of previous years and were showing signs that the industry was in the early stages of a broader recovery. The Company’s operating results during 2019 (in both the Predecessor and Successor periods) reflected this improvement, as losses from operations narrowed when compared to prior periods. Additionally, as highlighted elsewhere in these financial statements, the Company executed a series of transactions during 2019 and 2020, such as the Transaction, the New Term Loan Facility and the New Equity Line of Credit in an effort to recapitalize the Company and create a platform for future growth.
Nevertheless, since the beginning of the calendar year 2020, the outbreak of the novel coronavirus (the "COVID-19") has resulted in the implementation of numerous actions by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets which has reduced the global demand for oil and related products. Additionally, in March 2020, output disagreements between OPEC producing nations (led by Saudi Arabia) and Russia triggered a price war sending the price of crude oil to lows not seen in decades. The confluence of these events has resulted in a precipitous pull back of production and capital expenditure outlays from major oil producers throughout the world. Consequently, the markets in which our vessels operate have come under significant pressure in the form of reduced spot market rates and utilization, higher lay-up activity, and contract cancellations and renegotiations.


These conditions have caused management to revisit its cash flow projections for the next 12-month period under revised assumptions. Under these revised assumptions, the Company projects that it might breach certain financial covenants under its credit facilities within 12 months from the date of these financial statements. Additionally, under the terms of the New Equity Line of Credit, the Company is precluded from issuing shares under the New Equity Line of Credit if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share. In March and April 2020, the price of the Company’s common stock fell below this threshold on certain occasions and for sustained periods of time. Additionally, as described in Item 3. Key Information D. Risk Factors, we have received two deficiency notifications from the NYSE that could result in suspension or delisting of our common shares. We have until November 2020, and August 2021, subject to certain conditions, to cure each of these deficiencies. If our stock is delisted, then the Company is precluded from issuing shares under the New Equity Line of Credit. If additional liquidity under the New Equity Line of Credit is unavailable, the Company might breach covenants under its credit facilities, or face liquidity constraints, sooner than would otherwise occur under the revised projections.
The Company has commenced discussions with its lenders in an effort to find possible solutions and is also considering other strategic alternatives to meet the Company’s obligations, such as the sale of some or all of the vessels in the Company’s fleet. The Company has also engaged an advisor to provide consultation throughout this process. There can be no assurance that these or other measures will be successful.
As these discussions are currently in a preliminary phase, there are no remedies that can be considered as probable for purposes of the Standard.  Accordingly, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.
15.
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES
We categorize our fair value estimates using a fair value hierarchy based on the inputs used to measure fair value for those assets and liabilities that are recorded on the balance sheet as fair value. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:
Level 1.
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2.
Inputs, other than the quoted prices in active markets that are observable either directly or indirectly; and
Level 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments and other assets accounted for under fair value.
-
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accounts payable, related party, and other current liabilities are reasonable estimates of fair value.
-
The estimated fair value for the long-term debt is considered to be equal to the carrying values since it reflects both a recently revised margin and variable interest rates which approximate market rates.
The carrying value and estimated fair value of the Company’s financial instruments and other assets accounted for under fair value at December 31, 2019 (Successor) and 2018 (Predecessor) are as follows:
 
 
 
Successor
 
Predecessor
In thousands of U.S. dollars
Fair Value Hierarchy Level

2019 Fair Value

2019 Carrying Value

2018 Fair Value

2018 Carrying Value
Recurring









Cash and cash equivalents
1

$
12,681


$
12,681


$
8,446


$
8,446

Accounts receivable
1

8,381


8,381


2,602


2,602

Accounts payable
1

4,192


4,192


843


843

Accounts payable, related party
1

916


916


492


492

Other current liabilities
1

2,768


2,768


3,147


3,147

Initial Credit Facility
2

(132,905
)

(132,905
)

(132,905
)

(132,905
)
DVB Credit Facility
2

(9,000
)

(9,000
)

—


—















Non-recurring













Vessels
2

—


—


176,914


176,914

The estimated fair values for the Initial Credit Facility and DVB Credit Facility are considered to approximate their carrying values because the interest rates on these instruments change with, or approximate, market interest rates and the interest margins under each loan approximate market rates.
Foreign Currency and Interest Rate Risk


Certain of our contracts with customers for our PSVs are denominated in the British Pound, the Norwegian Kroner, and, to a lesser extent, the Euro. Additionally, certain of the Company's vessel operating costs are denominated in these currencies as well. Transactions in foreign currencies during the year are translated into U.S. dollars at the rates of exchange in effect at the date of the transactions. We do not have any contracts denominated in a foreign currency that extend for greater than one year from December 31, 2019. We recorded the following exchange gain or losses during the historical periods presented:

Successor

 
Predecessor

For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Exchange gain/(loss)
56


 
(164
)

(626
)

327

Additionally, we are exposed to the impact of interest rate changes primarily through our variable-rate borrowings, which consist of borrowings under our New Term Loan Facility and DVB Credit Facility (both of which are described in Note 7).
•
The New Term Loan Facility (which was executed in January 2020 and was utilized to refinance the Initial Credit Facility (also defined in Note 7)) has a principal balance of $132.9 million, is expected to be repaid in equal semi-annual installments of $7.5 million beginning in December 2021 with a balloon payment due upon maturity in December 2023, and bears interest at LIBOR plus a margin of 4.50% from December 2021 through December 2022 and LIBOR plus a margin of 5.5% from December 2022 through the maturity date of December 2023.
•
The DVB Credit Facility has a principal balance of $9.0 million, is expected to be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022, and bears interest at LIBOR plus a margin of 2.75%.
Significant increases in interest rates could adversely affect our net income and our ability to service our debt.
While there are no derivatives in place as of the date of these financial statements, nor were any in place for any of the historical periods presented, we may in the future use derivatives to partially offset our exposure to foreign currency and interest rate risk on expected future cash flows and certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
16.
COMMITMENTS AND CONTINGENCIES
We may become a party to various legal proceedings generally incidental to our business and are subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, we face exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is our opinion that the outcome of any claim which might be pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the financial position of the Company, but could materially affect the Company’s results of operations in a given year.
To our knowledge, no claims have been filed against the Company, nor has it been party to any legal proceedings for the periods presented.
17.
SUBSEQUENT EVENTS
New Term Loan Facility
As described in Note 7, in December 2019, we reached an agreement with the lenders under the Initial Credit Facility, that the New Equity Line of Credit satisfied the condition precedent that the Company raise $15 million of additional equity in order to refinance the Initial Credit Facility with the $132.9 million New Term Loan Facility. In January 2020, the Company completed the refinancing of the Initial Credit Facility with the New Term Loan Facility. The terms and conditions of the New Term Loan facility are described in Note 7.
New Equity Line of Credit


F- 26

As described in Note 8, in December 2019, we reached an agreement to enter into the New Equity Line of Credit with SSH, a related party. The New Equity Line of Credit was executed in January 2020 and provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price.
On March 4, 2020, we issued 5,668,317 common shares under the New Equity Line of Credit for $0.88210 per share and aggregate net proceeds of approximately $5.0 million.
Novel Coronavirus (COVID-19)
Since the beginning of the calendar year 2020, the COVID-19 outbreak that originated in Hubei province in China and that has since spread globally has resulted in the implementation of numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus.  These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets. The reduction of economic activity has significantly reduced the global demand for oil and refined petroleum products.  The recent actions taken by Saudi Arabia and other OPEC members to increase the production of oil in the near term has resulted in a steep decline in oil prices, negatively impacting the offshore drilling markets. We expect that the impact of the COVID-19 pandemic and the uncertainty in the supply of oil will continue to cause volatility in the commodity markets.  The scale and duration of the impact of these factors remain unknowable but could have a material impact on our earnings, cash flow, financial condition and asset values for 2020. An estimate of the impact on the Company’s results of operations and financial condition cannot be made at this time.


F- 27
Exhibit


Exhibit 2.3

DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

As of December 31, 2019, Hermitage Offshore Services Ltd. (the “Company”) had common shares and related preferred shares purchase rights registered under Section 12 of the Securities Exchange Act of 1934, as amended.

The following description sets forth certain material provisions of the Company’s common shares and related preferred shares purchase rights. The following summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the applicable provisions of the Company’s Memorandum of Continuance (the “Memorandum of Continuance”), Bye-laws (the “Bye-laws”), Shareholders Rights Agreement, dated as of December 21, 2018, by and between the Company and Computershare Trust Company, N.A., as rights agent (the “Rights Agreement”) and the Certificate of Designations of Rights, Preferences and Privileges of Series A Participating Preferred Shares (the “Certificate of Designations”), each of which is incorporated by reference as an exhibit to the Annual Report on Form 20-F of which this Exhibit is a part. We encourage you to refer to our Memorandum of Continuance, Bye-laws, Rights Agreement and Certificate of Designations for additional information.

Objects and Powers
As stated in our Memorandum of Continuance, the objects of the Company are unrestricted and it has the capacity, rights, powers and privileges of a natural person. The Bye-laws do not impose any limitations on the ownership rights of our shareholders.
Authorized capitalization

Under our Memorandum of Continuance our authorized share capital consists of 350,000,000 common shares, par value $0.01 per share, and 50,000,000 preferred shares, par value $0.01 per share. As of December 31, 2019, we had 25,661,915 common shares issued and outstanding (excludes 274,452 treasury shares) and no preferred shares issued and outstanding.
Common shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders.  Subject to preferences that may be applicable to any outstanding preferred shares, holders of common shares are entitled to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for dividends.  Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common shares are entitled to receive pro rata our remaining assets available for distribution.  Holders of common shares do not have conversion, redemption or pre-emptive rights to subscribe to any of our securities.  The rights, preferences and privileges of holders of our common shares are subject to the rights of the holders of any preferred shares, which we may issue in the future.
Preferred shares
The Bye-laws authorize our Board of Directors to establish one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
•
the designation of the series;
•
the number of shares of the series;
•
the preferences and relative, participating, option or other special rights, if any, and any qualifications, limitations or restrictions of such series; and
•
the voting rights, if any, of the holders of the series.

Shareholders Rights Agreement
On December 21, 2018, our Board of Directors authorized and declared a dividend of one preferred share purchase right, or a Right, for each of the Company's common shares, par value $0.01 per share, and adopted a shareholder rights plan, as set forth in the Shareholders Rights Agreement, dated as of December 21, 2018 (the “Rights Agreement”), by and between the Company and Computershare Trust Company, N.A., as rights agent (“Computershare”).  The dividend was payable on December 31, 2018 to the shareholders of record on such date.




The Board of Directors has adopted this Rights Agreement to protect shareholders from coercive or otherwise unfair takeover tactics.  In general terms, it works by imposing a significant penalty upon any person or group which acquires 15% or more of the outstanding common shares of the Company without the approval of the Board of Directors.  The Rights Agreement should not interfere with any merger or other business combination approved by the Board of Directors.
A summary of the Rights Agreement is included below. Please note, however, that this description is only a summary, and is not complete, and should be read together with the entire Rights Agreement, a copy of which is filed as Exhibit 4.1 to the Company's report on Form 6-K, filed with the Commission on December 21, 2018 , as amended by Amendment No. 1 to the Rights Agreement, a copy of which is filed as Exhibit 4.1 to the Company's report on Form 6-K, filed with the Commission on February 15, 2019, each of which are incorporated herein by reference. The foregoing description of the Rights Agreement is qualified in its entirety by reference to such exhibits.
The Rights.  The Rights will initially trade with, and will be inseparable from, the Company's common shares.  The Rights are evidenced only by certificates that represent common shares.  New Rights will accompany any new common share of the Company issued after December 31, 2018 until the Distribution Date described below.
Exercise Price.  Each Right will allow its holder to purchase from the Company one one-thousandth of a Series A Participating Preferred Share, or a Preferred Share, for an initial exercise price of $10.00 (the “Exercise Price”), once the Rights become exercisable.  Following the effectiveness of our one-for-ten reverse stock split on January 28, 2019, the Exercise Price was automatically increased to $100.00 and may be further adjusted in accordance with the terms of the Rights Agreement. This portion of a Preferred Share will give the shareholder approximately the same dividend and liquidation rights as would one common share.  Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.
Exercisability.  The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an "Acquiring Person" by obtaining beneficial ownership of 15% or more of the outstanding common shares. Under the terms of the Rights Agreement, Scorpio Offshore Investments Inc. and its affiliates will not become an Acquiring Person under any circumstances and Mackenzie Financial Corporation will not become an Acquiring Person for so long as it beneficially owns less than 20% of the Company's outstanding common shares.
For persons who, prior to the time of public announcement of the Rights Agreement, beneficially owned 15% or more of the Company's outstanding common shares, the Rights Agreement "grandfathers" their current level of ownership, so long as they do not purchase additional shares in excess of certain limitations.
Certain synthetic interests in securities created by derivative positions - whether or not such interests are considered to be ownership of the underlying common shares or are reportable for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended - are treated as beneficial ownership of the number of common shares equivalent to the economic exposure created by the derivative position, to the extent actual common shares of the Company are directly or indirectly held by counterparties to the derivatives contracts.  Swaps dealers unassociated with any control intent or intent to evade the purposes of the Rights Plan are excepted from such imputed beneficial ownership.
The date when the Rights become exercisable is the "Distribution Date." Until that date, the common share certificates will also evidence the Rights, and any transfer of common shares will constitute a transfer of Rights.  After that date, the Rights will separate from the common shares and be evidenced by book-entry credits or by Rights certificates that the Company will mail to all eligible holders of common shares.  Any Rights held by an Acquiring Person are void and may not be exercised.
Consequences of a Person or Group Becoming an Acquiring Person.
•
Flip In.  If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, for the Exercise Price, purchase the Company's common shares with a market value of $200.00, based on the market price of the common shares prior to such acquisition.
•
Flip Over.  If the Company is later acquired in a merger or similar transaction after the Distribution Date, all holders of Rights except the Acquiring Person may, for the Exercise Price, purchase shares of the acquiring corporation with a market value of $200.00, based on the market price of the acquiring corporation's stock prior to such transaction.
•
Notional Shares.  Shares held by affiliates and associates of an Acquiring Person, including certain entities in which the Acquiring Person beneficially owns a majority of the equity securities, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person.






Preferred Share Provisions.
Each one one-thousandth of a Preferred Share, if issued:
•
will not be redeemable;
•
entitles holders to quarterly dividend payments in an amount per share equal to the aggregate per share amount of all cash dividends, and the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on Common Shares since the immediately preceding quarterly dividend payment date; and
•
entitles holders to one vote on all matters submitted to a vote of the shareholders of the Company.

The value of one one-thousandth interest in a Preferred Share should approximate the value of one common share.
Expiration.  The Rights expire on the earliest of (i) December 21, 2028; or (ii) the redemption or exchange of the Rights, as described below.
Redemption.  The Board of Directors may redeem the Rights for $0.10 per Right (subject to further adjustment in accordance with the terms of the Rights Agreement) under certain circumstances.  If the Board of Directors redeems any Rights, it must redeem all of the Rights.  Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $0.10 per Right.  The redemption price will be adjusted if the Company has a stock split or stock dividends of its common shares.
Exchange.  After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the outstanding common shares of the Company, the Board of Directors may extinguish the Rights by exchanging one common share or an equivalent security for each Right, other than Rights held by the Acquiring Person.
Anti-Dilution Provisions.  The Board of Directors may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Preferred Shares or common shares.  No adjustments to the Exercise Price of less than 1% will be made.
Amendments.  The terms of the Rights and the Rights Agreement may be amended in any respect without the consent of the holders of the Rights on or prior to the Distribution Date. Thereafter, the terms of the Rights and the Rights Agreement may be amended without the consent of the holders of Rights, with certain exceptions, in order to (i) cure any ambiguities; (ii) correct or supplement any provision contained in the Rights Agreement that may be defective or inconsistent with any other provision therein; (iii) shorten or lengthen any time period pursuant to the Rights Agreement; or (iv) make changes that do not adversely affect the interests of holders of the Rights (other than an Acquiring Person or an affiliate or associate of an Acquiring Person).
Directors
Our directors are elected by a simple majority of the votes cast by shareholders entitled to vote.  There is no provision for cumulative voting.
The Bye-laws require our Board of Directors to consist of at least one member. Our Board of Directors currently consists of seven members. In addition, there is currently one casual vacancy on the Board, which the Board has not yet filled. The Bye-laws may be amended by a simple majority of the votes cast by shareholders entitled to vote.
Directors are elected annually on a staggered basis, and each shall serve for a three year term 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 Board of Directors has the authority to fix the amounts which shall be payable to the members of the Board of Directors for attendance at any meeting or for services rendered to us.
Limitations on Ownership

There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our common shares.

Shareholder meetings




Under the Bye-laws, annual general meetings of the shareholders will be held at a time and place selected by our Board of Directors and special general meetings may be called at any time by our Board of Directors, provided that at least five days' notice is given of a meeting (other than an adjourned meeting), as required by the Bermuda Companies Act (the “Companies Act”), unless shorter notice is agreed by all shareholders entitled to attend and vote at an annual general meeting or by those shareholders holding not less than 95% of the nominal value of the shares giving a right to attend and vote at a special general meeting. The meetings are held in or outside of Bermuda. Our Board of Directors may fix any date as the record date for the purpose of identifying the persons entitled to receive notices of any general meeting. Any such record date may be on or at any time before or after any date on which such notice is dispatched.   One or more shareholders representing at least one-third of the total voting rights of our total issued and outstanding shares present in person or by proxy at a shareholder meeting shall constitute a quorum for the purposes of the meeting.
Limitations on liability and indemnification of officers and directors
The Companies Act authorizes companies to limit or eliminate the personal liability of directors and officers to companies and their shareholders for monetary damages for breaches of directors' fiduciary duties. The Bye-laws include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law.
The limitation of liability and indemnification provisions in the Bye-laws may discourage shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty.  These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders.  In addition, shareholders' investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Anti-takeover effect of certain provisions of the Bye-laws
Several provisions of the Bye-laws, 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 us.  However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
Blank check preferred shares
Under the terms of the Bye-laws, our Board of Directors has authority, without any further vote or action by our shareholders, to issue up to 50,000,000 blank check preferred shares.  Our Board of Directors may issue preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our management and might harm the market price of our common shares.  We have no current plans to issue any preferred shares.
Election and removal of directors
The Bye-laws require parties other than the Board of Directors to give advance written notice of nominations for the election of directors. The Bye-laws also provide that our directors may be removed for cause upon the affirmative vote of not less than two-thirds of the outstanding common shares entitled to vote for those directors.  These provisions may discourage, delay or prevent the removal of incumbent officers and directors.
Limited actions by shareholders
The Bye-laws provide that any action required or permitted to be taken by our shareholders must be effected at an annual or special general meeting of the Company or by the unanimous written resolution of our shareholders.  The Bye-laws provide that, save for the ability of shareholders holding not less than 10% of the paid-up capital of the Company carrying the right of voting at general meetings of the Company to requisition the Board of Directors to convene a special general meeting, as set out in the Companies Act, only our Board of Directors may call special general meetings of the Company and the business transacted at the special general meeting is limited to the purposes stated in the notice.  Accordingly, save in the circumstances described above, a shareholder will be prevented from calling a special meeting for shareholder consideration of a proposal unless scheduled




by our Board of Directors and shareholder consideration of a proposal may be delayed until the next annual general meeting of the Company.
Advance notice requirements for shareholder proposals and director nominations
The Bye-laws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual general meeting of the 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 registered office not less than 120 days nor more than 180 days prior to the one-year anniversary of the immediately preceding annual general meeting of shareholders. The Bye-laws also specify requirements as to the form and content of a shareholder's notice.  These provisions may impede shareholders' ability to bring matters before an annual general meeting of the Company or make nominations for directors at an annual general meeting of the shareholders.
Classified Board of Directors
As described above, the Bye-laws provide for the division of our Board of Directors into three classes of directors, with each class as nearly equal in number as possible, serving staggered three year terms beginning on the expiration of the initial term for each class.  Accordingly, approximately one-third of our Board of Directors will be elected each year.  This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of us.  It could also delay shareholders who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two years.
Business combinations
Although the Companies Act does not contain specific provisions regarding "business combinations" between companies incorporated under the laws of Bermuda and "interested shareholders," we have included these provisions in our Bye-laws.  Specifically, our Bye-laws prohibit us from engaging in a "business combination" with certain persons for three years following the date the person becomes an interested shareholder. Interested shareholders generally include:
•
any person who is the beneficial owner of 15% or more of our outstanding voting shares; or
•
any person who is our affiliate or associate and who held 15% or more of our outstanding voting shares at any time within three years before the date on which the person's status as an interested shareholder is determined, and the affiliates and associates of such person.
Subject to certain exceptions, a business combination includes, among other things:
•
certain amalgamations, mergers or consolidations of us or any direct or indirect majority-owned subsidiary of ours;
•
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets or of any subsidiary of ours having an aggregate market value equal to 10% or more of either the aggregate market value of all of our assets, determined on a combined basis, or the aggregate value of all of our outstanding shares;
•
certain transactions that result in the issuance or transfer by us of any shares of ours to the interested shareholder;
•
any transaction involving us or any of our subsidiaries that has the effect of increasing the proportionate share of any class or series of shares, or securities convertible into any class or series of shares, of ours or any such subsidiary that is owned directly or indirectly by the interested shareholder or any affiliate or associate of the interested shareholder; and
•
any receipt by the interested shareholder of the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through us.
These provisions of the Bye-laws do not apply to a business combination if:
•
before a person became an interested shareholder, our Board of Directors approved either the business combination or the transaction in which the shareholder became an interested shareholder;
•
upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our voting shares outstanding at the time the transaction commenced, other than certain excluded shares;
•
at or following the transaction in which the person became an interested shareholder, the business combination is approved by our Board of Directors and authorized at an annual or special meeting of shareholders, and not




by written consent, by the affirmative vote of the holders of at least two-thirds of our outstanding voting shares that are not owned by the interested shareholder;
•
the shareholder was or became an interested shareholder prior to the closing of our initial public offering;
•
a shareholder became an interested shareholder inadvertently and (i) as soon as practicable divested itself of ownership of sufficient shares so that the shareholder ceased to be an interested shareholder; and (ii) would not, at any time within the three-year period immediately prior to a business combination between us and such shareholder, have been an interested shareholder but for the inadvertent acquisition of ownership; or
•
the business combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required under our amended and restated Bye-laws which (i) constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was not an interested shareholder during the previous three years or who became an interested shareholder with the approval of the Board of Directors; and (iii) is approved or not opposed by a majority of the members of the Board of Directors then in office (but not less than one) who were directors prior to any person becoming an interested shareholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors.  The proposed transactions referred to in the preceding sentence are limited to:
◦
an amalgamation, merger or consolidation involving us (except for an amalgamation or merger in respect of which, pursuant to the Companies Act, no vote of our shareholders is required);
◦
a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of our assets or those of any direct or indirect majority-owned subsidiary of ours (other than to any direct or indirect wholly owned subsidiary or to us) having an aggregate market value equal to 50% or more of either the aggregate market value of all of our assets determined on a consolidated basis or the aggregate market value of all the outstanding shares; or
◦
a proposed tender or exchange offer for 50% or more of our outstanding voting shares.
Listing
Our common shares are listed on the NYSE under the symbol "PSV."
Transfer Agent
The registrar and transfer agent for our common shares is Computershare Trust Company, N.A.
Bermuda Company Considerations
Our corporate affairs are governed by our Bye-laws and by the Companies Act. The following table provides a comparison between the statutory provisions of the Companies Act and the General Corporation Law of the State of Delaware relating to shareholders’ rights.




 
Delaware
 
 
 
Bermuda
 
 
Dividends
 
Under Delaware law, unless otherwise provided in a corporation's certificate of incorporation, directors may declare and pay dividends upon the shares of its capital stock either (i) out of its surplus or (ii) if the corporation does not have surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
 
The excess, if any, at any given time, of the net assets of the corporation over the amount so determined to be capital is surplus. Net assets means the amount by which total assets exceed total liabilities.
 
Dividends may be paid in cash, in property, or in shares of the corporation's capital stock.
 
Under the Companies Act, a company may declare and pay a dividend, or make a distribution out of contributed surplus, provided there are reasonable grounds for believing that after any such payment (a) the company will be able to pay its liabilities as they become due and (b) the realizable value of its assets will be greater than its liabilities. (Companies Act § 54). Mechanically this requires the Company to make certain filings from time to time with the Bermuda Registrar of Companies in order to keep track of the contributed surplus.
 
 
 
Directors
 
Number of board members shall be fixed by, or in a manner provided by, the bylaws, unless the certificate of incorporation fixes the number of directors, in which case a change in the number shall be made only by amendment of the certificate of incorporation. 
 
The number of directors is fixed by the bye-laws, and any changes to such number must be approved by the Board of Directors and/or the shareholders in accordance with the company's bye-laws. (Companies Act §91).
 





Dissenter’s Rights of Appraisal
 
Appraisal rights shall be available for the shares of any class or series of stock of a corporation in a merger or consolidation, subject to limited exceptions, such as a merger or consolidation of corporations listed on a national securities exchange in which listed stock is the offered consideration.
 
A dissenting shareholder of a Bermuda exempted company is entitled to be paid the fair value of his or her shares in an amalgamation or merger. (Companies Act § 106(6)).
Shareholder Derivative Actions
 
Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In any derivative suit instituted by a shareholder or a corporation, it shall be averred in the complaint that the plaintiff was a shareholder of the corporation at the time of the transaction of which he complains or that such shareholder's stock thereafter developed upon such shareholder by operation of law. 
 
Generally, class actions and derivative actions are not available to shareholders under Bermuda law. (See generally, Bermuda Companies Act).

Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is
alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the bye-laws.

Bermuda courts would further give consideration to acts that are alleged to constitute a fraud against the minority of shareholders, or, for instance, where an act requires the approval of a greater percentage of the company's shareholders than that which actually approved it.
 

Shareholder Meetings and Voting Rights
 
Shareholder meetings may be held at such times and places as designated in the certificate of incorporation or the bylaws, or if not so designated, as determined by the Board of Directors.

Special meetings of the shareholders may be called by the Board of Directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws, or if not so designated, as determined by the Board of Directors.

Shareholder meetings may be held within or without the State of Delaware.

Written notice shall be given not less than 10 nor more than 60 days before the meeting. Whenever shareholders are required to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any.
 
 
Any action required to be taken by a meeting of shareholders may be taken without a meeting if a consent for such action is in writing and is signed by shareholders having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
 
Shareholder meetings may be called by the Board of Directors and must be called upon the request of shareholders holding not less than 10% of the paid-up capital of the company carrying the right to vote at a general meeting. (Companies Act §74(1)).

Special meetings may be convened by the Board of Directors whenever they see fit, and the meetings shall be called special general meetings. (Companies Act §71(1)).

May be held in or outside of Bermuda.

Notice:
Notice of all general meetings shall specify the place, the day and hour of the meeting. (Companies Act §71(2)).

Notice of special general meetings shall specify the place, the day, hour and general nature of the business to be considered at the meeting. (Companies Act §71(2)).

Notwithstanding any provision in the bye-laws of a company, at least five days’ notice shall be given of a company meeting. (Companies Act §75(1)).

The unintentional failure to give notice to any person does not invalidate the proceedings. (Companies Act §71(4)).
 
 
 





 
 
 
Generally, any action which may be done by resolution of a company in a general meeting may be done by resolution in writing. (Companies Act §77A).
 
 

Shareholders may act by written resolution to elect directors, but may not act by written resolution to remove directors. (Companies Act §77A(6)(b)).

Except as otherwise provided in our bye-laws or the Companies Act, any action or resolution requiring the approval of the shareholders may be passed by a simple majority of votes cast (Companies Act §77(2)).

Any person authorized to vote may authorize another person or persons to act for him by proxy. (Companies Act §77(3)).

The bye-laws may specify the number to constitute a quorum for a general meeting of the Company. In the case of a company having only one member, one member present in person or by proxy constitutes the necessary quorum. (Companies Act § 106(4A)).

When a quorum is once present to constitute a meeting, the byelaws may provide for whether or not it is broken by the subsequent withdrawal of any shareholders. (Companies Act §13(2)(e)).

The bye-laws may provide for cumulative voting in the election of directors. (Companies Act §77).












Exhibit

Exhibit 4.7
Execution Version

COMMON STOCK PURCHASE AGREEMENT
DATED JANUARY 14, 2020
BY AND AMONG
HERMITAGE OFFSHORE SERVICES LTD.
AND
SCORPIO SERVICES HOLDING LIMITED



TABLE OF CONTENTS

Article I PURCHASE AND SALE OF COMMON STOCK
1
 
Section 1.1
Purchase and Sale of Stock
1
 
Section 1.2
Effective Date; Settlement Dates
1
 
Section 1.3
Reservation of Common Stock
2
Article II FIXED REQUEST TERMS
2
 
Section 2.1
Fixed Request Notice
2
 
Section 2.2
Discount Price
3
 
Section 2.3
Share Calculation
3
 
Section 2.4
Limitation of Fixed Requests
3
 
Section 2.5
Reduction of Commitment
3
 
Section 2.6
Below Floor Price
4
 
Section 2.7
Purchaser Confirmation; Settlement
4
 
Section 2.8
Agreed Reduction to Total Commitment
4
 
Section 2.9
Blackout Periods
4
Article III REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
7
 
Section 3.1
Organization and Standing of the Investor
7
 
Section 3.2
Authorization and Power
7
 
Section 3.3
No Conflicts
7
 
Section 3.4
Information
8
 
Section 3.5
No Registration; Legend
8
 
Section 3.6
Purchase for Investment
8
Article IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
9
 
Section 4.1
Organization, Good Standing and Power
9
 
Section 4.2
Authorization, Enforcement
9
 
Section 4.3
Capitalization
9
 
Section 4.4
Issuance of Securities
10
 
Section 4.5
No Conflicts
10
 
Section 4.6
Commission Documents, Financial Statements
11
 
Section 4.7
Subsidiaries
12
 
Section 4.8
No Material Adverse Effect
12
 
Section 4.9
No Undisclosed Liabilities
12
 
Section 4.10
No Undisclosed Events or Circumstances
12
 
Section 4.11
Indebtedness
12
 
Section 4.12
Title To Assets
13
 
Section 4.13
Actions Pending
13
 
Section 4.14
Compliance With Law
13
 
Section 4.15
Operation of Business
14
 
Section 4.16
Environmental Compliance
14
 
Section 4.17
Material Agreements
15
 
Section 4.18
Transactions With Affiliates
15




 
Section 4.19
Employees
16
 
Section 4.20
Use of Proceeds
16
 
Section 4.21
Investment Company Act Status
16
 
Section 4.22
Taxes
16
 
Section 4.23
Insurance
17
 
Section 4.24
Listing and Maintenance Requirements; DTC Eligibility
17
 
Section 4.25
Foreign Corrupt Practices Act
17
 
Section 4.26
Money Laundering Laws
17
 
Section 4.27
OFAC
18
 
Section 4.28
Manipulation of Price
18
 
Section 4.29
Acknowledgement Regarding Investor’s Acquisition of Securities
18
 
Section 4.30
Foreign Private Issuer.
18
Article V COVENANTS
19
 
Section 5.1
Securities Compliance
19
 
Section 5.2
Registration and Listing
19
 
Section 5.3
Compliance with Laws.
20
 
Section 5.4
Selling Restrictions.
21
 
Section 5.5
Non-Public Information
21
 
Section 5.6
Registration rights
21
 
Section 5.7
Disclosure Schedule.
22
Article VI CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES
22
 
Section 6.1
Conditions Precedent to the Obligation of the Company
22
 
Section 6.2
Conditions Precedent to the Obligation of the Investor
24
Article VII TERMINATION
25
 
Section 7.1
Term, Termination by Mutual Consent
25
 
Section 7.2
Effect of Termination
26
Article VIII INDEMNIFICATION
26
 
Section 8.1
General Indemnity.
26
 
Section 8.2
Indemnification Procedures
27
Article IX MISCELLANEOUS
28
 
Section 9.1
Fees and Expenses.
28
 
Section 9.2
Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial.
29
 
Section 9.3
Entire Agreement; Amendment
30
 
Section 9.4
Notices
30
 
Section 9.5
Waivers
31
 
Section 9.6
Headings; Construction
32
 
Section 9.7
Successors and Assigns
32
 
Section 9.8
Governing Law
32
 
Section 9.9
Survival
32
 
Section 9.10
Counterparts
33
 
Section 9.11
Publicity
33

ii


 
Section 9.12
Severability
33
 
Section 9.13
Third Party Beneficiaries
33
 
Section 9.14
Further Assurances
34


Annex A:    Definitions

Exhibit A:    Form of Fixed Request Notice
Exhibit B:    Form of Purchaser Confirmation Notice

Disclosure Schedule








iii


COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT, is made and entered into on the 14th day of January, 2020 (this “Agreement”), by and among Scorpio Services Holding Limited, a company organized and existing under the laws of the Republic of the Marshall Islands (the “Investor”) and Hermitage Offshore Services Ltd., a corporation organized and existing under the laws of Bermuda (the “Company”). The Investor and the Company together shall be referred to as the “Parties”. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in Annex A hereto.
RECITALS
WHEREAS, the Parties desire that, upon the terms and subject to the conditions and limitations set forth herein, the Company may issue and sell to the Investor, and the Investor shall thereupon purchase from the Company, up to $15,000,000 worth of newly issued shares of the Company’s common stock, par value $0.01 per share (“Common Stock”); and
WHEREAS, the offer and sale of the Shares hereunder have not been registered by the Company under a registration statement with the Securities and Exchange Commission (the “Commission”) under the Securities Act.
NOW, THEREFORE, the Parties hereto, intending to be legally bound, hereby agree as follows:
Article I
PURCHASE AND SALE OF COMMON STOCK
Section 1.1    Purchase and Sale of Stock
Upon the terms and subject to the conditions and limitations of this Agreement, during the Investment Period, the Company, in its discretion, may issue and sell to the Investor or its nominee up to an aggregate of $15,000,000 (the “Total Commitment”) worth of duly authorized, validly issued, fully paid and non-assessable shares (the “Shares”) of Common Stock (the “Aggregate Limit”) by the delivery to the Investor of separate Fixed Request Notices as provided in Article II hereof. The aggregate of all Fixed Request Amounts shall not exceed the Aggregate Limit.
Section 1.2    Effective Date; Settlement Dates
This Agreement shall become effective and binding upon the delivery of counterpart signature pages of this Agreement executed by each of the Parties hereto (the “Effective Date”). In consideration of and in express reliance upon the representations, warranties and covenants, and otherwise upon the terms and subject to the conditions, of this Agreement, from and after the Effective Date and during the Investment Period the Company shall issue and sell to the Investor or its nominee, and the Investor or its nominee agrees to purchase from the Company, the Shares in respect of each Fixed Request. The issuance and sale of Shares to the Investor or its nominee pursuant to any Fixed Request shall occur on the applicable Settlement Date in accordance with

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Sections 2.7 and 2.9, provided in each case that all of the conditions precedent thereto set forth in Article VI theretofore shall have been fulfilled or (to the extent permitted by applicable law) waived.
Section 1.3    Reservation of Common Stock
The Company has or will have duly authorized and reserved for issuance, and covenants to continue to so reserve once reserved for issuance, free of all preemptive and other similar rights, at all times during the Investment Period, the requisite aggregate number of authorized but unissued shares of its Common Stock to timely effect the issuance, sale and delivery in full to the Investor of all Shares to be issued in respect of all Fixed Requests under this Agreement, in any case prior to the issuance to the Investor of such Shares.
ARTICLE II    
FIXED REQUEST TERMS
Subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions set forth in this Agreement, the Parties agree (unless otherwise mutually agreed upon by the Parties in writing) as follows:
Section 2.1    Fixed Request Notice
The Company may, from time to time in its sole discretion, no later than 9:30 a.m. (New York time) on a Trading Day, provide to the Investor a Fixed Request Notice (such date, the “Trade Date”), substantially in the form attached hereto as Exhibit A (the “Fixed Request Notice”), which Fixed Request Notice shall become effective at 9:30 a.m. (New York time) on such Trade Date; provided, however, that if the Company delivers the Fixed Request Notice to the Investor later than 9:30 a.m. (New York time) on any Trading Day, then the Trade Date shall be the next Trading Day after receipt of such Fixed Request Notice (unless a subsequent Trade Date is specified therein). The Company shall provide the Investor with at least three (3) business days’ prior notice of its intent to deliver a Fixed Request Notice to the Investor. The Fixed Request Notice shall specify the Fixed Amount Requested (which shall not exceed the Maximum Fixed Amount Requested), establish the Floor Price for such Fixed Request, and designate the applicable Trade Date.
(b)    The Investor shall be obligated to accept each Fixed Request Notice prepared and delivered in accordance with the provisions of this Agreement, provided, however, that nothing herein shall obligate the Investor to purchase from the Company any shares of Common Stock to the extent that, after giving effect to such purchase, the Total Commitment would be exceeded. For the avoidance of doubt, nothing in this Section 2.1(b) shall be deemed to limit the Investor’s obligation to purchase any shares of Common Stock pursuant to a Fixed Request Notice, including a portion of such Fixed Amount Requested, to the extent that such purchase would not exceed the Total Commitment.
Section 2.2    Discount Price
The applicable discount price (the “Discount Price”) in respect of any Fixed Request shall be equal to the product of (i) 0.94 and (ii) the trailing 5-day Volume Weighted Average Price (the

2    


“5-Day VWAP”) of the Company’s Common Stock on the day on which the Common Stock is traded on the Trading Market prior to the Trade Date, provided that such 5-Day VWAP equals or exceeds the applicable Floor Price; provided, however, that if the 5-Day VWAP does not equal or exceed the applicable Floor Price on the Trade Date, then the Investor shall not be obligated to purchase any Shares in respect of the applicable Fixed Request. Anything to the contrary in this Agreement notwithstanding, unless otherwise mutually agreed upon by the Investor and the Company, at no time shall the Investor be required to purchase more than the Maximum Fixed Amount Requested in respect of any Fixed Request.
Section 2.3    Share Calculation
With respect to each Trade Date on which the 5-Day VWAP equals or exceeds the Floor Price, the number of Shares to be issued by the Company to the Investor pursuant to a Fixed Request shall equal the quotient of the total Fixed Amount Requested divided by the Discount Price determined in accordance with Section 2.2 (rounded to the nearest whole Share).
Section 2.4    Limitation of Fixed Requests
Not less than seven (7) business days shall elapse between each Trade Date during the Investment Period. Each Fixed Request automatically shall expire immediately following the Trade Date.
Section 2.5    Reduction of Commitment
On the Settlement Date with respect to each Trade Date, the Investor’s Total Commitment under this Agreement shall automatically (and without the need for any amendment to this Agreement) be reduced, on a dollar-for-dollar basis, by the total amount of the Fixed Request Amount for such Trade Date paid to the Company at such Settlement Date.
Section 2.6    Below Floor Price
If the 5-Day VWAP for any Trade Date is lower than the applicable Floor Price, then no Shares shall be purchased or sold with respect to such Trade Date. If trading in the Common Stock on the NYSE (or any other Trading Market on which the Common Stock is then listed or quoted) is suspended for any reason for more than three hours on any Trade Date, then the Investor may, at its option, deem the 5-Day VWAP of the Common Stock to be lower than the Floor Price on such Trade Date, and shall not be obligated to purchase any Shares with respect to such Trade Date.
Section 2.7    Purchaser Confirmation; Settlement
The Investor shall deliver to the Company, via facsimile transmission or e-mail in accordance with Section 9.4, not later than 8:00 p.m. (New York time) on each Trade Date on which the 5-Day VWAP was equal to or greater than the Floor Price, a Purchaser Confirmation Notice, substantially in the form attached hereto as Exhibit B (the “Purchaser Confirmation Notice”), which shall specify (i) the total Fixed Amount Requested to be purchased by the Investor on the applicable Settlement Date, (ii) the total number of Shares to be purchased by the Investor in respect of the applicable

3    


Fixed Request, (iii) the 5-Day VWAP with respect to the applicable Trade Date, (iv) the applicable price per Share at which Shares are to be purchased by the Investor in respect of the applicable Fixed Request and (v) to the extent the Shares will be purchased by a nominee of the Investor, the name and such other information as may reasonably be requested concerning such nominee by the Company. The payment for, against subsequent delivery of, Shares in respect of each Fixed Request shall be settled on the second Trading Day next following the Trade Date, or on such earlier date as the Parties may mutually agree (the “Settlement Date”). On each Settlement Date, the Company shall, or shall cause its transfer agent to, transfer the Shares purchased by the Investor to the Investor against prior payment to the Company’s designated account by wire transfer of immediately available funds. As set forth in Section 9.1(ii), a failure by the Company to deliver such Shares to the Investor or its designee(s) shall result in the payment of partial damages by the Company to the Investor.
Section 2.8    Agreed Reduction to Total Commitment
If the Company issues any Common Stock to third parties acceptable to the Company’s Lenders in a private or public placement during the Investment Period (the “Third Party Issuance”), or enters into a stock purchase agreement which gives the Company the right to make a Third Party Issuance on demand (the “Third Party ELOC”), the Parties may agree (without the need for any amendment to this Agreement) that the Investor’s Total Commitment under this Agreement shall be reduced, on a dollar-for-dollar basis, by the total amount received under the Third Party Issuance or committed under the Third Party ELOC.
Section 2.9    Blackout Periods
Notwithstanding any other provision of this Agreement, the Company shall not deliver any Fixed Request Notice or otherwise offer or sell Shares to the Investor, and the Investor shall not be obligated to purchase any Shares pursuant to this Agreement, (i) during any period in which the Company is, or may be deemed to be, in possession of material non-public information, or (ii) except as expressly provided in this Section 2.9, at any time from and including the date (each, an “Announcement Date”) on which the Company shall issue a press release containing, or shall otherwise publicly announce, its earnings, revenues or other results of operations (each, an “Earnings Announcement”) through and including the time that is one full Trading Day after the time that the Company files (a “Filing Time”) a Report on Form 6-K or an Annual Report on Form 20-F that includes consolidated financial statements as of and for the same period or periods, as the case may be, covered by such Earnings Announcement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor hereby makes the following representations and warranties to the Company:
Section 3.1    Organization and Standing of the Investor
The Investor is duly organized and validly existing under the laws of the Republic of the Marshall Islands.

4    


Section 3.2    Authorization and Power
The Investor has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to purchase the Shares in accordance with the terms hereof. The execution, delivery and performance of this Agreement by the Investor and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and no further consent or authorization of the Investor, its Board of Directors or stockholders is required. This Agreement has been duly executed and delivered by the Investor. This Agreement constitutes a valid and binding obligation of the Investor enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership, or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.
Section 3.3    No Conflicts
The execution, delivery and performance by the Investor of this Agreement and the consummation by the Investor of the transactions contemplated herein do not and shall not (i) result in a violation of the Investor’s charter documents, bylaws or other applicable organizational instruments, (ii) conflict with, constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Investor is a party or is bound, (iii) create or impose any lien, charge or encumbrance on any property of the Investor under any agreement or any commitment to which the Investor is party or under which it is bound or under which any of its properties or assets are bound, or (iv) result in a violation of any federal, state, local or foreign statute, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Investor or by which any of its properties or assets are bound or affected, except, in the case of clauses (ii), (iii) and (iv), for such conflicts, defaults, terminations, amendments, acceleration, cancellations and violations as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of the Investor to enter into and perform its obligations under this Agreement in any material respect. The Investor is not required under federal, state, local or foreign law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Shares in accordance with the terms hereof.

5    


Section 3.4    Information
All materials relating to the business, financial condition, management and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Investor have been furnished or otherwise made available to the Investor or its advisors. The Investor and its advisors have been afforded the opportunity to ask questions of representatives of the Company. The Investor has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. The Investor understands that it (and not the Company) shall be responsible for its own tax liabilities that may arise as a result of this investment or the transactions contemplated by this Agreement. The Investor is aware of all of its obligations under U.S. federal and applicable state securities laws and all rules and regulations promulgated thereunder in connection with this Agreement and the transactions contemplated hereby and the purchase and sale of the Securities.
Section 3.5    No Registration; Legend
The Investor understands and acknowledges that the Shares sold pursuant to this Agreement will not be registered under the Securities Act and, therefore, the Shares will be characterized as “restricted securities” under the Securities Act and such laws and may not be sold unless the Shares are subsequently registered under the Securities Act and qualified under state law or unless an exemption from such registration and such qualification is available. Further, a legend will be placed on any certificate or book entry notations evidencing the Shares stating that such Shares have not been registered under the Securities Act and that such Shares are subject to restrictions on transferability and sale substantially in the following form:
“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS AND ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT, DATED January 14, 2020 BY AND AMONG THE COMPANY AND THE INVESTOR NAMED THEREIN. THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT.”
Section 3.6    Purchase for Investment
The Investor (1) is acquiring the Shares pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute any of the Shares to any person, (2) will not sell or otherwise dispose of any of the Shares, except in compliance with the registration requirements or exemption provisions of the Shares Act and any other applicable securities laws, (3) has such knowledge and experience in financial and business matters and in

6    


investments of this type that it is capable of evaluating the merits and risks of its investment in the Shares and of making an informed investment decision, and (4) is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Commission Documents or the disclosure schedule delivered by the Company to the Investor (which is hereby incorporated by reference in, and constitutes an integral part of, this Agreement) (the “Disclosure Schedule”), the Company hereby makes the following representations and warranties to the Investor:
Section 4.1    Organization, Good Standing and Power
The Company is a corporation duly organized, validly existing and in good standing under the laws of Bermuda and has the requisite corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted. The Company and each Subsidiary is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except to the extent that the failure to be so qualified would not have a Material Adverse Effect.
Section 4.2    Authorization, Enforcement
The Company has the requisite corporate power and authority to enter into and perform this Agreement and to issue and sell the Securities in accordance with the terms hereof. Except for approvals of the Company’s Board of Directors or a committee thereof as may be required in connection with any issuance and sale of the Shares to the Investor hereunder (which approvals shall be obtained prior to the delivery of any Fixed Request Notice), the execution, delivery and performance by the Company of this Agreement and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.
Section 4.3    Capitalization
The authorized capital stock of the Company and the shares thereof issued and outstanding were as set forth in the Commission Documents on the dates reflected therein. All of the outstanding shares of Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. No shares of Common Stock are entitled to preemptive rights and there are no outstanding debt securities and no contracts, commitments, understandings, or arrangements by

7    


which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company other than those issued or granted in the ordinary course of business pursuant to the Company’s equity incentive and/or compensatory plans or arrangements. Except for customary transfer restrictions contained in agreements entered into by the Company to sell restricted securities, the Company is not a party to, and it has no Knowledge of, any agreement restricting the voting or transfer of any outstanding shares of the capital stock of the Company. The offer and sale of all capital stock, convertible or exchangeable securities, rights, warrants or options of the Company issued prior to the Effective Date complied, in all material respects, with all applicable federal and state securities laws, and no stockholder has any right of rescission or damages or any “put” or similar right with respect thereto that would have a Material Adverse Effect. The Company has made available via the Commission’s Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) true and correct copies of the Company’s Memorandum of Continuance as in effect on the Effective Date (the “Charter”), and the Company’s Bylaws as in effect on the Effective Date (the “Bylaws”).
Section 4.4    Issuance of Securities
The Shares to be issued under this Agreement have been or will be (prior to the delivery of any Fixed Request Notice to the Investor hereunder), duly authorized by all necessary corporate action on the part of the Company. The Shares, when paid for in accordance with the terms of this Agreement, shall be validly issued and outstanding, fully paid and nonassessable and free from all liens, charges, taxes, security interests, encumbrances, rights of first refusal, preemptive or similar rights and other encumbrances with respect to the issue thereof.
Section 4.5    No Conflicts
The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and shall not (i) result in a violation of any provision of the Company’s Charter or Bylaws, (ii) other than any conflicts, defaults or rights that have been waived, conflict with, constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give rise to any rights of termination, amendment, acceleration or cancellation of, any material agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company or any of its Significant Subsidiaries is a party or is bound, (iii) create or impose a lien, charge or encumbrance on any property or assets of the Company or any of its Significant Subsidiaries under any agreement or any commitment to which the Company or any of its Significant Subsidiaries is a party or by which the Company or any of its Significant Subsidiaries is bound or to which any of their respective properties or assets is subject, or (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or decree applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries are bound or affected (including federal and state securities laws and regulations and the rules and regulations of the Trading Market), except, in the case of clauses (ii), (iii) and (iv), for such conflicts, defaults, terminations, amendments, acceleration, cancellations, liens, charges,

8    


encumbrances and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The Company is not required under any applicable federal, state, local or foreign law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement, or to issue and sell the Securities to the Investor in accordance with the terms hereof (other than any filings which may be required to be made by the Company with the Commission, the Financial Industry Regulatory Authority (“FINRA”) or the Trading Market subsequent to the Effective Date).
Section 4.6    Commission Documents, Financial Statements
(a)    The Company has timely filed (giving effect to permissible extensions in accordance with Rule 12b-25 under the Exchange Act) all Commission Documents. The Company has made available via EDGAR true and complete copies of the Commission Documents filed with or furnished to the Commission prior to the Effective Date (including, without limitation, the 2018 Form 20-F). No Subsidiary of the Company is required to file or furnish any report, schedule, registration, form, statement, information or other document with the Commission. The Company has not provided to the Investor any information which, according to applicable law, rule or regulation, was required to have been disclosed publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. The financial statements, together with the related notes and schedules, of the Company included in the Commission Documents comply as to form in all material respects with all applicable accounting requirements and the published rules and regulations of the Commission. Such financial statements, together with the related notes and schedules, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial condition of the Company and its consolidated Subsidiaries on the dates indicated and the results of operations and cash flows for the periods indicated (subject, in the case of unaudited statements, to normal year-end audit adjustments).
(b)    The Company has timely filed with the Commission and made available via EDGAR all certifications and statements required by (x) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002 (“SOXA”)) with respect to all relevant Commission Documents. The Company is in compliance in all material respects with the provisions of SOXA applicable to it on the date hereof. The Company maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the Exchange Act;

9    


such controls and procedures are effective to ensure that all material information concerning the Company and its Subsidiaries is made known on a timely basis to the individuals responsible for the timely and accurate preparation of the Company’s Commission filings and other public disclosure documents. As used in this Section 4.6(b), the term “file” shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the Commission.
(c)    KPMG AS, are, with respect to the Company, independent public accountants as required by the Securities Act and is an independent registered public accounting firm within the meaning of SOXA as required by the rules of the Public Company Accounting Oversight Board. KPMG AS has not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).
Section 4.7    Subsidiaries
Schedule 5.7 to this Agreement sets forth each Subsidiary of the Company on the Effective Date, showing its jurisdiction of incorporation or organization, and the Company does not have any other Subsidiaries on the Effective Date.
Section 4.8    No Material Adverse Effect
Since December 31, 2018, the Company has not experienced or suffered any Material Adverse Effect, and, except as disclosed in the Commission Documents, there exists no current state of facts, condition or event which would have a Material Adverse Effect.
Section 4.9    No Undisclosed Liabilities
Neither the Company nor any of its Subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that would be required to be disclosed on a balance sheet of the Company or any Subsidiary (including the notes thereto) in conformity with GAAP and are not disclosed in the Commission Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries respective businesses since December 31, 2018 and which, individually or in the aggregate, do not or would not have a Material Adverse Effect.
Section 4.10    No Undisclosed Events or Circumstances
No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company at or before the Effective Date but which has not been so publicly announced or disclosed, except for events or circumstances which, individually or in the aggregate, do not or would not have a Material Adverse Effect.

10    


Section 4.11    Indebtedness
The 2018 Form 20-F sets forth, as of December 31, 2018, all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments through such date. For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements, indemnities and other contingent obligations in respect of Indebtedness of others in excess of $100,000, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP. There is no existing or continuing default or event of default in respect of any Indebtedness of the Company or any of its Subsidiaries, except as disclosed in the Commission Documents.
Section 4.12    Title To Assets
Each of the Company and its Subsidiaries has good and valid title to, or has valid rights to lease or otherwise use, all of their respective real and personal property reflected in the Commission Documents, free of mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the Commission Documents or that would not have a Material Adverse Effect. All real property and facilities held under lease by the Company or any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or any of its Subsidiaries.
Section 4.13    Actions Pending
There is no action, suit, claim, investigation or proceeding pending, or to the Knowledge of the Company threatened, against the Company or any Subsidiary which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as disclosed in the Commission Documents, there is no action, suit, claim, investigation or proceeding pending, or to the Knowledge of the Company threatened, against or involving the Company, any Subsidiary or any of their respective properties or assets, or involving any officers or directors of the Company or any of its Subsidiaries, including, without limitation, any securities class action lawsuit or stockholder derivative lawsuit related to the Company, in each case which, if determined adversely to the Company, its Subsidiary or any officer or director of the Company or its Subsidiaries, would have a Material Adverse Effect. Except as set forth in the Commission Documents, no judgment, order, writ, injunction or decree or award has been issued by or, to the Knowledge of the Company, requested of any court, arbitrator or governmental agency which would be reasonably expected to result in a Material Adverse Effect.
Section 4.14    Compliance With Law

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The business of the Company and the Subsidiaries has been and is presently being conducted in compliance with all applicable federal, state, local and foreign governmental laws, rules, regulations and ordinances, except for such non-compliance which, individually or in the aggregate, would not have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries, except in all cases for possible violations which could not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the generality of the foregoing, except as disclosed in the Commission Documents, the Company satisfies, on the Effective Date, all requirements for the continued listing or quotation of its Common Stock on the Trading Market, and the Company is not, on the Effective Date, in material violation of any of the rules, regulations or requirements of the Trading Market and has no Knowledge of any facts or circumstances that could reasonably be expected to lead to delisting or suspension of the Common Stock by the Trading Market in the foreseeable future.
Section 4.15    Operation of Business
(a)    The Company or one or more of its Subsidiaries possesses such permits, licenses, approvals, consents and other authorizations (including licenses, accreditation and other similar documentation or approvals of any local health departments) issued by the appropriate federal, state, local or foreign regulatory agencies or bodies as are necessary to conduct the business now operated by it (collectively, “Governmental Licenses”), except where the failure to possess such Governmental Licenses, individually or in the aggregate, would not have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure to so comply, individually or in the aggregate, would not have a Material Adverse Effect. All of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect, individually or in the aggregate, would not have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received any written notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, if the subject of any unfavorable decision, ruling or finding, individually or in the aggregate, would have a Material Adverse Effect. This Section 4.15 does not relate to environmental matters, such items being the subject of Section 4.16.
(b)    The Company or one or more of its Subsidiaries owns or possesses adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names, trade dress, logos, copyrights and other intellectual property, including, without limitation, all of the intellectual property described in the Commission Documents as being owned or licensed

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by the Company (collectively, “Intellectual Property”), necessary to carry on the business now operated by it, except where the failure to possess such Intellectual Property, individually or in the aggregate, would not have a Material Adverse Effect. There are no actions, suits or judicial proceedings pending, or to the Company’s Knowledge threatened, relating to patents or proprietary information to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is subject, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which could render any Intellectual Property invalid or inadequate to protect the interest of the Company and its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, individually or in the aggregate, would have a Material Adverse Effect.
Section 4.16    Environmental Compliance
Except as disclosed in the Commission Documents, the Company and each of its Subsidiaries have obtained all material approvals, authorization, certificates, consents, licenses, orders and permits or other similar authorizations of all governmental authorities, or from any other Person, that are required under any Environmental Laws, except for any approvals, authorization, certificates, consents, licenses, orders and permits or other similar authorizations the failure of which to obtain does not or would not have a Material Adverse Effect. “Environmental Laws” shall mean all applicable laws relating to the protection of the environment, including all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous substances, chemical substances, pollutants, contaminants or toxic substances, material or wastes, whether solid, liquid or gaseous in nature. Except for such instances as would not, individually or in the aggregate, have a Material Adverse Effect, to the Company’s Knowledge, there are no past or present events, conditions, circumstances, incidents, actions or omissions relating to or in any way affecting the Company or its Subsidiaries that violate or would reasonably be expected to violate any Environmental Law after the Effective Date or that would reasonably be expected to give rise to any environmental liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii) based on or related to the manufacture, processing, distribution, use, treatment, storage (including without limitation underground storage tanks), disposal, transport or handling, or the emission, discharge, release or threatened release of any hazardous substance.
Section 4.17    Material Agreements

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Neither the Company nor any Subsidiary of the Company is a party to any written or oral contract, instrument, agreement commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the Commission as an exhibit to an annual report on Form 20-F (collectively, “Material Agreements”) and which has not been or will not be so filed as an exhibit to an annual report on Form 20-F. Except as disclosed in the Commission Documents, the Company and each of its Subsidiaries have performed in all material respects all the obligations required to be performed by them under the Material Agreements, have received no notice of default or an event of default by the Company or any of its Subsidiaries thereunder and are not aware of any basis for the assertion thereof, and neither the Company or any of its Subsidiaries nor, to the Knowledge of the Company, any other contracting party thereto are in default under any Material Agreement now in effect, except in each case, the result of which would not have a Material Adverse Effect. Except as disclosed in the Commission Documents, each of the Material Agreements is in full force and effect, and constitutes a legal, valid and binding obligation enforceable in accordance with its terms against the Company and/or any of its Subsidiaries and, to the Knowledge of the Company, each other contracting party thereto, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable principles of general application.
Section 4.18    Transactions With Affiliates
Except as disclosed in the Commission Documents or in Schedule 5.18 or otherwise known by the Investor, there are no loans, leases, agreements, contracts, royalty agreements, management contracts, service arrangements or other continuing transactions exceeding $120,000 between (a) the Company or any Subsidiary, on the one hand, and (b) any Person who would be covered by Item 404(a) of Regulation S-K, on the other hand. Except as disclosed in the Commission Documents, there are no outstanding amounts payable to or receivable from, or advances by the Company or any of its Subsidiaries to, and neither the Company nor any of its Subsidiaries is otherwise a creditor of or debtor to, any beneficial owner of more than 5% of the outstanding shares of Common Stock, or any director, employee or Affiliate of the Company or any of its Subsidiaries, other than (i) reimbursement for reasonable expenses incurred on behalf of the Company or any of its Subsidiaries or (ii) as part of the normal and customary terms of such Persons’ employment or service as a director with the Company or any of its Subsidiaries.
Section 4.19    Employees
Neither the Company nor any Subsidiary of the Company has any collective bargaining arrangements or agreements covering any of its employees. No officer, consultant or key employee of the Company or any Subsidiary whose termination, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, has terminated or, to the Knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any Subsidiary.
Section 4.20    Use of Proceeds

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The proceeds from the sale of the Shares shall be used by the Company and its Subsidiaries for working capital and general corporate purposes.
Section 4.21    Investment Company Act Status
The Company is not, and as a result of the consummation of the transactions contemplated by this Agreement and the application of the proceeds from the sale of the Shares as set forth herein, shall not be, an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.
Section 4.22    Taxes
The Company (i) has filed all federal, state and foreign income and franchise tax returns or has duly requested extensions thereof, except for those the failure of which to file would not have a Material Adverse Effect, (ii) has paid all federal, state, local and foreign taxes due and payable for which it is liable, except to the extent that any such taxes are being contested in good faith and by appropriate proceedings, except for such taxes the failure of which to pay would not have a Material Adverse Effect, and (iii) does not have any tax deficiency or claims outstanding or assessed or, to the Company’s Knowledge, proposed against it which would have a Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the Company has no Knowledge of any basis for any such claim. Based on its current activities, the Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.
Section 4.23    Insurance
The Company and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.
Section 4.24    Listing and Maintenance Requirements; DTC Eligibility
The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its Knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as disclosed in the Commission Documents, the Company has not, in the 12 months preceding the Effective Date, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance in any material respect with the listing or maintenance requirements of such Trading Market. Except as disclosed in the Commission Documents, on the Effective Date, the Company is in compliance with all such listing and maintenance requirements. The Common Stock may be issued and transferred electronically to third parties via DTC through its Deposit/Withdrawal at Custodian (DWAC) system. The Company has not received notice from DTC to the effect that a

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suspension of electronic trading or settlement services by DTC with respect to the Common Stock is being imposed or is contemplated.
Section 4.25    Foreign Corrupt Practices Act
None of the Company, any Subsidiary or, to the Knowledge of the Company, any director, officer, agent, employee, affiliate or other Person acting on behalf of the Company or any of its Subsidiaries, is aware of or has taken any action, directly or indirectly, that would result in a violation by such Persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the “FCPA”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA. The Company and the Subsidiaries have conducted their respective businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.
Section 4.26    Money Laundering Laws
The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the Knowledge of the Company, threatened.
Section 4.27    OFAC
None of the Company, any Subsidiary or, to the Knowledge of the Company, any director, officer, agent, employee, affiliate or Person acting on behalf of the Company or any of its Subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.
Section 4.28    Manipulation of Price
Neither the Company nor any of its officers, directors or Affiliates has, and, to the Knowledge of the Company, no Person acting on their behalf has, (i) taken, directly or indirectly, any action designed or intended to cause or to result in the stabilization or manipulation of the price of any security of the Company, or which caused or resulted in, or which would in the future reasonably

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be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, in each case to facilitate the sale or resale of any of the Securities, or (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities.
Section 4.29    Acknowledgement Regarding Investor’s Acquisition of Securities
The Company acknowledges and agrees that the Investor is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, and any advice given by the Investor or any of their representatives or agents in connection with this Agreement or the transactions contemplated hereby is merely incidental to the Investor’s acquisition of the Securities. The Company further represents to the Investor that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. The Company acknowledges and agrees that the Investor has not made and does not make any representations or warranties with respect to the transactions contemplated by this Agreement other than those specifically set forth in Article III of this Agreement.
Section 4.30    Foreign Private Issuer.
The Company is a “foreign private issuer” as such term is defined in Rule 3b-4 under the Exchange Act and in Rule 405 under the Securities Act.
ARTICLE V
COVENANTS
The Company covenants with the Investor, and the Investor covenants with the Company, as follows, which covenants of one party are for the benefit of the other party, during the Investment Period:
Section 5.1    Securities Compliance
The Company shall notify the Trading Market, as required, in accordance with its rules and regulations, of the transactions contemplated by this Agreement, and shall take all necessary action, undertake all proceedings and obtain all registrations, permits, consents and approvals for the legal and valid issuance of the Securities to the Investor in accordance with the terms of this Agreement. Without limiting the generality of the foregoing, the Company shall take all reasonably necessary action, undertake all proceedings and obtain all registrations, permits, consents and approvals in order to (i) qualify the Securities for offering and sale to the Investor, or to obtain an exemption for the Securities to be offered and sold to the Investor and (ii) qualify the Securities for offer and resale by the Investor or to obtain an exemption for the Securities to be offered and resold by the Investor, in each case under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Investor may reasonably designate, and to maintain such qualifications and exemptions in effect for so long as required for the distribution of the Securities (but in no event for less than one year from the date of this Agreement); provided, however, that the Company shall

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not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified or exempt, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification or exemption, as the case may be, in effect for so long as required for the distribution of the Securities (but in no event for less than one year from the date of this Agreement).
Section 5.2    Registration and Listing
The Company shall take all action necessary to cause the Common Stock to continue to be registered as a class of securities under Sections 12(b) of the Exchange Act, shall comply in all material respects with its reporting and filing obligations under the Exchange Act, and shall not take any action or file any document (whether or not permitted by the Securities Act or the Exchange Act) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein. Without limiting the generality of the foregoing, the Company shall file all reports, schedules, registrations, forms, statements, information and other documents required to be filed by the Company with the Commission pursuant to the Exchange Act, including all material required to be filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, in each case within the time periods required by the Exchange Act (giving effect to permissible extensions in accordance with Rule 12b-25 under the Exchange Act). The Company shall use its reasonable best efforts to continue the listing and trading of its Common Stock on the Trading Market, and shall comply with the Company’s reporting, filing and other obligations under the bylaws, listed securities maintenance standards and other rules and regulations of FINRA and the Trading Market. The Company shall not take any action which could reasonably be expected to result in the delisting or suspension of the Common Stock on the Trading Market.
Section 5.3    Compliance with Laws.
(i)    The Company shall comply, and cause each Subsidiary to comply, (a) with all laws, rules, regulations, permits and orders applicable to the business and operations of the Company and its Subsidiaries, except as would not have a Material Adverse Effect and (b) with all applicable provisions of the Securities Act, the Exchange Act, the rules and regulations of the FINRA and the listing standards of the Trading Market. Without limiting the foregoing: (A) neither the Company nor any of its officers or directors (1) will take, directly or indirectly, any action designed or intended to cause or to result in, or which would in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, in each case to facilitate the sale or resale of any of the Securities, or (2) sell, bid for, purchase, or pay any compensation for soliciting purchases of, any of the Securities, in connection with this Agreement; and (B) neither the Company, nor any of its Subsidiaries, nor to the Knowledge of the Company, any of their respective directors, officers, agents, employees or any other Persons acting on their behalf shall, in connection with the operation of the Company’s and its Subsidiaries’ respective businesses, (a) use any corporate funds for unlawful contributions, payments, gifts or entertainment or to make any unlawful expenditures relating to political activity to government officials, candidates

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or members of political parties or organizations, (b) pay, accept or receive any unlawful contributions, payments, expenditures or gifts, or (c) violate or operate in noncompliance with any applicable export restrictions, anti-boycott regulations, embargo regulations or other applicable domestic or foreign laws and regulations, including, without limitation, the FCPA and the Money Laundering Laws. The Company shall conduct its business in such a manner as will ensure that the Company will not be deemed to constitute a passive foreign investment company within the meaning of Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.
(ii)    The Investor shall comply with all laws, rules, regulations and orders applicable to the performance by it of its obligations under this Agreement and its investment in the Securities, except as would not, individually or in the aggregate, prohibit or otherwise interfere with the ability of the Investor to enter into and perform its obligations under this Agreement in any material respect. Without limiting the foregoing, the Investor shall comply with all applicable provisions of the Securities Act and the Exchange Act, including Regulation M thereunder, and any applicable securities laws of any non-U.S. jurisdictions. Neither the Investor nor any of its officers or directors will take, directly or indirectly, any action designed or intended to cause or to result in, or which would in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, in each case to facilitate the sale or resale of any of the Securities.
Section 5.4    Selling Restrictions.
Except as expressly set forth below, the Investor covenants that from and after the date hereof through and including the termination of this Agreement (the “Restricted Period”), neither the Investor nor any of its Affiliates nor any entity managed or controlled by the Investor (collectively, the “Restricted Persons” and each of the foregoing is referred to herein as a “Restricted Person”) shall, directly or indirectly, (x) engage in any Short Sales involving the Company’s securities or (y) grant any option to purchase, or acquire any right to dispose of or otherwise dispose for value of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for any shares of Common Stock, or enter into any swap, hedge or other similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock. Notwithstanding the foregoing, it is expressly understood and agreed that nothing contained herein shall (without implication that the contrary would otherwise be true) prohibit any Restricted Person during the Restricted Period from: (1) selling “long” (as defined under Rule 200 promulgated under Regulation SHO) any shares of Common Stock (including the Securities). In addition to the foregoing, in connection with any sale of Securities (including any sale permitted by paragraph (i) above), the Investor shall comply in all respects with all applicable laws, rules, regulations and orders, including, without limitation, the requirements of the Securities Act and the Exchange Act.

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Section 5.5    Non-Public Information
Neither the Company or any of its Subsidiaries, nor any of their respective directors, officers, employees or agents shall disclose any material non-public information about the Company to the Investor, unless a simultaneous public announcement thereof is made by the Company in the manner contemplated by Regulation FD. In the event of a breach of the foregoing covenant by the Company or any of its Subsidiaries, or any of their respective directors, officers, employees and agents, on the Cleansing Date (defined below) and in compliance with the conditions set forth below, the Investor may publicly disclose such information without the prior approval by the Company, any of its Subsidiaries, or any of their respective directors, officers, employees or agents, to the extent the Investor (in its reasonable good faith judgment) deems such information to be material non-public information, in the form of a press release, public advertisement or otherwise; provided, however, prior to exercising this right, the Investor shall provide the Company with written notice of the Company's alleged failure to disclose such information, which notice shall (i) include a description of the disclosure that the Investor intends to make and (ii) provide the Company with at least one (1) business day to cure such failure (the first business day following such one-business day cure period, the “Cleansing Date”). The Investor shall not have any liability to the Company, any of its Subsidiaries, or any of their respective directors, officers, employees, stockholders or agents, for any such disclosure.
Section 5.6    Registration rights.
Within ten (10) business days following a written request by the Shareholder (each a “Demand Registration”), the Company shall prepare and file with the Commission a Registration Statement (and/or a Prospectus, as applicable) covering all or any Registrable Securities held by the Shareholder on the date of the written request pursuant to Rule 415, or if Rule 415 is not available for offers or sales of the Registrable Securities, for such other means of distribution of Registrable Securities as the Shareholder may reasonably request. The Registration Statement required hereunder shall be on Form F-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form F-3, in which case the Registration Statement shall be on Form F-1 or another appropriate form as shall be selected by the Company upon advice of its counsel). The Registration Statement required hereunder shall contain a “Plan of Distribution” reasonably acceptable to the Shareholder and the Company. The Company shall use its reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as practical after the filing thereof, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act (including the filing of any necessary amendments, post-effective amendments and supplements) until such time as no Registrable Securities remain outstanding. The Shareholder may submit up to two Demand Registrations pursuant to this Section 5.6. As used in, and solely for the purpose of, this Section 5.6, the following terms have the respective meanings set forth below:

“Existing Shares” means any common shares of the Company held by the Investor on the date of this Agreement.


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“Shareholder” shall mean the Investor and/or any other nominee designated by the Investor pursuant to Section 2.7 that beneficially holds Registrable Securities on the date of a written request delivered hereunder.

“Registration Statement” means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to the registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference into the Registration Statement.

“Registrable Securities” means any Existing Shares and/or Shares held by a Shareholder at the time a Demand Registration is made other than common shares of the Company that (i) are covered by any other effective Securities Act registration statement or (ii) that may be freely sold by the Shareholder without restrictions pursuant to Rule 144 of the Securities Act, including, for the avoidance of doubt, without any volume restrictions applicable to affiliates of the Company.

“Prospectus” means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by a prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference into such Prospectus.

Section 5.7    Disclosure Schedule.
(i)    From time to time during the Investment Period, the Company shall be permitted to update the Disclosure Schedule as may be required to satisfy the condition set forth in Section 6.2(i). Notwithstanding anything in this Agreement to the contrary, no update to the Disclosure Schedule pursuant to this Section 5.7 shall cure any prior breach of a representation or warranty of the Company contained in this Agreement and shall not affect any of the Investor’s rights or remedies with respect thereto.
(ii)    Notwithstanding anything to the contrary contained in the Disclosure Schedule or in this Agreement, the information and disclosure contained in any Schedule of the Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in any other Schedule of the Disclosure Schedule as though fully set forth in such Schedule for which applicability of such information and disclosure is readily apparent on its face. The fact that any item of information is disclosed in the Disclosure Schedule shall not be construed to mean that such information is required to be disclosed by this Agreement. Except as expressly set forth in this Agreement, such information and the thresholds (whether based on quantity, qualitative

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characterization, dollar amounts or otherwise) set forth herein shall not be used as a basis for interpreting the terms “material” or “Material Adverse Effect” or other similar terms in this Agreement.
ARTICLE VI
CONDITIONS TO THE SALE AND PURCHASE OF THE SHARES
Section 6.1    Conditions Precedent to the Obligation of the Company
The obligation hereunder of the Company to issue and sell the Shares to the Investor or its nominee under any Fixed Request is subject to the satisfaction or (to the extent permitted by applicable law) waiver of each of the conditions set forth below. These conditions are for the Company’s sole benefit and (to the extent permitted by applicable law) may be waived by the Company at any time in its sole discretion, except as expressly provided below.
(i)    Accuracy of the Investor’s Representations and Warranties. The representations and warranties of the Investor contained in this Agreement (a) that are not qualified by “materiality” shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the applicable Trade Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (b) that are qualified by “materiality” shall have been true and correct when made and shall be true and correct on the applicable Trade Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.
(ii)    Other Commission Filings. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the Commission pursuant to the reporting requirements of the Exchange Act, including all material required to have been filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, shall have been filed with the Commission and such filings shall have been made within the applicable time period prescribed for such filing under the Exchange Act. All other material required to be filed by the Company or any other offering participant pursuant to Rule 433(d) under the Securities Act shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433 under the Securities Act.
(iii)    Performance by the Investor. The Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor at or prior to the applicable Trade Date and the applicable Settlement Date.
(iv)    No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by this Agreement.

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(v)    No Suspension, Etc. Trading in the Common Stock shall not have been suspended by the Commission or the Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the applicable Trade Date and applicable Settlement Date), and, at any time prior to the applicable Trade Date and applicable Settlement Date, trading in securities generally as reported on the Trading Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial, credit or securities market which, in each case, in the reasonable judgment of the Company, makes it impracticable or inadvisable to issue the Shares.
(vi)    No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced or threatened, and no inquiry or investigation by any governmental authority shall have been commenced or threatened, against the Company or any Subsidiary, or any of the officers, directors or Affiliates of the Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.
(vii)    Aggregate Limit. The issuance and sale of the Shares issuable pursuant to such Fixed Request shall not exceed the Aggregate Limit.
Section 6.2    Conditions Precedent to the Obligation of the Investor
The obligation hereunder of the Investor to accept a Fixed Request Notice grant and to acquire and pay for the Shares is subject to the satisfaction or (to the extent permitted by applicable law) waiver, at or before each Trade Date and each Settlement Date, of each of the conditions set forth below. These conditions are for the Investor’s sole benefit and (to the extent permitted by applicable law) may be waived by the Investor at any time in its sole discretion, except as expressly provided below.
(i)    Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company contained in this Agreement, as modified by the Disclosure Schedule (a) that are not qualified by “materiality” or “Material Adverse Effect” shall have been true and correct in all material respects when made and shall be true and correct in all material respects on the applicable Trade Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (b) that are qualified by “materiality” or “Material Adverse Effect” shall have been true and correct when made and shall be true and correct on the applicable Trade Date and the applicable Settlement Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.
(ii)    Other Commission Filings. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the
Commission pursuant to the reporting requirements of the Exchange Act, including all material required to have been filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, shall have been filed with the Commission and such filings shall have been made within the applicable time period prescribed for such filing under the Exchange Act. All other material required to be filed by the Company or any other offering participant pursuant to Rule 433(d) under the Securities Act shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433 under the Securities Act.
(iii)    No Suspension. Trading in the Common Stock shall not have been suspended by the Commission or the Trading Market since the most recent Settlement Date (or Effective Date in the case of the first Settlement Date) (except for one or more suspensions of trading of less than fifteen minute duration, which suspension shall be terminated prior to the applicable Trade Date and applicable Settlement Date), and the Company shall not have received any notice that the listing or quotation of the Common Stock on the Trading Market shall be terminated on a date certain (which termination shall be final and non-appealable). At any time since the most recent Settlement Date (or Effective Date in the case of the first Settlement Date), trading in securities generally as reported on the Trading Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in, any financial, credit or securities market which, in each case, in the reasonable judgment of the Investor, makes it impracticable or inadvisable to purchase the Shares.
(iv)    Performance of the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the applicable Trade Date and the applicable Settlement Date.
(v)    No Injunction. No statute, rule, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by this Agreement.
(vi)    No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced or threatened, and no inquiry or investigation by any governmental authority shall have been commenced or threatened, against the Company or any Subsidiary, or any of the officers, directors or Affiliates of the Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.
(vii)    Aggregate Limit. The issuance and sale of the Shares issuable pursuant to such Fixed Request Notice shall not exceed the Aggregate Limit.
(viii)    Shares Authorized and Delivered. The Shares issuable pursuant to such Fixed Request Notice shall have been duly authorized by all necessary corporate action of the

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Company. The Company shall have delivered all Shares relating to all prior Fixed Request Notices, as applicable, to the Investor or their designee(s).
(ix)    Listing of Securities. The Trading Market shall have completed its review of the related Listing of Additional Shares form with respect to all of the Securities that may be issued pursuant to this Agreement.
(x)    No Unresolved FINRA Objection. There shall not exist any unresolved objection raised by FINRA’s Corporate Financing Department with respect to the fairness and reasonableness of the terms of the transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION
Section 7.1    Term, Termination by Mutual Consent
Unless earlier terminated as provided in this Article VII, this Agreement shall terminate automatically on the earliest of (i) the first day of the month next following the 12-month anniversary of the Effective Date (the “Investment Period”), (ii) the date the Company shall have repaid the Facilities, (iii) the date agreed between the Parties and the Company’s Lenders and (iv) the date the Investor shall have purchased or acquired shares of Common Stock pursuant to this Agreement equal to the Aggregate Limit. Subject to Section 7.2, this Agreement may be terminated at any time (A) by the mutual written consent of the Parties, effective on the date of such mutual written consent unless otherwise provided in such written consent, it being hereby acknowledged and agreed that the Investor may not consent to such termination after receipt of a Fixed Request Notice and prior to the corresponding Settlement Date.
Section 7.2    Effect of Termination
In the event of termination by the Company or the Investor pursuant to Section 7.1, written notice thereof shall forthwith be given to the other party as provided in Section 9.4 and the transactions contemplated by this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 7.1, this Agreement shall become void and of no further force and effect, except that (i) the provisions of Article IX (Indemnification), Section 9.1 (Fees and Expenses), Section 9.2 (Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial), Section 9.4 (Notices), Section 9.8 (Governing Law), Section 9.9 (Survival), Section 9.11 (Publicity), Section 9.12 (Severability) and this Article VII (Termination) shall remain in full force and effect notwithstanding such termination, (ii) if the Investor own any Securities at the time of such termination, the covenants and agreements of the Company and the Investor, as applicable, contained in Section 5.1(i) (Securities Compliance) and Section 5.3 (Compliance with Laws), shall remain in full force and effect notwithstanding such termination for a period of six months following such termination. Nothing in this Section 7.2 shall be deemed to release the Company or the Investor from any liability for any breach under this Agreement or to impair the rights of the Company and the Investor to compel specific performance by the other party of its obligations under this Agreement.

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ARTICLE VIII
INDEMNIFICATION
Section 8.1    General Indemnity.
(i)    Indemnification by the Company. The Company shall indemnify and hold harmless the Investor, each of its directors, officers, partners, employees, investment managers, investment advisors and Affiliates, and each Person, if any, who controls the Investor within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act from and against all losses, claims, damages, liabilities and expenses (including reasonable costs of defense and investigation and all reasonable attorneys’ fees) to which the Investor and each such other Person may become subject insofar as such losses, claims, damages, liabilities and expenses arise out of or are based upon any violation of United States federal or state securities laws or the rules and regulations of the Trading Market in connection with the transactions contemplated by this Agreement by the Company or any of its Subsidiaries, affiliates, officers, directors or employees, provided, however, that (A) the Company shall not be liable under this Section 8.1(i) to the extent that a court of competent jurisdiction shall have determined by a final judgment (from which no further appeals are available) that such loss, claim, damage, liability or expense resulted directly and solely from any such acts or failures to act, undertaken or omitted to be taken by the Investor or such Person through its bad faith or willful misconduct and (B) the foregoing indemnity shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Investor expressly.
The Company shall reimburse the Investor and each such controlling Person promptly upon demand (with accompanying presentation of documentary evidence) for all legal and other costs and expenses reasonably incurred by the Investor or such indemnified Persons in investigating, defending against, or preparing to defend against any such claim, action, suit or proceeding with respect to which it is entitled to indemnification.
(ii)    Indemnification by the Investor. The Investor shall indemnify and hold harmless the Company, each of its directors, officers, employees and Affiliates, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act from and against all losses, claims, damages, liabilities and expenses (including reasonable costs of defense and investigation and all reasonable attorneys’ fees) to which the Company and each such other Person may become subject, relating to this Agreement or the transactions contemplated hereby, insofar as such losses, claims, damages, liabilities and expenses directly and solely arise out of or are directly and solely based upon any untrue statement or alleged untrue statement of a material fact contained in this Agreement.
The Investor shall reimburse the Company and each such director, officer or controlling Person promptly upon demand for all legal and other costs and expenses reasonably incurred by the Company or such indemnified Persons in investigating, defending against, or preparing to defend against any such claim, action, suit or proceeding with respect to which it is entitled to indemnification.

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Section 8.2    Indemnification Procedures
Promptly after a Person receives notice of a claim or the commencement of an action for which the Person intends to seek indemnification under Section 8.1, the Person will notify the indemnifying party in writing of the claim or commencement of the action, suit or proceeding; provided, however, that failure to notify the indemnifying party will not relieve the indemnifying party from liability under Section 8.1, except to the extent it has been materially prejudiced by the failure to give notice. The indemnifying party will be entitled to participate in the defense of any claim, action, suit or proceeding as to which indemnification is being sought, and if the indemnifying party acknowledges in writing the obligation to indemnify the party against whom the claim or action is brought, the indemnifying party may (but will not be required to) assume the defense against the claim, action, suit or proceeding with counsel satisfactory to it. After an indemnifying party notifies an indemnified party that the indemnifying party wishes to assume the defense of a claim, action, suit or proceeding, the indemnifying party will not be liable for any legal or other expenses incurred by the indemnified party in connection with the defense against the claim, action, suit or proceeding except that if, in the opinion of counsel to the indemnifying party, one or more of the indemnified parties should be separately represented in connection with a claim, action, suit or proceeding, the indemnifying party will pay the reasonable fees and expenses of one separate counsel for the indemnified parties. Each indemnified party, as a condition to receiving indemnification as provided in Section 8.1, will cooperate in all reasonable respects with the indemnifying party in the defense of any action or claim as to which indemnification is sought. No indemnifying party will be liable for any settlement of any action effected without its prior written consent. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested (by written notice provided in accordance with Section 9.4) an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated hereby effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received written notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party will, without the prior written consent of the indemnified party, effect any settlement of a pending or threatened action with respect to which an indemnified party is, or is informed that it may be, made a party and for which it would be entitled to indemnification, unless the settlement includes an unconditional release of the indemnified party from all liability and claims which are the subject matter of the pending or threatened action.
If for any reason the indemnification provided for in this Agreement is not available to, or is not sufficient to hold harmless, an indemnified party in respect of any loss or liability referred to in Section 8.1 as to which such indemnified party is entitled to indemnification thereunder, each indemnifying party shall, in lieu of indemnifying the indemnified party, contribute to the amount paid or payable by the indemnified party as a result of such loss or liability, (i) in the proportion which is appropriate to reflect the relative benefits received by the indemnifying party, on the one hand, and by the indemnified party, on the other hand, from the sale of Securities which is the subject of the claim, action, suit or proceeding which resulted in the loss or liability or (ii) if the allocation

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provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to the statements or omissions which are the subject of the claim, action, suit or proceeding that resulted in the loss or liability, as well as any other relevant equitable considerations.
The remedies provided for in Section 8.1 and this Section 8.2 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified Person at law or in equity.
ARTICLE IX
MISCELLANEOUS
Section 9.1    Fees and Expenses.
(i)    Each party shall bear its own fees and expenses related to the transactions contemplated by this Agreement. The Company shall pay all U.S. federal, state and local stamp and other similar transfer and other taxes and duties levied in connection with issuance of the Securities pursuant hereto.
(ii)    If the Company issues a Fixed Request Notice and fails to deliver the Shares (which have been approved for listing or quotation on the Trading Market, if such an approval is required for the listing or quotation thereof on the Trading Market) to the Investor on the applicable Settlement Date, subject to prior payment, and such failure continues for 10 Trading Days, the Company shall pay the Investor, in cash (or, at the option of the Investor, in shares of Common Stock which have not been registered under the Securities Act valued at the applicable Discount Price of the Shares failed to be delivered; provided that the issuance thereof by the Company would not violate the Securities Act or any applicable U.S. federal or state securities laws), as partial damages for such failure and not as a penalty, an amount equal to 2.0% of the payment required to be paid by the Investor on such Settlement Date for the initial 30 days following such Settlement Date until the Shares (which have been approved for listing or quotation on the Trading Market, if such an approval is required for the listing or quotation thereof on the Trading Market) have been delivered, and an additional 2.0% for each additional 30-day period thereafter until the Shares (which have been approved for listing or quotation on the Trading Market, if such an approval is required for the listing or quotation thereof on the Trading Market) have been delivered, which amount shall be prorated for such periods less than 30 days. Nothing in this Section 9.1(ii) shall be deemed to release the Company from any liability for any breach under this Agreement, or to impair the rights of the Investor to compel specific performance by the Company of its obligations under this Agreement.
Section 9.2    Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial.
(i)    The Company and the Investor acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that either party shall be entitled to an injunction or injunctions to prevent or cure breaches of the

27    


provisions of this Agreement by the other party and to enforce specifically the terms and provisions hereof (without the necessity of showing economic loss and without any bond or other security being required), this being in addition to any other remedy to which either party may be entitled by law or equity.
(ii)    Each of the Company and the Investor (a) hereby irrevocably submits to the jurisdiction of the U.S. District Court and other courts of the United States sitting in the City and State of New York, Borough of Manhattan, for the purposes of any suit, action or proceeding arising out of or relating to this Agreement, and (b) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. By the execution and delivery of this Agreement, the Company acknowledges that it has, by separate written instrument, irrevocably designated and appointed Seward & Kissel LLP, located at One Battery Park Plaza, New York, NY 10004 (together with any successor, the "Agent for Service") as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Agreement that may be instituted in any court of the United States sitting in the City of New York, Borough of Manhattan, or brought under federal or state securities laws, and acknowledges that the Agent for Service has accepted such designation. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of the Agent for Service in full force and effect so long as any of the Securities shall be outstanding. The Company and the Investor consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 9.2 shall affect or limit any right to serve process in any other manner permitted by law.
(iii)    EACH OF THE COMPANY AND THE INVESTOR HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR DISPUTES RELATING HERETO. EACH OF THE COMPANY AND THE INVESTOR (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.2.

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Section 9.3    Entire Agreement; Amendment
This Agreement, together with the exhibits referred to herein and the Disclosure Schedule, represents the entire agreement of the Parties with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by either party relative to subject matter hereof not expressly set forth herein. No provision of this Agreement may be amended other than by a written instrument signed by the Parties hereto. The Disclosure Schedule and all exhibits to this Agreement are hereby incorporated by reference in, and made a part of, this Agreement as if set forth in full herein.
Section 9.4    Notices
Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or facsimile (with facsimile machine confirmation of delivery received) at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received), (b) upon sending to an e-mail address provided below if acknowledged by the recipient or another representative of the Company or the Investor, as applicable, or (c) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The address for such communications shall be:
If to the Company:

Hermitage Offshore Services Ltd.
 
LOM Building, 27 Reid Street
 
Hamilton HM 11, Bermuda
 
E-mail: investors@hermitage offshore.com 
 
Attention: Legal Department
 
 

With a copy (which shall
not constitute notice) to:

Seward & Kissel LLP
 
One Battery Park Plaza
 
New York, NY 10004
 
Telephone Number: (212) 574-1200
 
Fax: (212) 480-8421
E-mail: horton@sewkis.com
 
Attention: Edward Horton, Esq.


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If to the Investor:
 
 
 
Scorpio Services Holding Limited
9, Boulevard Charles III
MC 98000, Monaco
Fax: 377 9798 8346
Email: legal@scorpiogroup.net
Attention: Legal Department/General Counsel
 
 
 
 
Either party hereto may from time to time change its address for notices by giving at least 10 days advance written notice of such changed address to the other party hereto. Any notice to the Company may alternatively be given to an address specified by the Company on any Fixed Request Notice until the Company provides written notice of a change to such address to the Investor. Any notice to the Investor may also be given to an address specified by the Investor on any Purchaser Confirmation Notice until the Investor provides written notice of a change to such address to the Company.
Section 9.5    Waivers
No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. No provision of this Agreement may be waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought.
Section 9.6    Headings; Construction
The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Agreement instead of just the provision in which they are found. The Parties agree that each of them and their respective counsel has reviewed and had an opportunity to revise this Agreement and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. Any reference in this Agreement to “Dollars” or “$” shall mean the lawful currency of the United States of America.
Section 9.7    Successors and Assigns
The Investor may not assign this Agreement to any Person without the prior consent of the Company, in the Company’s sole discretion. This Agreement shall be binding upon and inure to

30    


the benefit of the Parties and their successors and assigns. The assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this Agreement.
Section 9.8    Governing Law
This Agreement shall be governed by and construed in accordance with the internal procedural and substantive laws of the State of New York, without giving effect to the choice of law provisions of such state that would cause the application of the laws of any other jurisdiction.
Section 9.9    Survival
The representations, warranties, covenants and agreements of the Company and the Investor contained in this Agreement shall survive the execution and delivery hereof until the termination of this Agreement; provided, however, that (i) the provisions of Article VII (Termination), Article VIII (Indemnification), Section 9.1 (Fees and Expenses), Section 9.2 (Specific Enforcement, Consent to Jurisdiction, Waiver of Jury Trial), Section 9.4 (Notices), Section 9.8 (Governing Law), Section 9.11 (Publicity), Section 9.12 (Severability) and this Section 9.9 (Survival) shall remain in full force and effect notwithstanding such termination, (ii) if the Investor own any Securities at the time of such termination, the covenants and agreements of the Company and the Investor, as applicable, contained in Section 5.1(i) (Securities Compliance) and Section 6.3 (Compliance with Laws) shall remain in full force and effect notwithstanding such termination for a period of six months following such termination, and (iii) if the Investor own any Securities at the time of such termination, the covenants and agreements of the Company contained in Section 5.2 (Registration and Listing) shall remain in full force and effect notwithstanding such termination for a period of 30 days following such termination.
Section 9.10    Counterparts
This Agreement may be executed in counterparts, all of which taken together shall constitute one and the same original and binding instrument and shall become effective when all counterparts have been signed by each party and delivered to the other Parties hereto, it being understood that all Parties hereto need not sign the same counterpart. In the event any signature is delivered by facsimile, digital or electronic transmission, such transmission shall constitute delivery of the manually executed original and the party using such means of delivery shall thereafter cause four additional executed signature pages to be physically delivered to the other Parties within five days of the execution and delivery hereof. Failure to provide or delay in the delivery of such additional executed signature pages shall not adversely affect the efficacy of the original delivery.
Section 9.11    Publicity
The Investor shall have the right to reasonably approve, prior to issuance or filing, any press release, Commission filing or any other public disclosure made by or on behalf of the Company relating to the Investor, its purchases hereunder or any aspect of this Agreement or the transactions contemplated hereby (unless the same disclosure has been previously reviewed and approved by the Investor); provided, however, that except as otherwise provided in this Agreement, the Company

31    


shall be entitled, without the prior approval of the Investor, to make any press release or other public disclosure (including any filings with the Commission) with respect thereto as is required by applicable law and regulations (including the regulations of the Trading Market), so long as prior to making any such press release or other public disclosure, if reasonably practicable, the Company and its counsel shall have provided the Investor and its counsel with a reasonable opportunity to review and comment upon, and shall have consulted with the Investor and its counsel on the form and substance of, such press release or other disclosure.
Section 9.12    Severability
The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement, and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible.
Section 9.13    Third Party Beneficiaries
This Agreement is intended only for the benefit of the Parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
Section 9.14    Further Assurances
From and after the date of this Agreement, upon the request of the Investor or the Company, each of the Company and the Investor shall execute and deliver such instrument, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement.
[Signature Page Follows]


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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective authorized officer on the date first above written.
HERMITAGE OFFSHORE SERVICES LTD.
 
 
 
 
 

By:
/s/ Cameron Keyser Mackey
 
Name: Cameron Keyser Mackey
 
 
Title: Chief Operating Officer

 
 
 
 
SCORPIO SERVICES HOLDING LIMITED
 
 
 
 
 
 
 

By:
/s/ Eleni Elpis Nassopoulou
 
Name: Eleni Elpis Nassopoulou
 
 
Title: General Counsel
 








33



ANNEX A TO THE
COMMON STOCK PURCHASE AGREEMENT
DEFINITIONS
“2018 20-F” shall mean the Annual Report on Form 20-F filed by the Company for its fiscal year ended December 31, 2018.
“5-Day VWAP” shall have the meaning assigned to such term in Section 2.2 hereof.
“Affiliate” shall have the meaning assigned to such term in Rule 12b-2 under the Exchange Act.
“Agent for Service” shall have the meaning assigned to such term in Section 9.2(ii) hereof.
“Aggregate Limit” shall have the meaning assigned to such term in Section 1.1 hereof.
“Agreement” shall have the meaning assigned to such term in the Preamble.
“Announcement Date” shall have the meaning assigned to such term in Section 2.9 hereof.
“Bylaws” shall have the meaning assigned to such term in Section 4.3 hereof.
“Charter” shall have the meaning assigned to such term in Section 4.3 hereof.
“Cleansing Date” shall have the meaning assigned to such term in Section 5.5.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Commission” shall mean the Securities and Exchange Commission or any successor entity.
“Commission Documents” shall mean (1) all reports, schedules, registrations, forms, statements, information and other documents filed with or furnished to the Commission by the Company pursuant to the reporting requirements of the Exchange Act, including all material filed or furnished pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, since December 31, 2018, including, without limitation, the 2018 20-F, and which hereafter shall be filed with or furnished to the Commission by the Company during the Investment Period, and (2) all information contained in such filings and all documents and disclosures that have been and heretofore shall be incorporated by reference therein.
“Common Stock” shall have the meaning assigned to such term in the Recitals.
“Company” shall have the meaning assigned to such term in the Preamble.
"Company's Lenders” shall mean, collectively, the “Lenders” as such term is defined in the Facilities.
“Demand Registration” shall have the meaning assigned to such term in Section 5.6 hereof.




“Disclosure Schedule” shall have the meaning assigned to such term in Article V hereof.
“Discount Price” shall have the meaning assigned to such term in Section 2.2 hereof.
“DTC” means The Depository Trust Company, a subsidiary of The Depository Trust & Clearing Corporation, or any successor thereto.
“Earnings Announcement” shall have the meaning assigned to such term in Section 2.9 hereof.
“EDGAR” shall have the meaning assigned to such term in Section 4.3 hereof.
“Effective Date” shall mean the date of this Agreement.
“Environmental Laws” shall have the meaning assigned to such term in Section 4.16 hereof.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.
“Facilities” shall mean (1) a $132,905,132 senior secured credit facility to be entered into on or around the date of this Agreement, between, inter alios, the Company as borrower and DNB Bank ASA and Skandinaviska Enskilda Banken AB (Publ) as original lenders, as amended and supplemented from time to time and (2) a $9,000,000 facility originally dated 20 September 2017 and entered into between, inter alios, two of the Company’s subsidiaries as borrowers and DVB Bank SE Nordic Branch as facility agent, as amended and restated pursuant to a supplemental agreement dated 10 April 2019 and as further amended and supplemented from time to time.  
“FCPA” shall have the meaning assigned to such term in Section 4.25 hereof.
“Filing Time” shall have the meaning assigned to such term in Section 2.9 hereof.
“FINRA” shall have the meaning assigned to such term in Section 4.5 hereof.
“Fixed Amount Requested” shall mean the amount of a Fixed Request requested by the Company in a Fixed Request Notice delivered pursuant to Section 2.1 hereof.
“Fixed Request” means the transactions contemplated under Sections 2.1 through 2.8 of this Agreement.
“Fixed Request Amount” means the actual amount of proceeds to be received by the Company pursuant to a Fixed Request under this Agreement.
“Fixed Request Notice” shall have the meaning assigned to such term in Section 2.1 hereof.
“Floor Price” is the lowest price (except to the extent otherwise provided in Section 2.6) at which the Company may sell Shares on an applicable Trade Date as set forth in a Fixed Request Notice (not taking into account the percentage discount referred to in Section 2.2); provided,




however, that at no time shall the Floor Price be lower than $0.60 per share (as adjusted for any stock splits or recapitalizations) unless the Company and the Investor shall mutually agree otherwise.
“GAAP” shall mean generally accepted accounting principles in the United States of America as applied by the Company.
“Governmental Licenses” shall have the meaning assigned to such term in Section 4.15(a) hereof.
“Indebtedness” shall have the meaning assigned to such term in Section 4.11 hereof.
“Intellectual Property” shall have the meaning assigned to such term in Section 4.15(b) hereof.
“Investment Period” shall have the meaning assigned to such term in Section 7.1 hereof.
“Investor” shall have the meaning assigned to such term in the Preamble.
“Knowledge” means the actual knowledge of the Company’s Chief Executive Officer or Chief Financial Officer, after reasonable inquiry of all officers, directors and employees of the Company who could reasonably be expected to have knowledge or information with respect to the matter in question.
“Material Adverse Effect” shall mean any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would reasonably be expected to have, any effect on the business, operations, properties or condition (financial or otherwise) of the Company that is material and adverse to the Company and its Subsidiaries, taken as a whole, and/or any condition, occurrence, state of facts or event that would prohibit or otherwise materially interfere with or delay the ability of the Company to perform any of its obligations under this Agreement; provided, however, that none of the following, individually or in the aggregate, shall be taken into account in determining whether a Material Adverse Effect has occurred or insofar as reasonably can be foreseen would reasonably be expected to occur: (i) changes in conditions in the U.S. or global capital, credit or financial markets generally, including changes in the availability of capital or currency exchange rates, provided such changes shall not have affected the Company in a materially disproportionate manner as compared to other similarly situated companies; (ii) the effect of any changes arising in connection with acts of war (whether or not declared), terrorism, military actions or the escalation thereof or other force majeure events occurring after the Effective Date, provided such changes shall not have affected the Company in a materially disproportionate manner as compared to other similarly situated companies; (iii) the effect of any changes in applicable legal requirements or GAAP; (iv) changes generally affecting the maritime industry, provided such changes shall not have affected the Company in a materially disproportionate manner as compared to other similarly situated companies; and (v) any effect of the announcement of this Agreement or the consummation of the transactions contemplated by this Agreement on the Company’s relationships, contractual or otherwise, with customers, suppliers, vendors, bank or commercial lenders, lessors, collaboration partners, employees or consultants.




“Material Agreements” shall have the meaning assigned to such term in Section 4.17 hereof.
“Money Laundering Laws” shall have the meaning assigned to such term in Section 4.26 hereof.
“NYSE” means the New York Stock Exchange, or any successor thereto.
“OFAC” shall have the meaning assigned to such term in Section 4.27 hereof.
“Parties” shall have the meaning assigned to such term in the Preamble.
“Person” means any person or entity, whether a natural person, trustee, corporation, partnership, limited partnership, limited liability company, trust, unincorporated organization, business association, firm, joint venture, governmental agency or authority.
“Prospectus” shall have the meaning assigned to such term in Section 5.6 hereof.
“Purchaser Confirmation Notice” shall have the meaning assigned to such term in Section 2.7 hereof.
“Registrable Securities” shall have the meaning assigned to such term in Section 5.6 hereof.
“Registration Statement” shall have the meaning assigned to such term in Section 5.6 hereof.
“Restricted Period” shall have the meaning assigned to such term in Section 5.4(i) hereof.
“Restricted Person” shall have the meaning assigned to such term in Section 5.4(i) hereof.
“Restricted Persons” shall have the meaning assigned to such term in Section 5.4(i) hereof.
“Securities” shall mean, collectively, the Shares.
“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.
“Settlement Date” shall have the meaning assigned to such term in Section 2.7 hereof.
“Shares” shall mean shares of Common Stock issuable to the Investor upon exercise of a Fixed Request.
“Short Sales” means “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act.
“Significant Subsidiary” means any Subsidiary of the Company that would constitute a Significant Subsidiary of the Company within the meaning of Rule 1-02 of Regulation S-X of the Commission.
“SOXA” shall have the meaning assigned to such term in Section 4.6(b) hereof.




“Subsidiary” shall mean any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other Persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other Subsidiaries.
“Total Commitment” shall have the meaning assigned to such term in Section 1.1 hereof.
“Trade Date” shall have the meaning assigned to such term in Section 2.1 hereof.
“Trading Day” shall mean a full trading day (beginning at 9:30 a.m., New York City time, and ending at 4:00 p.m., New York City time) on the Trading Market.
“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the New York Stock Exchange, the NYSE MKT, the NYSE Arca, the NASDAQ Capital Market, the NASDAQ Global Market or the NASDAQ Global Select Market (or any successors to any of the foregoing), whichever is at the time the principal trading exchange or market for the Common Stock.
“VWAP” shall mean the daily volume weighted average price (based on a Trading Day from 9:30 a.m. to 4:00 p.m. (New York time)) of the Common Stock on the Trading Market as reported by Bloomberg Financial L.P. using the AQR function.







EXHIBIT A TO THE
COMMON STOCK PURCHASE AGREEMENT
FORM OF FIXED REQUEST NOTICE
To:
 
 
Fax#:
 
 
E-mail:
 
 

Reference is made to the Common Stock Purchase Agreement dated January 14, 2020, (the “Purchase Agreement”) by and among Scorpio Services Holding Limited, a company organized and existing under the laws of the Republic of the Marshall Islands and Hermitage Offshore Services Ltd., a corporation organized and existing under the laws of Bermuda (the “Company”). Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement.
In accordance with and pursuant to Section 2.1 of the Purchase Agreement, the Company hereby issues this Fixed Request Notice to exercise a Fixed Request for the Fixed Amount Requested indicated below.
Fixed Amount Requested:
 
Trade Date:
 
Settlement Date:
 
Floor Price:
 
Dollar Amount of Common Stock Currently Available under the Aggregate Limit:
 
 
 
Dated:   
By:    
Name:
Title:
 
Address:
Facsimile No.
Email:
 
 
AGREED AND ACCEPTED
By:
 
 
 
Name:
 
Title





 
EXHIBIT B TO THE
COMMON STOCK PURCHASE AGREEMENT
FORM OF PURCHASER CONFIRMATION NOTICE
To:
 
 
Fax#:
 
 
E-mail
 
 

Reference is made to the Common Stock Purchase Agreement dated January 14, 2020, (the “Purchase Agreement”) by and among Scorpio Services Holding Limited, a company organized and existing under the laws of the Republic of the Marshall Islands (the “Investor”) and Hermitage Offshore Services Ltd., a corporation organized and existing under the laws of Bermuda (the “Company”). Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement.
In accordance with and pursuant to Section 2.7 of the Purchase Agreement, the Investor hereby issue this Purchaser Confirmation Notice for the Fixed Amount Requested indicated below.
1) Fixed Amount Requested:
 
3) Total Number of Shares Purchased by the Investor[‘s nominee]:
 
4) Price per Share:
 
5) Fixed Request Amount*:
 
6) Net Fixed Request Amount:
 
7) Settlement Date
 
8) Dollar Amount of Common Stock Currently Available under the Aggregate Limit:
 
9) Name and registered address of the Investor’s nominee (if applicable):
 
 
 
Dated:   
By:    
Name:
Title:
 
Address:
Facsimile No.
Email:








Dated:   
By:    
Name:
Title:
 
Address:
Facsimile No.
Email:




AGREED AND ACCEPTED
By:
 
 
 
Name:
 
Title

*Reduction to Total Commitment





DISCLOSURE SCHEDULE
RELATING TO THE COMMON STOCK
PURCHASE AGREEMENT, DATED JANUARY 14, 2020
This disclosure schedule is made and given pursuant to Article V of the Common Stock Purchase Agreement, dated January 14, 2020, (the “Purchase Agreement”) by and among Scorpio Services Holding Limited, a company organized and existing under the laws of the Republic of the Marshall Islands and Hermitage Offshore Services Ltd., a corporation organized and existing under the laws of Bermuda (the “Company”). The numbers below correspond to the section numbers of representations and warranties in the Agreement most directly modified by the below exceptions.
Schedule 5.7
List of Subsidiaries of the Company
Entity Name
Jurisdiction of Organization
AHTS Holdco Limited
Bermuda
Hermit Baron Shipping Company Limited
Marshall Islands
Hermit Brilliance Shipping Company Limited
Marshall Islands
CB Holdco Limited
Bermuda
Petro Craft 2017-1 Shipping Company Limited
Marshall Islands
Petro Craft 2017-2 Shipping Company Limited
Marshall Islands
Petro Craft 2017-3 Shipping Company Limited
Marshall Islands
Petro Craft 2017-4 Shipping Company Limited
Marshall Islands
Petro Craft 2017-5 Shipping Company Limited
Marshall Islands
Petro Craft 2017-7 Shipping Company Limited
Marshall Islands
Petro Craft 2017-8 Shipping Company Limited
Marshall Islands
Petro Combi 6030-01 Shipping Company Limited
Marshall Islands
Petro Combi 6030-02 Shipping Company Limited
Marshall Islands
Petro Combi 6030-03 Shipping Company Limited
Marshall Islands
Petro Combi 6030-04 Shipping Company Limited
Marshall Islands
Blue Power Limited
Bermuda
Delta Cistern V Limited
Bermuda
Hermit Storm Shipping Company Limited
Marshall Islands
Hermit Protector Shipping Company Limited
Marshall Islands
Hermit Thunder Shipping Company Limited
Marshall Islands
Hermit Viking Shipping Company Limited
Marshall Islands
Guardian Shipping Company Limited
Marshall Islands
Sierra Cistern V Limited
Bermuda
Hermit Galaxy Shipping Company Limited
Marshal Islands
Hermit Power Shipping Company Limited
Marshall Islands
Hermit Horizon Shipping Company Limited
Marshall Islands
Hermit Prosper Shipping Company Limited
Marshall Islands
Hermit Fighter Shipping Company Limited
Marshall Islands
Delta PSV Norway AS
Norway
NAO Norway AS
Norway
PSV Adminco 2019 LLC
Delaware, USA





Schedule 5.18
None.




Exhibit

Exhibit 4.6

AMENDMENT NO. 1 TO
A COMMON STOCK PURCHASE AGREEMENT DATED JANUARY 14, 2020
(the “Purchase Agreement”)

BETWEEN

HERMITAGE OFFSHORE SERVICES LTD.
(the “Company”)
AND
SCORPIO SERVICES HOLDING LIMITED
(the “Investor”)
WHEREAS:

(1)
The Company and the Investor have previously entered into the Purchase Agreement dated January 14, 2020 (a copy of which is attached hereto as Exhibit I); and
 
(2)
The Company and the Investor have agreed to enter into this amendment no. 1 (the “Amendment No. 1”) to amend certain terms of the Purchase Agreement.

NOW, THEREFORE, the Company and the Investor hereby agree as follows:

1.
With effect from the date hereof:

(a) Section 7.1 (Term, Termination by Mutual Consent) of the Purchase Agreement shall be deleted in its entirety and replaced by the following:

“Section 7.1. Term
This Agreement shall terminate automatically on the earliest of (i) the date the Company shall have repaid the Facilities, (ii) the date agreed between the Parties and the Company’s Lenders and (iii) the date the Investor shall have purchased or acquired shares of Common Stock pursuant to this Agreement equal to the Aggregate Limit. Subject to Section 7.2 and provided that the Facilities have been repaid or the Company’s Lenders consent in writing, this Agreement may be terminated at any time by the mutual written consent of the Parties, effective on the date of such mutual written consent unless otherwise provided in such written consent, it being hereby acknowledged and agreed that the Investor may not consent to such termination after receipt of a Fixed Request Notice and prior to the corresponding Settlement Date.”; and
(b) The definition of “Investment Period” in Annex A to the Purchase Agreement shall be deleted in its entirety and replaced by the following:

““Investment Period” shall mean the period between the Effective Date and the termination of this Agreement in accordance with Section 7.1 hereof.”

1


2.
Subject only to the amendments contained in this Amendment No. 1, all terms and conditions of the Purchase Agreement remain unchanged and in full force and effect.

3.
Section 9.8 (Governing Law) of the Purchase Agreement shall apply mutatis mutandis to this Amendment No. 1.

[Signature page follows]

2


IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed by their respective authorized officer on the 21st day of January 2020.



HERMITAGE OFFSHORE SERVICES LTD.
 
 
 
 
 

By:
/s/ Cameron Keyser Mackey
 
Name: Cameron Keyser Mackey
 
 
Title: Chief Operating Officer

 
 
 
 
SCORPIO SERVICES HOLDING LIMITED
 
 
 
 
 
 
By:
/s/ Eleni Elpis Nassopoulou
 
 
Name: Eleni Elpis Nassopoulou
 
 
Title: General Counsel
 






Exhibit

Exhibit 4.8
Execution Version

TERM FACILITY AGREEMENT

dated 14 January 2020

for

HERMITAGE OFFSHORE SERVICES LTD.

arranged by
DNB BANK ASA
and
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL)

with

DNB BANK ASA
acting as Agent









CONTENTS
Clause
Page
 
Definitions and Interpretation    1
The Facility    22
Purpose    23
Conditions of Utilisation    23
Utilisation    25
Repayment    26
Prepayment and Cancellation    26
Interest    29
Interest Periods    30
Changes to the Calculation of Interest    30
Fees    32
Tax Gross Up and Indemnities    33
Increased Costs    37
Other Indemnities    38
Mitigation by the Lenders    40
Costs and Expenses    40
Security    42
Guarantee and Indemnity    43
Representations    47
Information Undertakings    51
Financial Covenants    56
General Undertakings    59
Vessel Undertakings    64
Events of Default    71
Changes to the Lenders    75
Changes to the Obligors    78
Role of the Agent, the Arranger and the Reference Banks    80
Conduct of business by the Finance Parties    90
Sharing among the Finance Parties    90
Payment Mechanics    92
Set-Off    95
Notices    95
Calculations and Certificates    96


Partial Invalidity    97
Remedies and Waivers    97
Amendments and Waivers    97
Confidential Information    100
Confidentiality of Funding Rates and Reference Bank Quotations    103
Bail-In Action    105
Counterparts    106
Governing Law    107
Enforcement    107
SCHEDULE 1 THE ORIGINAL PARTIES
108
SCHEDULE 2 CONDITIONS PRECEDENT
110
SCHEDULE 3 REQUESTS AND NOTICES
116
SCHEDULE 4 FORM OF TRANSFER CERTIFICATE
118
SCHEDULE 5 FORM OF COMPLIANCE CERTIFICATE
121
SCHEDULE 6 THE VESSELS
122
SCHEDULE 7 FORM OF ACCESSION AGREEMENT
124



THIS AGREEMENT is dated 14 January 2020 and made between:
(1)
HERMITAGE OFFSHORE SERVICES LTD., a company incorporated under the laws of Bermuda with company registration number 51869 and whose registered office is at LOM Building, 27 Reid Sheet, Hamilton, HM 11, Bermuda as borrower (the "Borrower");
(2)
THE COMPANIES listed in Part I of Schedule 1 as original guarantors (each an "Original Guarantor" and together the "Original Guarantors");
(3)
DNB BANK ASA and SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) as mandated lead arrangers (whether acting individually or together, the "Arranger");
(4)
THE FINANCIAL INSTITUTIONS listed in Part II of Schedule 1 as original lenders (the "Original Lenders"); and
(5)
DNB BANK ASA as agent and security agent of the other Finance Parties (the "Agent").
IT IS AGREED as follows:
SECTION 1
INTERPRETATION


1.
DEFINITIONS AND INTERPRETATION
1.1
Definitions
In this Agreement:
"Accession Agreement" means a document substantially in the form set out in Schedule 7 (Form of Accession Agreement)
"Account Bank" means DNB Bank ASA, acting through its office at Dronning Eufemias gate 30, 0191 Oslo, Norway or, in respect of Earnings Accounts for any Guarantor not owning any PSV Vessel, ABN AMRO Bank N.V., acting through its office at Coolsingel 93, P.O. Box 749, 3000 AS Rotterdam, The Netherlands.
"Additional Equity Line of Credit" means such Common Stock Purchase Agreement or other document, in each case in form and substance and with such parties satisfactory to the Lenders provided always that Scorpio Services Holding Limited is acceptable, whereby the investors thereunder irrevocably and unconditionally make new equity in an aggregate amount of no less than USD 15,000,000 available to the Borrower.
"Additional Guarantor" means a company which becomes an Additional Guarantor in accordance with Clause 26 (Changes to the Obligors).
"Account Pledge" means a first priority account pledge in favour of the Agent over an Earnings Account, to be entered into by the relevant Vessel Owner or Intragroup Charterer with the relevant Account Bank governed by law of the jurisdiction in which the Earnings Account is located and in form and substance acceptable to the Agent.
"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.
"Annex VI" means Annex VI of the Protocol of 1997 (as subsequently amended from time to time) to amend Marpol, as modified by the Protocol of 1978 relating thereto.
"Approved Classification Society" means ABS, Bureau Veritas, DNV GL or Lloyds Register or such other classification society approved by the Agent (acting on the instructions of the Majority Lenders).
"Applicable Sanctions" means any Sanctions by which any Obligor is bound or to which it is subject (which shall (in any event) include, without limitation, any extra-territorial sanctions imposed by law or regulation of the United States of America and the United Kingdom) or compliance with which is reasonable in the ordinary course of business of any Obligor
"Approved Ship Broker" means any of Affinity (Shipping) LLP, Fearnley Offshore AS, Clarksons / RS Platou Offshore AS, Pareto JGO Shipbrokers AS, Braemar ACM Offshore, and, with respect to the Fair Market Value of the Crew Vessels only, Maritime Strategies International Ltd., or, in each case, such other reputable independent sale and purchase broker approved by the Agent (acting on the instructions of the Lenders).
"Approved Ship Registry" means:


(a)
the Norwegian Ship Registries (NIS/NOR), the United Kingdom Ship Registry, the Marshall Islands Ship Registry and the Bermuda Ship Registry or such other international ship registry as consented to by the Agent (acting on the instructions of the Lenders in their sole discretion); and,
(b)
in the case of any Crew Vessel, where required by the terms of any employment contract, entered into in accordance with the terms of this Agreement or existing at the date hereof and notified to the Agent in writing, the Nigerian Ship Registry.
"Assignment Agreement" means a first priority assignment by the relevant Vessel Owner or Intragroup Charterer in favour of the Agent of the Insurances, Earnings and any monetary claims, and if obtainable all its rights, under or in relation to any Charterparty with a duration of 18 months or more, in respect of the relevant Vessel, to be entered into by the relevant Vessel Owner or Intragroup Charterer, and in form and substance acceptable to the Agent.
"Authorisation" means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.
"Availability Period" means the period from and including the date of this Agreement to and including 31 January 2020.
"Available Commitment" means a Lender's Commitment minus:
(a)
the amount of its participation in any outstanding Loan; and
(b)
in relation to any proposed Utilisation, the amount of its participation in the Loan that is due to be made on or before the proposed Utilisation Date.
"Available Facility" means the aggregate for the time being of each Lender's Available Commitment.
"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 that 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 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 Oslo, New York and London.
"Cash" has the meaning given to that term in Clause 21 (Financial Covenants).


"Cash Equivalents" has the meaning given to that term in Clause 21 (Financial Covenants).
"Change of Control" means the occurrence of any act, event or circumstance whereby:
(a)
a person or group of persons acting in concert, in each case other than one or more Existing Investor, becomes the owner of 25 per cent. or more of the total voting rights or number of shares in the Borrower, or
(b)
the board of directors of the Borrower shall cease to consist of a majority of continuing directors.
For the purposes of this definition: "continuing directors" means:
(i)
the directors of the Borrower at the date of this Agreement; and
(ii)
each other director, if such other director’s nomination for election to the board of directors of the Borrower is recommended by a majority of the then continuing directors.
"Charged Property" means all of the assets of the Obligors which from time to time are, or are expressed to be, the subject of the Transaction Security.
"Charterparty" means any bareboat charterparty, any time charterparty, any pool agreement or any other contract of employment entered into in respect of any of the Vessels.
"Code" means the US Internal Revenue Code of 1986.
"Commercial Management Agreement" means any commercial management agreement made between an Obligor and a Commercial Manager in respect of the commercial management of a Vessel.
"Commercial Manager" means any of:
(a)
NAO Norway AS;
(b)
Delta PSV Norway AS;
(c)
Petro Services Ship Management S.A.M.;
(d)
Scorpio Commercial Management S.A.M. or any of its Subsidiaries or Affiliates; or
(e)
such other commercial manager as may be approved in writing by the Agent on behalf of the Majority Lenders (such consent not to be unreasonably withheld or delayed).
"Commitment" means:
(a)
in relation to an Original Lender, the amount set opposite its name under the heading "Commitment" in Part II of Schedule 1 (The Original Parties) and the amount of any other Commitment transferred to it under this Agreement; and


(b)
in relation to any other Lender, the amount of any Commitment transferred to it under this Agreement,
to the extent not cancelled, reduced or transferred by it under this Agreement.
"Compliance Certificate" means a certificate substantially in the form set out in Schedule 5 (Form of Compliance Certificate).
"Confidential Information" means all information relating to the Borrower, any 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:
(i)
information that:
(A)
is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of Clause 37 (Confidential Information); or
(B)
is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or
(C)
is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (a) or (b) 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; and
(ii)
any Funding Rate or Reference Bank Quotation.
"Confidentiality Undertaking" means a confidentiality undertaking substantially in a recommended form of the LMA or in any other form agreed between the Borrower and the Agent.
"Crew Vessels" means each of the Vessels numbered 11 to 21 (inclusive) and set out in Schedule 6 (The Vessels).


"Default" means an Event of Default or any event or circumstance specified in Clause 24 (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 any 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 or the Borrower (which has notified the Agent) that it will not make its participation in the Loan available) by the Utilisation Date of the 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 Disruption Event, and
payment is made within five (5) Business Days of its due date; or
(ii)
the Lender is disputing in good faith whether it is contractually obliged to make the payment in question.
"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
(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.


"DVB Facility Agreement" means the USD 9,000,000 term loan facility agreement between, amongst others Hermit Baron Shipping Company Limited and Hermit Brilliance Shipping Company Limited as borrowers and DVB Bank SE as lender.
"Earnings" means all moneys whatsoever which are now, or later become, payable (actually or contingently) to a Vessel Owner, and which arise out of the use of or operation of a Vessel, including (but not limited to):
(a)
all freight and hire payable, including (without limitation) payments of any nature under any charter or agreement for the employment, use, possession, management and/or operation of the Vessel;
(a)
any claim under any guarantees related to freight and hire payable as a consequence of the operation of the Vessel;
(b)
compensation payable in the event of any requisition of the Vessel or for the use of the Vessel by any government authority or other competent authority;
(c)
remuneration for salvage, towage and other services performed by the Vessel;
(d)
demurrage and retention money receivable in relation to the Vessel;
(e)
all moneys which are at any time payable under the Insurances in respect of loss of earnings;
(f)
all present and future moneys and claims payable in respect of any breach or variation of any charter or agreement for the employment, use, possession, management and/or operation of the Vessel; and
(g)
any other money whatsoever due or to become due from third parties or otherwise in relation to the Vessel.
"Earnings Account" means any account held by a Vessel Owner or Intragroup Charterer with an Account Bank designated as an "Earnings Account" by the Borrower and the Agent from time to time, into which all Earnings of the relevant Vessel Owner are to be paid, and which shall be subject to an Account Pledge.
"Environmental Approval" means any permit, license, consent, approval and other authorisations and the filing of any notification, report or assessment required under any Environmental Law for the operation of the Vessels or for the operation of the business of any Obligor.
"Environmental Claim" means any claim, proceeding, enforcement or investigation by any party in respect of any Environmental Law or Environmental Approval.
"Environmental Law" means any applicable law, regulation, convention or treaty in any jurisdiction in which any Obligor conducts business which relates to:
(b)
the pollution or protection of the environment;


(c)
the protection of human health;
(d)
the working conditions of the workplace; or
(e)
the carriage of Environmentally Hazardous Material which is capable of polluting the environment.
"Environmentally Hazardous Material" means any material (including, without limitation, oil, oil products and any other substance including any chemical, gas or other hazardous or noxious substance) which is or is capable of being or becoming polluting, toxic or hazardous.
"Equity Line of Credit" means each of the Existing Equity Line of Credit and any Additional Equity Line of Credit.
"Event of Default" means any event or circumstance specified as such in Clause 23 (Events of Default).
"Existing Equity Line of Credit" means the Common Stock Purchase Agreement dated 29 March 2019 and entered into between the Borrower as company and each of Scorpio Offshore Investments Inc. and Mackenzie Financial Corporation (for and on behalf of certain funds and accounts as set out therein) as investors regarding the purchase by the investors of newly issued shares in the Borrower for an amount of up to USD 20,000,000.
"Existing Facility" means the USD 150,000,000 revolving credit facility agreement dated 16 March 2015 and as amended by an amendment agreement dated 29 March 2019 with DNB Bank ASA as agent.
"Existing Investor" means each of:
(a)
Scorpio Offshore Investments Inc. incorporated in the Marshall Islands having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH 96960;
(b)
Scorpio Services Holding Limited incorporated in the Marshall Islands having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH 96960;
(c)
Scorpio Offshore Holding Inc. incorporated in the Marshall Islands having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands, MH 96960; and/or
(d)
Mackenzie Financial Corporation incorporated in Canada, c/o Mackenzie Investments, 180 Queen Street West, Toronto, Ontario, M5V 3K1, Canada.
"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 to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five


Business Days' written notice) as the office or offices through which it will perform its obligations under this Agreement.
"Fair Market Value" means the fair market value of a Vessel in USD determined by calculating the arithmetic mean of two independent valuations of the Vessel, obtained by the Borrower from two Approved Ship Brokers. The valuations shall be made on charter free basis (or otherwise on the basis of no other contract or arrangement of employment) without physical inspection of the Vessel and on the basis of a sale for prompt delivery for cash at arm's length on normal commercial terms as between a willing buyer and seller provided, however, that if the two valuations differ by more than 10 per cent. of the lower valuation the Agent may require an additional valuation to be conducted by a third Approved Shipbroker selected by the Agent, and in such event the arithmetic mean of the three valuations so obtained shall be the fair market value of the Vessel.
"FATCA" means:
(a)
sections 1471 to 1474 of the Code or any associated regulations or other official guidance;
(b)
any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or
(c)
any agreement pursuant to the implementation of 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 or letters dated on or about the date of this Agreement between the Arranger and the Borrower (or the Agent and the Borrower) setting out any of the fees referred to in Clause 11 (Fees).


"Finance Document" means this Agreement, any Fee Letter, any Accession Agreement, any Transaction Security Document, the Utilisation Request, any Compliance Certificate and any other document designated as such by the Agent and the Borrower.
"Finance Party" means the Agent, the Arranger or a Lender.
"Financial Indebtedness" means any indebtedness for or in respect of:
(a)
moneys borrowed;
(b)
any amount raised by acceptance under any acceptance credit 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, be treated as a balance sheet liability;
(e)
receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);
(f)
any amount raised under any other transaction (including any forward sale or purchase agreement) of a type not referred to in any other paragraph of this definition having the commercial effect of a borrowing;
(g)
any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative 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 derivative transaction, that amount) shall be taken into account);
(h)
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; and
(i)
the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in any of the preceding paragraphs.
"Funding Rate" means any individual rate notified by a Lender to the Agent pursuant to paragraph (a)(ii) of Clause 10.4 (Cost of funds).
"GAAP" means, in respect of the Borrower generally accepted accounting principles in the United States of America and in respect of any other member of the Group, generally accepted accounting principles in its jurisdiction of incorporation.
"Group" means the Borrower and its Subsidiaries at any time.
"Group Obligor" means any member of the Group which is a debtor or guarantor in respect of Financial Indebtedness.


"Guarantor" means an Original Guarantor or an Additional Guarantor in accordance with Clause 26 (Changes to the Obligors).
"Holding Company" means, in relation to a person, any other person in respect of which it is a Subsidiary.
"IFRS" means international accounting standards within the meaning of the IAS Regulation 1606/2002 to the extent applicable to the relevant financial statements.
"Insurances" means all policies and contracts of insurances (including all entries in protection and indemnity or war risks association) which are from time to time taken out or entered into in respect of or in connection with the Vessels in accordance with Clause 23.1 (Insurances) and (where the context permits) all benefits thereof, including all claims of any nature, proceeds thereof and returns of premium.
"Insolvency Event" in relation to an entity means that the entity:
(a)
is dissolved (other than pursuant to a consolidation, amalgamation or merger);
(b)
becomes insolvent or is unable to pay its debts or fails or 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;
(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, for so long as it is required by law or regulation not to be publicly disclosed, any such appointment which is to be made, or is made, by a person or entity described in paragraph (d) above);
(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 (h) above; or
(j)
takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts.
"Interest Period" means, in relation to 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).
"Intragroup Charterer" means NAO Norway AS, Delta PSV Norway AS and any other member of the Group or Affiliate of the Group which is a charterer of a Vessel and becomes an Additional Guarantor pursuant to the terms of this Agreement.
"Interpolated Screen Rate" means, in relation to the Loan, 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 Interest Period of that Loan; and
(b)
the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the Interest Period of that Loan,
each as of the relevant time on the Quotation Day.
"ISM Code" means the International Management Code for Safe Operations of Ships and for Pollution Prevention, as adopted by the International Maritime Organisation (including the guidelines on its implementation), as any of the same may be amended, supplemented or replaced from time to time.
"ISPS Code" means the International Ship and Port Facility Security Code, as adopted by the International Maritime Organisation, as the same may be amended, supplemented or replaced from time to time.
"Lender" means:


(a)
any Original Lender; and
(b)
any bank, financial institution, trust, fund or other entity which has become a Party as a "Lender" in accordance with Clause 25 (Changes to the Lenders),
which in each case has not ceased to be a Party as such in accordance with the terms of this Agreement.
"Leverage Ratio" has the meaning given to that term in Clause 21 (Financial Covenants).
"LIBOR" means, in relation to the Loan:
(c)
the applicable Screen Rate as of 11:00 a.m. (London time) on the Quotation Day for the currency of that Loan and for a period equal in length to the Interest Period of that Loan; or
(d)
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 that loan.
"Majority Lenders" means a Lender or Lenders whose Commitments aggregate more than 662/3 per cent. of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 662/3 per cent. of the Total Commitments immediately prior to the reduction).
"Management Agreement" means any Commercial Management Agreement or any Technical Management Agreement.
"Manager" means the Commercial Manager or the Technical Manager.
"Margin" means:
(a)
from an including the date of this Agreement to the First Alteration Date, 3.50 per cent. per annum; and
(b)
thereafter the Margin will be the per cent. per annum corresponding to the Leverage Ratio as determined pursuant to the most recently delivered Compliance Certificate for the applicable period of time (with such adjustments to be made effective from and including the date falling five (5) Business Days after the Agent's receipt of that Compliance Certificate).


 
Applicable period of time
Leverage Ratio
% p.a. from and including the First Alteration Date to and including 6 December 2021
% p.a. from and including 7 December 2021 to and including 6 December 2022
% p.a. from and including 7 December 2022 and thereafter
At or above 4.50
3.50
4.50
5.50
At or above 4.00, but less than 4.50
3.25
4.25
5.25
At or above 3.00, but less than 4.00
3.00
4.00
5.00
Less than 3.00
2.50
3.50
4.50

For the purposes of this definition "First Alteration Date" means the date falling five (5) Business Days after the date on which the Borrower delivers the first Compliance Certificate pursuant to Clause 20.2 (Compliance Certificate).
"Marpol" means the International Convention for the Prevention of Pollution from Ships.
"Material Adverse Effect" means a material adverse effect on:
(a)
the business, operations, assets, liabilities, condition (financial or otherwise) or prospects of the Group (taken as a whole);
(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 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.
"Month" means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:
(a)
(subject to paragraph (c) below) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day;
(b)
if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month; and
(c)
if an Interest Period begins on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which that Interest Period is to end.
The above rules will only apply to the last Month of any period.


"Mortgage" means the first priority or preferred ship mortgage over each Vessel, as applicable, and, if applicable, the declaration of pledge or deed of covenants collateral thereto, to be issued by the relevant Vessel Owner in favour of, or to be entered into by the relevant Vessel Owner with, the Agent in form and substance acceptable to the Agent and to be registered against the relevant Vessel on first priority with the applicable Approved Ship Registry, with, where applicable, a maximum secured amount of USD 160,000,000.
"New Lender" has the meaning given to that term in Clause ‎25 (Changes to the Lenders).
"Obligor" means the Borrower or a Guarantor.
"Obligors' Agent" means the Borrower, appointed to act on behalf of each Obligor in relation to the Finance Documents pursuant to Clause 2.3 (Obligors' Agent).
"Original Financial Statements" means, in relation to the Borrower, its audited and consolidated financial statements for the financial year ended 31 December 2018.
"Party" means a party to this Agreement.
"Poseidon Principles" means the financial industry framework for assessing and disclosing the climate alignment of ship finance portfolios published in June 2019.
"PSV Vessels" means each of the Vessels numbered 1 to 10 (inclusive) set out in Schedule 6 (The Vessels).
"Quasi-Security" has the meaning given to that term in Clause 22.8 (Negative Pledge).
"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 differs in the Relevant Market, in which case the Quotation Day will be determined by the Agent in accordance with market practice in the Relevant Market (and if quotations would normally be given on more than one day, the Quotation Day will be the last of those days).
"Reference Bank Quotation" means any quotation supplied to the Agent by a Reference Bank.
"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 in relation to LIBOR as 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 fund itself in USD for the relevant period with reference to the unsecured wholesale funding market.
"Reference Banks" means the relevant principal offices of the Original Lenders or such other entities as may be appointed by the Agent in consultation with the Borrower.
"Related Fund" in relation to a fund (the "first fund"), means a fund which is managed or advised by the same investment manager or investment adviser as the first fund or, if it is managed by a different investment manager or investment adviser, a fund whose investment manager or investment adviser is an Affiliate of the investment manager or investment adviser of the first fund.
"Relevant Jurisdiction" means in relation to an Obligor:
(a)
its jurisdiction of incorporation;
(b)
any jurisdiction where any asset subject to or intended to be subject to the Transaction Security to be created by it is situated;
(c)
any jurisdiction where it conducts its business; and
(d)
the jurisdiction whose laws govern the perfection of any of the Transaction Security Documents entered into by it.
"Relevant Market" means the London interbank market.
"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.
"Relevant Person" means:
(a)
each Obligor;
(b)
each member of the Group; and
(c)
their respective directors, officers and employees in their respective capacity and role as a director, officer or employee.
"Repeating Representations" means each of the representations set out in Clause 19 (Representations) except Clause 19.7 (Insolvency), Clause 19.8 (No filing or stamp taxes), Clause 19.9 (Deduction of Tax), Clause 19.17 (Environmental Claims), Clause 19.18 (Anti-bribery, anti-corruption and anti-money laundering) and Clause 19.25 (The Vessels).
"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 (provided that the market or economic reality that such benchmark rate measures is the same as that measured by 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 Lenders (following consultation with the Borrower), generally accepted in the international or any relevant domestic syndicated loan markets as the appropriate successor to a Screen Rate; or
(c)
in the opinion of the Lenders (following consultation with the Borrower), an appropriate successor to a Screen Rate.
"Representative" means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian.
"Restricted Party" means a person:
(a)
that is listed on any Sanctions List or targeted by Sanctions (whether designated by name or by reason of being included in a class of person);
(b)
located in or incorporated under the laws of any country or territory that is the target of comprehensive, country- or territory-wide Sanctions; or
(c)
directly or indirectly owned or controlled by, or acting on behalf, at the direction or for the benefit of, a person referred to in (a) and/or (to the extent relevant under Sanctions) (b) above.
"Sanctions" means any applicable (to any Relevant Person and/or Finance Party as the context provides) laws, regulations or orders concerning any trade, economic or financial sanctions or embargoes
"Sanctions Authority" means the Norwegian State, the United Nations, the European Union, the Member States of the European Union, the United Kingdom, the United States of America and any authority acting on behalf of any of them in connection with Sanctions.
"Sanctions List" means:
(a)
the lists of Sanctions designations and/or targets maintained by any Sanctions Authority; and/or
(b)
any other Sanctions designation or target listed and/or adopted by a Sanctions Authority,


in all cases, from time to time.
"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 the relevant currency and 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, in each case, 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 (acting on the instructions of the Lenders in their sole discretion) specify another page or service displaying the relevant rate.
"Security" means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.
"Selection Notice" means a notice substantially in the form set out in Part II of Schedule 3 (Requests and Notices) given in accordance with Clause 9 (Interest Periods) in relation to the Loan.
"Share Pledge" means a first priority pledge or charge by the Borrower or any direct or indirect Subsidiary of the Borrower in respect of all the shares in each Guarantor which is a member of the Group, to be entered into by the Borrower or any direct or indirect Subsidiary of the Borrower with the Agent, and in form and substance acceptable to the Agent.
"Statement of Compliance" means a Statement of Compliance related to fuel oil consumption pursuant to regulations 6.6 and 6.7 of Annex VI.
"Subsidiary" means an entity of which a person has direct or indirect control or owns directly or indirectly more than 50.00 per cent. of the voting capital or similar right of ownership, and "control" for this purpose means the power to direct the management and the policies of the entity whether through the ownership of voting capital, by contract or otherwise.
"Subordinated Loan" means any loan made by a member of the Group to an Obligor which is subordinated to the rights of the Finance Parties under the Finance Documents on terms acceptable to the Agent (acting on instructions of the Majority Lenders).
"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).
"Technical Management Agreement" mean any technical management agreement made between an Obligor and a Technical Manager in respect of the technical management of a Vessel.
"Technical Manager" means any of:
(a)
V.Ships Offshore Limited.;


(b)
Remoy Shipping AS;
(c)
OSM Maritime AS or any of its Subsidiaries or Affiliates;
(d)
Petro Services Ship Management S.A.M.;
(c)
Scorpio Ship Management S.A.M. or any of its Subsidiaries or Affiliates; or
(d)
such other commercial manager as may be approved in writing by the Agent on behalf of the Majority Lenders (such consent not to be unreasonably withheld or delayed).
"Termination Date" means 6 December 2023.
"Total Commitments" means the aggregate of the Commitments.
"Total Loss" means in relation to a Vessel:
(a)
the actual, constructive, compromised, agreed, arranged or other total loss of the Vessel;
(b)
any expropriation, confiscation, requisition or acquisition of the Vessel, whether for full consideration, a consideration less than its proper value, a nominal consideration or without any consideration, that is effected by any government or official authority or by any person or persons claiming to be or to represent a government or official authority, unless it is within three months redelivered to the full control of the relevant Vessel Owner; or
(c)
any capture, or seizure of a Vessel (including any piracy, hijacking or theft) unless it is within six months redelivered to the full control of the relevant Vessel Owner.
"Total Loss Date" means in relation to a Vessel:
(a)
in the case of an actual total loss of the Vessel, the date on which it occurred or, if that is unknown, the date when the Vessel was last heard of;
(b)
in the case of a constructive, compromised, agreed or arranged total loss of the Vessel, the earlier of:
(i)
the date on which a notice of abandonment is given to the insurers; and
(ii)
the date of any compromise, arrangement or agreement made by or on behalf of the relevant Vessel Owner with the Vessel's insurers in which the insurers agree to treat the Vessel as a total loss; or
(c)
in the case of any other type of Total Loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the Total Loss occurred.
"Transaction Security" means the Security created or expressed to be created in favour of the Agent (on behalf of the Finance Parties) pursuant to the Transaction Security Documents


(always excluding any subordination agreement from a Manager provided pursuant to paragraph (b) of Clause 23.10 (Management)).
"Transaction Security Documents" means any document entered into by any Obligor creating or expressed to create any Security over all or any part of its assets in respect of all or any part of the obligations of any of the Obligors under any of the Finance Documents, each of which shall be in form and substance satisfactory to the Agent.
"Transfer Certificate" means a certificate substantially in the form set out in Schedule 4 (Form of Transfer Certificate) or any other form agreed between the Agent and the Borrower.
"Transfer Date" means, in relation to an assignment or a transfer, the later of:
(a)
the proposed Transfer Date specified in the relevant Transfer Certificate; and
(b)
the date on which the Agent executes the relevant Transfer Certificate.
"Unpaid Sum" means any sum due and payable but unpaid by an Obligor under the Finance Documents.
"US" means the United States of America.
"USD" means the lawful currency for the time being of the US.
"Utilisation" means the utilisation of the Facility.
"Utilisation Date" means the date of the Utilisation, being the date on which the Loan is to be made.
"Utilisation Request" means a notice substantially in the form set out in Part I of Schedule 3 (Requests and Notices).
"VAT" means any value added tax as provided for in the Norwegian Value Added Tax Act of 19 June 2009 no. 58 and any other tax of a similar nature (in any jurisdiction).
"Vessel" means each Vessel set out in Schedule 6 (The Vessels).
"Vessel Owner" means:
(a)
at the date of this Agreement, the relevant Borrower and each relevant Vessel Owning Guarantor; and
(b)
any Obligor or Additional Guarantor which is a wholly owned direct or indirect Subsidiary of the Borrower which is or becomes an owner of a Vessel, with the prior written consent of the Agent (acting on the instructions of the Lenders), pursuant to the terms of this Agreement, after the date of this Agreement.
"Vessel Owner Disposal" means that the equity interests in a Guarantor which is the direct or indirect owner of a Vessel ceases to be owned and/or controlled 100% (directly or indirectly) by the Borrower.


"Vessel Owning Guarantor" means each of the Original Guarantors numbered 1-21 (inclusive) listed in Part I of Schedule 1.
1.2
Construction
(a)
Unless a contrary indication appears, any reference in this Agreement to:
(i)
the "Agent", the "Arranger", any "Finance Party", any "Lender", any "Obligor" or any "Party" shall be construed so as to include its successors in title, permitted assigns and permitted transferees to, or of, its rights and/or obligations under the Finance Documents;
(ii)
"assets" includes present and future properties, revenues and rights of every description;
(iii)
a "Finance Document" or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, novated, supplemented, extended or restated;
(iv)
a "group of Lenders" includes all the Lenders;
(v)
"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;
(vi)
a "person" includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium, partnership or other entity (whether or not having separate legal personality);
(vii)
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 of any regulatory, self-regulatory or other authority or organisation;
(viii)
a provision of law is a reference to that provision as amended or re-enacted; and
(ix)
a time of day is a reference to Oslo time.
(b)
The determination of the extent to which a rate is "for a period equal in length" to an Interest Period shall disregard any inconsistency arising from the last day of that Interest Period being determined pursuant to the terms of this Agreement.
(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.


SECTION 2
THE FACILITY
2.
THE FACILITY
2.1
The Facility
Subject to the terms of this Agreement, the Lenders make available to the Borrower a single currency term loan facility in an aggregate amount equal to the Total Commitments.
2.2
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 is a separate and independent debt in respect of which a Finance Party shall be entitled to enforce its rights 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.
(c)
A Finance Party may, except as specifically provided in the Finance Documents, separately enforce its rights under or in connection with the Finance Documents.
2.3
Obligors' Agent
(a)
Each Obligor (other than the Borrower) by its execution of this Agreement or an Accession Agreement irrevocably appoints the Borrower (acting through one or more authorised signatories) to act on its behalf as its agent in relation to the Finance Documents and irrevocably authorises:
(i)
the Borrower on its behalf to supply all information concerning itself contemplated by this Agreement to the Finance Parties and to give all notices and instructions, to execute on its behalf any Accession Agreement, to make such agreements and to effect the relevant amendments, supplements and variations capable of being given, made or effected by any Obligor notwithstanding that they may affect the Obligor, without further reference to or the consent of that Obligor; and
(ii)
each Finance Party to give any notice, demand or other communication to that Obligor pursuant to the Finance Documents to the Borrower,


and in each case the Obligor shall be bound as though the Obligor itself had given the notices and instructions (including, without limitation, the Utilisation Request) or executed or made the agreements or effected the amendments, supplements or variations, or received the relevant notice, demand or other communication.
(b)
Every act, omission, agreement, undertaking, settlement, waiver, amendment, supplement, variation, notice or other communication given or made by the Obligors' Agent or given to the Obligors' Agent under any Finance Document on behalf of another Obligor or in connection with any Finance Document (whether or not known to any other Obligor and whether occurring before or after such other Obligor became an Obligor under any Finance Document) shall be binding for all purposes on that Obligor as if that Obligor had expressly made, given or concurred with it. In the event of any conflict between any notices or other communications of the Obligors' Agent and any other Obligor, those of the Obligors' Agent shall prevail.
3.
PURPOSE
3.1
Purpose
The Borrower shall apply all amounts borrowed by it under the Facility to refinance all outstanding amounts under the Existing Facility.
3.2
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
(a)
The Lenders will only be obliged to comply with Clause 5.4 (Lenders' participation) in relation to the Utilisation if on or before the Utilisation Date the Agent has received all of the documents and other evidence listed in Parts 1 and 2 of Schedule 2 (Conditions precedent) in form and substance satisfactory to the Agent. The Agent shall notify the Borrower and the Lenders promptly upon being so satisfied.
(b)
Other than to the extent that the Majority Lenders notify the Agent in writing to the contrary before the Agent gives the notification described in paragraph (a) above, 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.
4.2
Further conditions precedent
Subject to Clause 4.1 (Initial conditions precedent), the Lenders will only be obliged to comply with Clause 5.4 (Lenders' participation) if on the date of the Utilisation Request and on the proposed Utilisation Date:
(a)
no Default is continuing or would result from the proposed Loan; and


(b)
the Repeating Representations to be made by each Obligor are true in all material respects.
4.3
Maximum number of Loans
The Facility may only be utilised in one Loan on the Utilisation Date.


SECTION 3
UTILISATION
5.
UTILISATION
5.1
Delivery of a Utilisation Request
The Borrower may utilise the Facility by delivery to the Agent of the duly completed Utilisation Request not later than 11:00 a.m. three Business Days prior to the proposed Utilisation Date of such Utilisation.
5.2
Completion of a 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 within the Availability Period;
(ii)
the currency and amount of the Utilisation comply with Clause 5.3 (Currency and amount); and
(iii)
the proposed Interest Period complies with Clause 9 (Interest Periods).
(b)
Only one Loan may be requested in the Utilisation Request.
5.3
Currency and amount
(a)
The currency specified in the Utilisation Request must be USD.
(b)
The amount of the proposed Loan must not exceed the relevant Available Facility.
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 Available Commitment to the Available Facility immediately prior to making the Loan.
(c)
The Agent shall notify each Lender of the amount of the Loan and the amount of its participation in that Loan by 12:00 (noon) three Business Days prior to the requested Utilisation Date of such Loan.
5.5
Cancellation of Commitment
The Commitments which, at that time, are unutilised shall be immediately cancelled at the end of the Availability Period.


SECTION 4
REPAYMENT, PREPAYMENT AND CANCELLATION
6.
REPAYMENT
6.1
Repayment of Loans
The Borrower shall repay the Loan in consecutive semi-annual instalments of USD 7,500,000 starting on 7 December 2021 and thereafter on 7 June and 7 December each year until the Termination Date.
6.2
Termination Date
On the Termination Date, the Borrower shall additionally pay all other sums then accrued and owing under the Finance Documents.
6.3
Reborrowing
The Borrower may not reborrow any part of the Loan which is repaid.
7.
PREPAYMENT AND CANCELLATION
7.1
Illegality
If, in any applicable jurisdiction, it becomes unlawful for any Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in the Loan or it becomes unlawful for any Affiliate of a Lender for that Lender to do so:
(a)
that Lender shall promptly notify the Agent upon becoming aware of that event;
(b)
upon the Agent notifying the Borrower, the Available Commitment of that Lender will be immediately cancelled; and
(c)
the Borrower shall repay that Lender's participation in the Loan on the last day of the Interest Period for the Loan occurring after the Agent has notified the Borrower 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
Upon the occurrence of a Change of Control:
(a)
the Borrower shall promptly notify the Agent upon becoming aware of that event;
(b)
a Lender shall not be obliged to fund the Utilisation; and
(c)
the Total Commitments shall be cancelled and the Borrower shall immediately prepay the Loan in full.
7.3
Sale or Total Loss
(a)
If a Vessel becomes a Total Loss, a Vessel is sold or is otherwise disposed of or there is a Vessel Owner Disposal, the Borrower shall prepay the Loan in an amount equal to the net proceeds received by the Group in respect of such Total Loss, sale or other disposition, provided that, (i) no PSV Vessels (or direct or indirect ownership interest in any of them) may be sold or disposed of at less than the Fair Market Value of such Vessel (as determined by the most recent valuations provided


to the Agent pursuant to terms of this Agreement) without the prior written consent of the Agent (acting on the instructions of the Lenders) and (ii) a Vessel Owner Disposal shall for the purpose of this Clause 7.3 (Sale or Total Loss) be considered as a disposal of all Vessels (directly or indirectly) owned by the relevant Guarantor the shares in which are disposed of.
(b)
The amounts due under paragraph (a) above shall become due and payable:
(i)
in the case of a sale, other disposal or Vessel Owner Disposal, on or before the date on which the sale or disposal is completed; and
(ii)
in the case of a Total Loss of a Vessel, on the earlier of:
(A)
the date falling 180 days after the Total Loss Date; or
(B)
the date of receipt of the insurance proceeds or requisition compensation relating to such Total Loss.
7.4
Voluntary prepayment of the Loan
The Borrower may, if it gives the Agent not less than five Business Days' (or such shorter period as the Majority Lenders may agree) prior notice, prepay the whole or any part of the Loan (but if in part, being a minimum amount of USD 1,000,000 and in integral multiples of USD 1,000,000).
7.5
Right of repayment and cancellation in relation to a single Lender
(a)
If:
(i)
any sum payable to any Lender by an Obligor is required to be increased under paragraph (c) of Clause 12.2 (Tax gross-up); or
(ii)
any Lender claims indemnification from the Borrower under Clause 12.3 (Tax indemnity) or Clause 13.1 (Increased costs),
the Borrower 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 its intention to procure the repayment of that Lender's participation in the Loan.
(b)
On receipt of a notice of cancellation referred to in paragraph (a) above, the Commitment of that Lender shall immediately be reduced to zero.
(c)
On the last day of each Interest Period which ends after the Borrower has given notice of cancellation under paragraph (a) above (or, if earlier, the date specified by the Borrower in that notice), the Borrower shall repay that Lender's participation in the Loan together with all interest and other amounts accrued under the Finance Documents.
7.6
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 Borrower may not reborrow any part of the Loan which is prepaid.
(d)
The Borrower 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)
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 Borrower or the affected Lender, as appropriate.
(g)
If all or part of any Lender's participation in the Loan is repaid or prepaid an amount of that Lender's Commitment (equal to the amount of the participation which is repaid or prepaid) will be deemed to be cancelled on the date of repayment or prepayment.
7.7
Application of prepayments
Any prepayment of the Loan pursuant to Clause 7.2 (Change of control), Clause 7.3 (Sale or Total Loss) or Clause 7.4 (Voluntary prepayment of Loans) shall be applied pro rata to each Lender's participation in that Loan and further, in the case of a partial prepayment of the Loan:
(a)
pursuant to Clause 7.4 (Voluntary prepayment of Loans), other than in respect of any prepayment made pursuant to paragraph (b) of Clause 23.14 (Minimum Value), pro rata against the remaining repayment instalments described at Clause 6.1 (Repayment of Loans);
(b)
pursuant to Clause 7.3 (Sale or Total Loss) or pursuant to Clause 7.4 (Voluntary prepayment of Loans) in respect of any prepayment made pursuant to paragraph (b) of Clause 23.14 (Minimum Value) and subject to paragraph (c) below, in inverse order of maturity against the remaining repayment instalments described at Clause 6.1 (Repayment of Loans); and
(c)
pursuant to Clause 7.3 (Sale or Total Loss), due to a sale of a PSV Vessel, pro rata against the remaining repayment instalments described in Clause 6.1 (Repayment of Loans).


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 Borrower shall pay accrued interest on the Loan on the last day of each Interest Period (and, if the Interest Period is longer than three Months, on the dates falling at three monthly intervals after the first day of the 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 paragraph (b) below, is 2.00 per cent. per annum higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted the Loan in the currency of the overdue amount for successive Interest Periods, each of a duration selected by the Agent (acting reasonably). Any interest accruing under 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 that Loan:
(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 that Loan; and
(ii)
the rate of interest applying to the overdue amount during that first Interest Period shall be 2.00 per cent. 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
(a)
The Agent shall promptly notify the Lenders and the Borrower of the determination of a rate of interest under this Agreement.
(b)
The Agent shall promptly notify the Borrower of each Funding Rate relating to the Loan.


9.
INTEREST PERIODS
9.1
Selection of Interest Periods
(a)
The Borrower may select an Interest Period for the Loan in the Utilisation Request for that Loan or (if the Loan has already been borrowed) in a Selection Notice.
(b)
Each Selection Notice for the Loan is irrevocable and must be delivered to the Agent by the Borrower not later than 09:30 a.m. three Business Days before the start of the relevant Interest Period.
(c)
If the Borrower fails to deliver a Selection Notice to the Agent in accordance with paragraph (b) above, the relevant Interest Period will be three Months.
(d)
Subject to this Clause 9, the Borrower may select an Interest Period of three Months or any other period agreed between the Borrower, the Agent and all the Lenders.
(e)
An Interest Period for the Loan shall not extend beyond the Termination Date.
(f)
Each Interest Period for the Loan shall start on the Utilisation Date or (if already made) on the last day of its preceding Interest Period.
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)
Interpolated Screen Rate: If no Screen Rate is available for LIBOR for the Interest Period of the Loan, LIBOR shall be the Interpolated Screen Rate for a period equal in length to the Interest Period of that Loan.
(b)
Reference Bank Rate: If no Screen Rate is available for LIBOR for:
(i)
USD; or
(ii)
the Interest Period of the Loan and it is not possible to calculate the Interpolated Screen Rate,
LIBOR shall be the Reference Bank Rate at or about 12:00 (noon) on the Quotation Day for a period equal in length to the Interest Period of that Loan.
(c)
Cost of funds: If paragraph (b) above applies but no Reference Bank Rate is available for USD or the relevant Interest Period there shall be no LIBOR for that Loan and Clause 10.4 (Cost of funds) shall apply to that Loan for that Interest Period.
10.2
Calculation of Reference Bank Rate
(a)
Subject to paragraph (b) below, if LIBOR is to be determined on the basis of a Reference Bank Rate but a Reference Bank does not supply a quotation by close


of business in Oslo on the date falling one Business Day after the Quotation Day, the Reference Bank Rate shall be calculated on the basis of the quotations of the remaining Reference Banks.
(b)
If at or about 12:00 (noon) on the Quotation Day none or only one of the Reference Banks supplies a quotation, there shall be no Reference Bank Rate for the relevant Interest Period.
10.3
Market disruption
If before close of business in Oslo on the Quotation Day for the relevant Interest Period the Agent receives notifications from a Lender or Lenders (whose participations in the Loan exceed 50.00 per cent. 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 then Clause 10.4 (Cost of funds) shall apply to that Loan for the relevant Interest Period.
10.4
Cost of funds
(a)
If this Clause 10.4 applies, the rate of interest on each Lender's share of the Loan for the relevant Interest Period shall be the percentage rate per annum which is the sum of:
(i)
the Margin; and
(ii)
the rate notified to the Agent by that Lender and copied to the Borrower as soon as practicable and in any event by close of business in Oslo on the date falling two Business Days after the Quotation Day, to be that which expresses as a percentage rate per annum the cost to the relevant Lender of funding its participation in that Loan from whatever source it may reasonably select.
(b)
If this Clause 10.4 applies and the Agent or the Borrower so requires, the Agent and the Borrower shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest.
(c)
Any alternative basis agreed pursuant to paragraph (b) above shall, with the prior consent of all the Lenders and the Borrower, be binding on all Parties.
(d)
If this Clause 10.4 applies pursuant to Clause 10.3 (Market disruption) and:
(i)
a Lender's Funding Rate is less than LIBOR; or
(ii)
a Lender does not supply a quotation by the time specified in paragraph ‎(a)(ii) above,
the cost to that Lender of funding its participation in that Loan for that Interest Period shall be deemed, for the purposes of paragraph (a) above, to be LIBOR.
10.5
Notification to the Borrower
If Clause 10.4 (Cost of funds) applies the Agent shall, as soon as is practicable, notify the Borrower.
10.6
Break Costs


(a)
The Borrower 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 Borrower on a day other than the last day of an Interest Period for that Loan or Unpaid Sum.
(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
11.1
Agency fee
The Borrower shall pay to the Agent (for its own account) a non-refundable agency fee in the amount of USD 20,000 per annum, such fee to be payable on the date of this Agreement and thereafter on each anniversary.


SECTION 6
ADDITIONAL PAYMENT OBLIGATIONS
12.
TAX GROSS UP AND INDEMNITIES
12.1
Definitions
In this Agreement:
"Protected Party" means a Finance Party 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 Credit" means a credit against, relief or remission for, or repayment of any Tax.
"Tax Deduction" means a deduction or withholding for or on account of Tax from a payment under a Finance Document.
"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).
12.2
Tax gross-up
(a)
Each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.
(b)
The Borrower 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 Borrower 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 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 thirty 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 Borrower 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.
(b)
Paragraph (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; or
(ii)
to the extent a loss, liability or cost:
(A)
is compensated for by an increased payment under Clause 12.2 (Tax gross-up); or
(B)
relates to a FATCA Deduction required to be made by a Party.
(c)
A Protected Party making, or intending to make a claim under paragraph (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 Borrower.
(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 to an increased payment of which that Tax Payment forms part, to that Tax Payment or 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
Stamp taxes
The Borrower 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.


12.6
VAT
(a)
All amounts expressed to be payable under a Finance Document 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 paragraph (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).
(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 other than the Recipient (the "Relevant Party") is required by the terms of any Finance Document to pay an amount equal to the consideration for that 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 Relevant 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 (i) applies) promptly pay to the Relevant 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 Relevant 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 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 in respect of such VAT from the relevant tax authority.
12.7
FATCA Information
(a)
Subject to paragraph (c) below, each Party shall, 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, 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 paragraph (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.
(c)
Paragraph (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 fails to confirm whether or not it is a FATCA Exempt Party or to supply forms, documentation or other information requested in accordance with paragraph (a)(i) or (a)(ii) above (including, for the avoidance of doubt, where paragraph (c) above 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.
12.8
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 Borrower 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 as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation, (ii) compliance with any law or regulation made after the date of this Agreement or (iii) the implementation or application of, or compliance with, Basel III or CRD IV.
(b)
In this Agreement:
"Basel III" means:
(i)
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;
(ii)
any further guidance or standards published by the Basel Committee on Banking Supervision relating to "Basel III"; and
(iii)
any national, supranational or international regulation implementing "Basel III" (including, but not limited to, the full extent of the Regulation on Prudential Requirements for Credit Institutions and Investment Firms and the Directive on the Access to the Activity of Credit Institutions and the Prudential Supervision of Credit Institutions and Investment Firms).
"CRD IV" means:
(i)
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms; and
(ii)
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms,


and any other law or regulation implementing any of the foregoing.
"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,
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 and copy of the same to the Borrower of the event giving rise to the claim, following which the Agent shall promptly notify the Borrower.
(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)
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 paragraph (b) of Clause 12.3 (Tax indemnity) applied);
(iii)
attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation; or
(iv)
attributable to the implementation or application of or compliance with the "International Convergence of Capital Measurement and Capital Standards, a Revised Framework" published by the Basel Committee on Banking Supervision in June 2004 in the form existing on the date of this Agreement (but excluding any amendment arising out of Basel III or CRD IV) ("Basel II") or any other law or regulation which implements Basel II (whether such implementation, application or compliance is by a government, regulator, Finance Party or any of its Affiliates).
(b)
In this Clause 13.3, a reference to a "Tax Deduction" has the same meaning given to that 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;
(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, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum.
(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 Borrower shall (or shall procure that an Obligor will), within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability 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 cost, loss or liability arising as a result of Clause 29 (Sharing among the Finance Parties);
(c)
funding, or making arrangements to fund, its participation in the Loan requested by the Borrower 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 Borrower; or
(e)
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 legal fees and disbursements) incurred by the Finance Parties as result of any conduct by any Obligor or any other member of the Group or each of their respective directors, officers and employees in violation of Sanctions.
14.3
Indemnity to the Agent


The Borrower shall promptly indemnify the Agent against any cost, loss or liability incurred by the Agent (acting reasonably) as a result of:
(a)
investigating any event which it reasonably believes is a Default;
(b)
acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised;
(c)
the taking, holding, perfection, protection or enforcement of the Transaction Security;
(d)
the exercise of any of the rights, powers, discretions, authorities and remedies vested in it as agent or security agent by the Finance Documents or by law;
(e)
acting as security agent under the Finance Documents or which otherwise relates to any of the Charged Property (otherwise, in each case, than by reason of the Agent's gross negligence or wilful misconduct); or
(f)
instructing lawyers, accountants, tax advisers, surveyors or other professional advisers or experts as permitted under this Agreement.
15.
MITIGATION BY THE LENDERS
15.1
Mitigation
(a)
Each Finance Party shall, in consultation with the Borrower, 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)
Paragraph (a) above does not in any way limit the obligations of any Obligor under the Finance Documents.
15.2
Limitation of liability
(a)
The Borrower 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 Borrower shall promptly on demand pay the Agent and the Arranger the amount of all costs and expenses (including, but not limited to, internal and external legal fees, out-of-pocket expenses and costs related to operating a secure website for communicating with


the Lenders) reasonably incurred by any of them in connection with the negotiation, preparation, printing, execution and syndication of:
(a)
this Agreement and any other documents referred to in this Agreement and the Transaction Security; and
(b)
any other Finance Documents executed after the date of this Agreement.
16.2
Amendment costs
If:
(a)
an Obligor requests an amendment, waiver or consent; or
(b)
an amendment is required pursuant to Clause 30.9 (Change of currency),
the Borrower shall, within three Business Days of demand, reimburse the Agent for the amount of all costs and expenses (including legal fees) reasonably incurred by the Agent in responding to, evaluating, negotiating or complying with that request or requirement.
16.3
Enforcement costs
The Borrower shall, within three Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document and the Transaction Security and any proceedings instituted by or against the Agent as a consequence of taking or holding the Transaction Security or enforcing these rights.





SECTION 7
GUARANTEE
17.
SECURITY
17.1
Security
The obligations and liabilities of the Obligors under the Finance Documents, including without limitation any derived liability whatsoever of the Obligors towards the Finance Parties in connection therewith, shall be secured by the following Security on a cross-collateralised basis:
(a)
each Mortgage;
(b)
each Assignment Agreement;
(c)
each Account Pledge;
(d)
each Share Pledge; and
(e)
any other document that may have been or shall from time to time hereafter be executed as Security for the obligations of any Obligor under or pursuant to the Finance Documents or any of them (always excluding any subordination agreement from a Manager provided pursuant to paragraph (b) of Clause 23.10 (Management)).
17.2
Perfection and further assistance
(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 in favour of the Agent or its nominee(s)):
(i)
to perfect the Security created or intended to be created under or evidenced by the Transaction Security Documents (which may include the execution 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) or for the exercise of any rights, powers and remedies of the Agent or the Finance Parties provided by or pursuant to the Finance Documents or by law;
(ii)
to confer on the Agent, Security over any property and assets of that Obligor located in any jurisdiction equivalent or similar to the Security intended to be established by or pursuant to the Transaction Security Documents; and/or
(iii)
subject to a notice having been served pursuant to Clause 24.16 (Acceleration), to facilitate the realisation of the assets which are, or are intended to be, the subject of the Security.
(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 conferred or intended to be


conferred on the Agent or the Finance Parties by or pursuant to the Finance Documents.
18.
GUARANTEE AND INDEMNITY
18.1
Guarantee and indemnity
Each Guarantor irrevocably and unconditionally jointly and severally:
(a)
guarantees to each Finance Party punctual performance by the Borrower of all the Borrower's obligations under the Finance Documents;
(b)
undertakes with each Finance Party that whenever the Borrower does not pay any amount when due under or in connection with any Finance Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and
(c)
agrees with each Finance Party 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 Borrower not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it 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 18 if the amount claimed had been recoverable on the basis of a guarantee.
18.2
Scope of liability
The liability of each Guarantor under this guarantee (and, if applicable, any other guarantee and indemnity obligation included in this Agreement) shall be limited to USD 160,000,000 (or its equivalent in other currencies) plus the amount of any interest, commission, default interest, fees, costs and expenses accrued in respect of the obligations covered by this guarantee.
18.3
Continuing guarantee
This 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.
18.4
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 18 will continue or be reinstated as if the discharge, release or arrangement had not occurred.
18.5
Waiver of defences
(a)
The obligations of each Guarantor under this Clause 18 will not be affected by an act, omission, matter or thing which, but for this Clause, would reduce, release or


prejudice any of its obligations under this Clause 18 (without limitation and whether or not known to it or any Finance Party) 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 member of the Group;
(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;
(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 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;
(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.
(b)
Each Guarantor also specifically waives all rights under the provisions of the Norwegian Financial Agreements Act of 25 June 1999 no. 46 (the "Norwegian Financial Agreements Act") not being mandatory provisions, including (without limitation) those contained in Sections 62 to 74 therein.
(c)
Each Guarantor confirms that it has received and noted such information as required in respect of all other Transaction Security created under the Finance Documents in accordance with Section 61 (2) of the Norwegian Financial Agreements Act.
18.6
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 18. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
18.7
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 any Guarantor or on account of any Guarantor's liability under this Clause 1817.
18.8
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 18:
(a)
to be indemnified by an 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;
(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 any Guarantor has given a guarantee, undertaking or indemnity under Clause 18.1 (Guarantee and indemnity);
(e)
to exercise any right of set-off against any Obligor; and/or
(f)
to claim or prove as a creditor of any Obligor in competition with any Finance Party.
If a Guarantor receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Finance Parties by the Obligors under or in connection with the Finance Documents to be repaid in full on trust for the Finance Parties and shall promptly pay or transfer the same to the Agent or as the Agent may direct for application in accordance with Clause 30 (Payment mechanics).
18.9
Release of Guarantors' right of contribution


If any Guarantor (a "Retiring Guarantor") ceases to be a Guarantor in accordance with the terms of the Finance Documents for the purpose of any sale or other disposal of that Retiring Guarantor then on the date such Retiring Guarantor ceases to be a Guarantor:
(a)
that Retiring Guarantor is released by each other Guarantor from any liability (whether past, present or future and whether actual or contingent) to make a contribution to any other Guarantor arising by reason of the performance by any other Guarantor of its obligations under the Finance Documents; and
(b)
each other Guarantor waives any rights it may have by reason of the performance of its obligations under the Finance Documents 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 any Finance Document or of any other security taken pursuant to, or in connection with, any Finance Document where such rights or security are granted by or in relation to the assets of the Retiring Guarantor.
18.10
Additional security
This 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.
18.11
Subordination
Each Obligor unconditionally and irrevocably subordinates, in all respects, all of its present and future claims against each other Obligor (and other member of the Group) to all present and future claims of the Finance Parties against that Obligor (or other member of the Group) under or in respect of the Finance Documents.


SECTION 8
REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT
19.
REPRESENTATIONS
Each Obligor makes the representations and warranties set out in this Clause 19 to each Finance Party on the date of this Agreement.
19.1
Status
(a)
It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.
(b)
It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted.
19.2
Binding obligations
Subject to any general principles of law limiting its obligations which are specifically referred to in any legal opinion delivered pursuant to Clause 4 (Conditions of Utilisation):
(a)
the obligations expressed to be assumed by it in each Finance Document are legal, valid, binding and enforceable obligations; and
(b)
(without limiting the generality of paragraph (a) above), each Transaction Security Document to which it is a party creates the security interests which that Transaction Security Document purports to create and those security interests are valid and effective.
19.3
Non-conflict with other obligations
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents and the granting of the Transaction Security do not and will not conflict with:
(a)
any law or regulation applicable to it;
(b)
its constitutional documents; or
(c)
any agreement or instrument binding upon it its assets.
19.4
Power and authority
(a)
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
(b)
No limit on its powers will be exceeded as a result of the borrowing, granting of security or giving of guarantees or indemnities contemplated by the Finance Documents.
19.5
Validity and admissibility in evidence
(a)
All Authorisations required or desirable:


(i)
to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and
(ii)
to make the Finance Documents to which it is a party admissible in evidence in its Relevant Jurisdictions,
have been obtained or effected and are in full force and effect.
(b)
    All authorisations, consents, licenses, approvals or exemptions of any governmental or regulatory authority, bureau or agency in its Relevant Jurisdictions necessary for the conduct of its business, trade and ordinary activities have been obtained or effected and are in full force and effect.
19.6
Governing law and enforcement
(a)
The choice of governing law of the Finance Documents will be recognised and enforced in its Relevant Jurisdictions.
(b)
Any judgment obtained in relation to a Finance Document in the jurisdiction of the governing law of that Finance Document will be recognised and enforced in its Relevant Jurisdictions.
19.7
Insolvency
No:
(a)
corporate action, legal proceeding or other procedure or step described in Clause 24.7 (Insolvency proceedings); or
(b)
creditors' process described in Clause 24.8 (Creditors' process),
has been taken, or to the best of its knowledge and belief (after due and careful enquiry), threatened in relation to an Obligor and none of the circumstances described in Clause 24.6 (Insolvency) applies to an Obligor.
19.8
No filing or stamp taxes
Under the law of its Relevant Jurisdiction it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents, except the registration of the Mortgages with an Approved Ship Registry and any filing, recording or enrolling or any tax or fee payable which is referred to in any legal opinion obtained by and addressed to the Agent and/or the Finance Parties, which registrations, filings, taxes and fees shall be made and paid promptly by the Obligors after the date of the relevant Finance Document.
19.9
Deduction of Tax
It is not required to make any Tax Deduction (as defined in Clause 12.1 (Definitions)) from any payment it may make under any Finance Document to any Finance Party.
19.10
No default


(a)
No Default is continuing or might reasonably be expected to result from the making of the Utilisation or the entry into and performance of or any transaction contemplated by any of the Finance Documents.
(b)
No other event or circumstance is outstanding which constitutes or might reasonably be expected to constitute a default or termination event (however described) under any other agreement or instrument which is binding on it or to which its assets are subject which has or is reasonably likely to have a Material Adverse Effect.
19.11
No misleading information
(a)
Any factual information provided by any Obligor and/or its advisors in connection with the Finance Documents was true and accurate in all respects as at the date the information is expressed to be given and all projections (if any) contained therein have been prepared in good faith on the basis of assumptions which were reasonable at the time at which they were prepared and supplied.
(b)
Nothing has occurred or been omitted from any information provided by any Obligor and/or its advisors in connection with the Finance Documents and no information has been given or withheld that results in any such information provided being untrue or misleading in any material respect.
19.12
Original Financial Statements
(a)
The Original Financial Statements were prepared in accordance with GAAP consistently applied.
(b)
Its Original Financial Statements fairly present its financial condition as at the end of the relevant financial year and its results of operations during the relevant financial year.
(c)
There has been no material adverse change in its business or financial condition (or the business or consolidated financial condition of the Group, in the case of the Borrower) since the date of the most recent financial statements delivered pursuant to the terms of this Agreement.
19.13
Pari passu ranking
Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
19.14
No proceedings
(a)
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect has or have (to the best of its knowledge and belief) been started or threatened against it.


(b)
No judgment or order of a court, arbitral body or agency which might reasonably be expected to have a Material Adverse Effect has (to the best of its knowledge and belief) been made against it.
19.15
No breach of laws
It is in compliance in all material respect with all laws and regulation applicable to it.
19.16
Environmental compliance
It has in all material respects performed and observed all Environmental Laws, Environmental Approvals and all other covenants, conditions, restrictions or agreements directly or indirectly concerned with any contamination, pollution or waste or the release or discharge of any toxic or hazardous substance in connection with its on-going operations.
19.17
Environmental Claims
No Environmental Claim has been commenced (or if commenced, there are none that are not fully settled) or is threatened against it.
19.18
Anti-bribery, anti-corruption and anti-money laundering
None of the Obligors, or, to the best knowledge of each Obligor, none of their employees, have engaged in any activity or conduct which would violate any applicable anti-bribery, anti-corruption or anti-money laundering laws, regulations or rules in any applicable jurisdiction and the Group has instituted and maintains policies and procedures applicable to all Obligors, designed to prevent violation of such laws, regulations and rules.
19.19
Security and Financial Indebtedness
(a)
No Security or Quasi-Security exists over all or any of the present or future assets of any Obligor other than as permitted by this Agreement.
(b)
No Obligor has any Financial Indebtedness outstanding other than as permitted by this Agreement.
19.20
Ranking
The Transaction Security has or will have first ranking priority and it is not subject to any prior ranking or pari passu ranking Security.
19.21
Good title to assets
It has a good, valid and marketable title to, or valid leases or licences of, and all appropriate Authorisations to use, the assets necessary to carry on its business as presently conducted.
19.22
Legal and beneficial ownership
(a)
It is the sole legal and beneficial owner of the respective assets over which it purports to grant Security.
(b)
The shares of any member of the Group which are subject to the Transaction Security are fully paid, not subject to any option to purchase or similar rights and free from any claims, third party rights or competing interests. The constitutional documents of companies whose shares are subject to the Transaction Security do not and could not restrict or inhibit any transfer of those shares on creation or enforcement of the Transaction Security.


19.23
Centre of main interests and establishments
For the purposes of Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (recast) (the "Regulation"), the Borrower's centre of main interest (as that term is used in Article 3(1) of the Regulation) is situated in Bermuda and it has no "establishment" (as that term is used in Article 2(10) of the Regulation) in any other jurisdiction save for the Borrower's branch offices at 150 East 58th Street, New York, New York, 10155, United States of America and 9 Rue du Gabian, MC 98000, Monaco.
19.24
Sanctions
No Relevant Person is:
(a)
a Restricted Party;
(b)
in breach of Sanctions;.
(c)
owns or controls a Restricted Party; or
(d)
has a Restricted Party serving as director, officer or, to the best of its knowledge employee in breach of Sanctions.
19.25
The Vessels
(a)
Each Vessel will be:
(i)
in the absolute, direct or indirect, ownership of the relevant Vessel Owner, free and clear of all encumbrances (other than as permitted under paragraph (b) of Clause 22.8 (Negative Pledge)) and the relevant Vessel Owner will be the sole, legal and beneficial owner of the relevant Vessel;
(ii)
registered in the name of the relevant the relevant Vessel Owner with an Approved Ship Registry;
(iii)
operationally seaworthy in every way and fit for service; and
(iv)
classed with an Approved Classification Society, free of all overdue requirements and other recommendations.
(b)
All requirements of the ISM Code and ISPS code as far as they relate to the Obligors and the Vessels, have been complied with.
19.26
Repetition
The Repeating Representations are deemed to be made by each Obligor by reference to the facts and circumstances then existing on (i) the date of the Utilisation Request and the first day of each Interest Period and (ii), in the case of an Additional Guarantor, the day on which it becomes an Additional Guarantor.
20.
INFORMATION UNDERTAKINGS
The undertakings in this Clause 20 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.


20.1
Financial statements
The Borrower shall supply to the Agent in sufficient copies for all the Lenders:
(a)
as soon as the same become available, but in any event within 135 days after the end of each of its financial years its audited consolidated financial statements for that financial year;
(b)
as soon as the same become available, but in any event within 75 days after the end of each of its financial quarters its consolidated financial statements for that financial quarter;
(c)
once every month (i) its consolidated five (5) week forward looking cash flow projections and (ii) five (5) week forward looking cash flow projections for each of Blue Power Limited, AHTS Holdco Limited and CB Holdco Limited (each broken down on a weekly basis); and
(d)
within 90 days after the end of its financial year its and its Subsidiaries financial budget and balance sheet, income statement and cash flow statement projections (i) on a quarterly basis for the next financial year and (ii) on a yearly basis for the next four financial years.
20.2
Compliance Certificate
(a)
The Borrower shall supply to the Agent, with each set of financial statements delivered pursuant to paragraph (a) or (b) of Clause 20.1 (Financial statements), a Compliance Certificate setting out (in reasonable detail) computations as to compliance with Clause 21 (Financial Covenants) as at the date as at which those financial statements were drawn up and Clause 23.14 (Minimum Value).
(b)
Each Compliance Certificate shall be signed by the chief financial officer of the Borrower.
20.3
Requirements as to financial statements
(a)
Each set of financial statements delivered by the Borrower pursuant to Clause 20.1 (Financial statements) shall be certified by the chief financial officer of the relevant company as fairly presenting its financial condition as at the date as at which those financial statements were drawn up.
(b)
The Borrower shall procure that each set of financial statements delivered pursuant to Clause 20.1 (Financial statements) is prepared using GAAP, 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, it notifies the Agent that there has been a change in GAAP, the accounting practices or reference periods and its auditors (or, if appropriate, the auditors of the Obligor) deliver to the Agent:
(i)
a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which 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 21 (Financial Covenants) has been complied with and make an accurate comparison between the financial position indicated in those financial statements and the Original Financial Statements.
Any reference in this Agreement to those 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.
20.4
Information: miscellaneous
The Borrower shall supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests):
(a)
all documents dispatched by the Borrower to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;
(b)
promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any member of the Group, and which might, if adversely determined, have a Material Adverse Effect;
(c)
promptly upon becoming aware of them, the details of any judgment or order of a court, arbitral body or agency which is made against any member of the Group, and which might have a Material Adverse Effect;
(d)
promptly, such information as the Agent may reasonably require about the Charged Property and compliance of the Obligors with the terms of any Transaction Security Documents;
(e)
promptly, such further information regarding the financial condition, business and operations of any member of the Group as any Finance Party (through the Agent) may reasonably request;
(f)
promptly upon becoming aware of them, (i) the details of any inquiry, claim, action, suit, proceeding or investigation with respect to Sanctions against it, or (ii) event whereby it or any other Relevant Person has become or is likely to become a Restricted Party as well (in each case) as information on what steps are being taken with regards to answer or oppose such inquiries, claims, actions, suits, proceedings or investigations;
(g)
promptly upon becoming aware, details of any material Environmental Claim against any of the Obligors; and
(h)
promptly upon becoming aware any facts and circumstances which will or are reasonably likely to result in any material Environmental Claim being commenced against any of the Obligors, information regarding such facts and circumstances,


and the Obligors will keep the Agent advised on a regular basis and in such detail as the Agent shall require on the relevant party's response to any of the above mentioned events or matters.
20.5
Notification of default and other events
(a)
The Obligors shall promptly upon becoming aware, notify the Agent of:
(i)
any Default (and the steps, if any, being taken to remedy it); and
(ii)
any event which may result in a mandatory prepayment under Clause 7 (Prepayment and cancellation) (and the steps, if any, being taken to remedy it).
(b)
Promptly upon a request by the Agent, the Borrower shall supply to the Agent a certificate signed by two of its directors or senior officers on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).
20.6
"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 of a Holding Company 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 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 it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
(b)
Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under


all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
(c)
If (i) the accession of such Additional Guarantor pursuant to Clause 26 (Changes to the Obligors) or (ii) any investment in the Borrower by one or more Existing Investor obliges the Agent or any Lender to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Agent or 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 on behalf of any prospective new Lender) in order for the Agent or such Lender or any prospective new Lender to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to (i) the accession of an Additional Guarantor to this Agreement or (ii) any investment in the Borrower by one or more Existing Investor (as the case may be).
20.7
Poseidon Principles
The Borrower shall, use reasonably commercial efforts to, upon the request of any Lender and at the cost of the Borrower, on or before 31 July in each calendar year, supply or procure the supply to such Lender of all information necessary in order for any Lender to comply with its obligations under the Poseidon Principles in respect of the preceding year, including, without limitation, all ship fuel oil consumption data required to be collected and reported in accordance with Regulation 22A of Annex VI For the avoidance of doubt, such information shall be “Confidential Information” for the purposes of Clause 37 (Confidential Information) but the Borrower acknowledges and accepts that, in accordance with the Poseidon Principles, such information will form part of the information published regarding the Lenders' portfolio climate alignment.
20.8
Use of websites
(a)
Each Obligor may satisfy its obligation under the Finance Documents to which it is a party to deliver any information in relation to those Lenders (the "Website Lenders") which 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 relevant Obligor 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 relevant Obligor 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 Obligors accordingly


and each Obligor shall supply the information to the Agent (in sufficient copies for each Paper Form Lender) in paper form. In any event each Obligor 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 Obligors or any of them and the Agent.
(c)
An Obligor shall promptly upon becoming aware of its occurrence notify the Agent if:
(i)
the Designated Website cannot be accessed due to technical failure;
(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)
if that Obligor 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 an Obligor notifies the Agent under sub-paragraph (i) or (v) of paragraph (c) above, all information to be provided by the Obligors 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 Obligors shall comply with any such request within ten (10) Business Days.
21.
FINANCIAL COVENANTS
21.1
Financial Definitions:
For the purposes of this Clause 21, the following definitions shall apply:
"Cash" means any credit balance on any deposit, savings, current or other account, banks or other financial institutions which is:
(a)
freely withdrawable on demand;
(b)
not subject to any security interest (other than pursuant to the Finance Documents);
(c)
denominated and payable in freely transferable and freely convertible currency; and


(d)
capable of being remitted to the Borrower or such Subsidiary of the Borrower.
"Cash Equivalents" means:
(a)
unencumbered securities issued or directly and fully guaranteed or insured by the US or any agency or instrumentality thereof (provided that the full faith and credit of the US is pledged in support thereof);
(b)
time deposits and certificates of deposit of, or deposits held with, any commercial bank having, or which is the principal banking subsidiary of a bank holding company having capital and surplus in excess of USD 500,000,000;
(c)
such other securities or instruments as the Majority Lenders shall agree in writing,
provided that in respect of (a) and (b) above such Cash Equivalents shall have a rating of at least "A-" given by S&P or "A" given by Moody's (or the equivalent rating given by another internationally recognised rating agency), (provided that, in the case of (b) above only, such rating category shall not be applicable for time deposits, certificates of deposit or deposits (in each case, unencumbered) in the interbank market of any commercial bank which is a Lender), and in each case having maturities of not more than 90 days from the date of acquisition.
"Consolidated Funded Debt" means, for any Relevant Period, the sum of the following for the Borrower and its Subsidiaries determined (without duplication) on a consolidated basis for such period and in accordance with GAAP consistently applied:
(a)
all Financial Indebtedness; and
(b)
all obligations to pay a specific purchase price for goods or services whether or not delivered or accepted (including take-or-pay and similar obligations which in accordance with GAAP would be shown on the liability side of a balance sheet),
provided that balance sheet accruals for future dry dock expenses shall not be classified as Consolidated Funded Debt.
"Consolidated Tangible Net Worth" means, on a consolidated basis, the total shareholders' equity (including retained earnings) of the Borrower plus any available and unutilized commitment under the Additional Equity Line of Credit minus goodwill and other non-tangible items.
"Consolidated Total Capitalisation" means the Consolidated Tangible Net Worth plus Consolidated Funded Debt.
"Current Assets" means at any time, in accordance with GAAP, the book value of the current assets.
"Current Liabilities" means at any time, in accordance with GAAP, the book value of the current liabilities.


"EBITDA" means, for any accounting period, the consolidated net income of the Borrower for that accounting period:
(a)
plus, to the extent deducted in computing the net income of the Borrower for that accounting period, the sum, without duplication, of:
(i)
all federal, state, local and foreign income taxes and tax distributions;
(ii)
consolidated net interest expense; and
(iii)
depreciation, depletion, amortization of intangibles and other non-cash charges or non-cash losses (including non-cash transaction expenses and the amortization of debt discounts),
(b)
minus, to the extent added in computing the consolidated net income of the Borrower for that accounting period, (i) any non-cash income or non-cash gains; and (ii) any extraordinary gains on asset sales not incurred in the ordinary course of business.
"Leverage Ratio" means, in respect of any Relevant Period, the ratio of Net Debt on the last day of that Relevant Period to EBITDA in respect of that Relevant Period.
"Net Debt" means, at any time, Financial Indebtedness of the Borrower and its Subsidiaries at such time minus Cash and Cash Equivalents of the Borrower and its Subsidiaries at such time, and excluding any negative mark-to-market of financial derivatives for the purpose of hedging foreign currency risk up to an amount of USD 3,000,000.
"Relevant Period" means each period of twelve months ending on or about the last day of each financial year and each period of twelve months ending on or about the last day of each financial quarter.
21.2
Financial Testing
The financial covenants set out in this Clause 21 shall be calculated on a consolidated basis in accordance with GAAP consistently applied and, in respect of Clause 21.6 (Leverage Ratio) provided for the purposes of determining the Margin, and otherwise tested quarterly, by reference to each of the financial statements delivered pursuant to Clause 20.1 (Financial Statements) and/or each Compliance Certificate delivered pursuant to Clause 20.2 (Compliance Certificate).
21.3
Minimum Liquidity
Cash and Cash Equivalents (in each case available to the Borrower and any Guarantor which is a member of the Group) shall at all times be equal to USD 500,000 per vessel above 2,500 DWT owned directly or indirectly by the Borrower, save for (i) any vessels funded solely by third party loans that have no recourse to any Obligor or the assets of any Obligor, and (ii) Hermit Baron and Hermit Brilliance provided they are funded solely by third party loans that have no recourse to any Obligor or the assets of any Obligor and any intra-group debt.
21.4
Working Capital


Current Assets (of the Borrower and any Guarantor which is a member of the Group) shall at all times exceed Current Liabilities less the current portion of the long term liabilities of the Borrower and any Guarantor which is a member of the Group.
21.5
Maximum Leverage
The Borrower will not permit ratio of Net Debt to Consolidated Total Capitalisation to be greater than:
(a)
until and including 31 December 2020, 0.70; and
(b)
at all times thereafter, 0.65.
21.6
Leverage Ratio
The Leverage Ratio shall be provided for the purposes of determining the Margin.
22.
GENERAL UNDERTAKINGS
The undertakings in this Clause 22 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
22.1
Authorisations
Each Obligor shall 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 enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence of any Finance Document.
22.2
Compliance with laws
Each Obligor shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.
22.3
Anti-bribery, anti-corruption and anti-money laundering
Each Obligor shall act in compliance with all anti-bribery, anti-corruption or anti-money laundering laws, regulations or rules in any applicable jurisdiction
22.4
Taxation
(a)
Each Obligor shall pay and discharge all Taxes imposed upon it or its assets within the time period allowed without incurring penalties unless and only to the extent that:
(i)
such payment is being contested in good faith; and
(ii)
such payment can be lawfully withheld and failure to pay those Taxes does not or is not reasonably likely to have a Material Adverse Effect.


(b)
None of the Obligors may change its residence for Tax purposes without the prior written consent from the Agent (not to be unreasonably withheld).
22.5
Merger
No Obligor shall enter into any amalgamation, demerger, merger, consolidation, joint venture or corporate reconstruction which is reasonably likely to have a Material Adverse Effect
22.6
Change of business
No Obligor shall, without the prior written consent of the Agent (acting on the instruction of the Majority Lenders):
(a)
make any material change to the general nature of its business from that presently conducted or set out in its articles of association or articles of incorporation, as applicable, or carry on any other business, except for similarly related business; or
(b)
make any change to its name or its jurisdiction of incorporation; or
(c)
convert to any other type of legal entity.
22.7
Pari passu ranking
Each Obligor shall ensure that at all times any unsecured and unsubordinated claims of a Finance Party against it under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors except those creditors whose claims are mandatorily preferred by laws of general application to companies.
22.8
Negative pledge
In this Clause 22.8, "Quasi-Security" means an arrangement or transaction described in paragraph (b) below.
(a)
No Obligor shall create or permit to subsist any Security over any of its assets that is subject to the Transaction Security, other than, until and including the Utilisation Date, Security provided in respect of the Existing Facility.
(b)
No Obligor shall in relation to any asset that is subject to the Transaction Security:
(i)
sell, transfer or otherwise dispose of any of such asset on terms whereby it is or may be leased to or re-acquired by an Obligor or any other member of the Group;
(ii)
sell, transfer or otherwise dispose of any of its receivables on recourse terms;
(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)
Paragraphs (a) and (b) above do not apply to any Security or (as the case may be) Quasi-Security listed below:
(i)
any Security or Quasi-Security entered into pursuant to any Finance Document;
(ii)
any netting or set-off arrangement entered into by any member of the Group in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances;
(iii)
any lien arising by operation of law and in the ordinary course of trading and securing claims that are not more than thirty days overdue; or
(iv)
any Security or Quasi-Security permitted by the Majority Lenders.
22.9
Financial Indebtedness
(a)
No Obligor or any other member of the Group shall incur, create or permit to subsist any Financial Indebtedness.
(b)
Paragraph (a) above does not apply to Financial Indebtedness:
(i)
incurred under this Agreement;
(ii)
outstanding under the DVB Facility Agreement or any other Financial Indebtedness of Hermit Baron Shipping Company Limited or Hermit Brilliance Shipping Company Limited, in each case provided that such Financial Indebtedness has no recourse to any Obligor or the assets of any Obligor;
(iii)
provided by reputable commercial banks or export credit agencies regularly engaged in lending to the shipping and offshore industries on terms no more onerous (in respect of financial covenants, minimum value, repayment, margin and maturity) to the relevant members of the Group than the terms of this Agreement;
(iv)
incurred as normal trade credit in the ordinary course of its trading;
(v)
incurred by way of a Subordinated Loan;
(vi)
not exceeding USD 5,000,000 in aggregate;
(vii)
incurred with the prior written consent of the Majority Lenders;
(viii)
permitted by Clause 22.12 (Investments, Acquisitions and Capital Expenditure); or
(ix)
until and including the Utilisation Date, incurred under the Existing Facility.


22.10
Loans and credit
(a)
No Obligor shall be a creditor in respect of any Financial Indebtedness.
(b)
Paragraph (a) above does not apply to:
(i)
normal trade credit extended to its customers and/or counterparties on normal commercial terms and in the ordinary course of trading;
(ii)
any Financial Indebtedness not exceeding USD 5,000,000 in aggregate, less the sum of any Financial Indebtedness outstanding pursuant to this paragraph and any investment made as permitted by Clause 22.12, in respect of Hermit Baron Shipping Company Limited and Hermit Brilliance Shipping Company Limited; or
(iii)
any creditor relationship entered into with the prior written consent of the Majority Lenders.
22.11
Financial Support
(a)
No Obligor shall incur or allow to remain outstanding any guarantee or indemnity, or otherwise assume any liability in respect of any obligation of any person.
(b)
Paragraph (a) above does not apply to any such guarantee, indemnity or other liability in respect of any obligation of any person:
(i)
incurred pursuant to the Finance Documents;
(ii)
incurred in the ordinary course of trading; or
(iii)
incurred with the prior written consent of the Majority Lenders.
22.12
Investments, acquisitions and capital expenditures
No Obligor shall make any investments, acquisitions or capital expenditures in respect of Hermit Baron Shipping Company Limited and Hermit Brilliance Shipping Company Limited other than any investment(s) not exceeding USD 5,000,000 in aggregate, less the sum of (but without double counting):
(a)
the sum of any Financial Indebtedness outstanding, and as permitted by paragraph (a)(ii) of Clause 22.10 (Loans or Credit); and
(b)
any investments, acquisitions or capital expenditures provided to any of them since the date of the first utilisation of the Existing Equity Line of Credit,
without the prior written consent of the Majority Lenders.
22.13
Distributions
The Borrower may only:
(a)
declare, make or pay any dividend, charge, fee or other distribution (whether in cash or in kind) on or in respect of its share capital (or any class of its share capital);


(c)
pay any interest or repay any principal amount (or capitalised interest) on any debt to any of its shareholders or any of their Affiliates;
(d)
repay or distribute any dividend or share premium reserve;
(e)
redeem, repurchase or repay any of its share capital or resolve to do so; or
(f)
enter into any transaction or arrangement having a similar effect as described in paragraphs (a) to (e) including, but not limited to, any total return swaps,
to any of its shareholders, provided that:
(i)
such transaction or arrangement as described in paragraphs (a) to (f) above is carried out after the date falling 24 months after the date of this Agreement;
(ii)
Cash and Cash Equivalents (pro forma after any such payment (a "Distribution") described in paragraphs (a) to (f) above) is higher than USD 1,500,000 per vessel owned directly or indirectly by the Borrower;
(iii)
the Borrower shall prepay a portion of the Loan in an amount equal to any such Distribution in accordance with Clause 7.4 (Voluntary prepayment of Loans) on or prior to the date for Distribution; and
(iv)
no Default or Event of Default has occurred and is continuing at the time when the Distribution is to be made or is likely to occur as a result of such Distribution.
22.14
Earnings Accounts
Each Vessel Owner and each Intragroup Charterer shall ensure that all of its Earnings are paid to its respective Earnings Account and may freely operate and make withdrawals from such Earnings Accounts until (i) the Agent gives notice to the contrary to the relevant Vessel Owner or (ii) the occurrence of a Default or an Event of Default that is continuing.
22.15
Arm's length basis
No Obligor shall enter into any transaction with any member of the Group, any of its shareholders or any Affiliate of any member of the Group, except on arm's length terms.
22.16
Further assurance
(a)
Each Obligor shall (and the Borrower shall procure that each other member of the Group will) 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 in favour of the Agent or its nominee(s)):
(i)
to perfect the Security created or intended to be created under or evidenced by the Transaction Security Documents (which may include the execution 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 Transaction Security) or for the exercise of any rights, powers and remedies of the Agent or the


Finance Parties provided by or pursuant to the Finance Documents or by law;
(ii)
to confer on the Agent or confer on the Finance Parties Security over any property and assets of that Obligor located in any jurisdiction equivalent or similar to the Security intended to be conferred by or pursuant to the Transaction Security Documents; and/or
(iii)
to facilitate the realisation of the assets which are, or are intended to be, the subject of the Transaction Security.
(b)
Each Obligor shall (and the Borrower shall procure that each other member of the Group will) promptly 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 conferred or intended to be conferred on the Agent or the Finance Parties by or pursuant to the terms of this Agreement and the terms of any other Finance Documents.
(c)
Each Obligor must use, and must procure that any other member of the Group that is a potential provider of Transaction Security uses, all reasonable endeavours lawfully available to avoid or mitigate the constraints on the provision of Security provided for pursuant to this Agreement.
22.17
Sanctions
(a)
No Obligor shall (and the Company shall ensure that no other Relevant Person will) take any action, make any omission or use (directly or indirectly) any proceeds of the Loan, in a manner that is a breach of Sanctions.
(b)
    No Obligor shall (and the Company shall ensure that no other Relevant Person will) take any action or make any omission that results, or is reasonably likely to result, in it or any Finance Party becoming a Restricted Party.
22.18
Chartering in
The Obligors shall not, without the prior written consent of the Lenders charter in any vessels.
22.19
Year end
The Obligors shall not change their respective year end dates.
22.20
Most favoured lender
If as a result of, or in connection with, or to obtain any consent or agreement of any finance party under any agreement in respect of Financial Indebtedness provided or to be provided by one or more financial institutions, any Obligor, after the date of this Agreement, enters into documentation or other arrangements containing more favourable provisions or treatment to such financial institutions thereunder in connection with financial covenants, minimum value, repayment, margin or maturity, the Obligors undertake to immediately notify the Agent of the existence and details of such provisions, and if so requested by the Agent, the Obligors undertake to immediately amend this Agreement for the purpose of


granting equivalent (or the functional equivalent of such) provisions in favour of each of the Lenders under this Agreement.
23.
VESSEL UNDERTAKINGS
The undertakings in this Clause 23 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force.
23.1
Insurances
(a)
The Obligors shall keep or procure that each Vessel is kept fully insured against Hull and Machinery, Hull Interest, Freight Interest or Increased Value, War Risks (including acts of terrorism and piracy), Protection & Indemnity (including maximum cover for pollution liability as normally adopted by the industry for similar vessels), in such amounts and currencies, on such terms and with such reputable insurers, brokers or P&I clubs and as the Agent (acting on the instructions of the Majority Lenders) from time to time may approve.
(b)
The insured value for the Vessels (Hull and Machinery combined with Hull Interest and/or Freight Interest or Increased Value) shall be at least equal to or greater than the higher of (i) the Fair Market Value of the Vessels and (ii) 120 per cent. of the Loan.
(c)
The insured value for Hull and Machinery for the Vessel shall be equal to the Loan and the remaining cover may be taken out by way of Hull Interest and Freight Interest.
(d)
The Agent (on behalf of the Finance Parties) shall, for the cost of the Obligors, take out Mortgagee's Interest Insurance (MII) and/or Mortgagee Interest Additional Perils (pollution) Insurance (MAPI) in respect of a Vessel on such terms and in such amounts as the Agent shall deem appropriate covering 120 per cent. of the Loan.
(e)
The Obligors shall procure that the Agent (on behalf of the Finance Parties) is noted as a first priority mortgagee in the insurance contracts, together with the confirmation from the underwriters to the Agent thereof that the notice of assignment with regard to the Insurances and the loss payable clauses (such notices and loss payable clauses to be in accordance with the Assignment and Sub-assignment of Insurances) are noted in the insurance contracts and that standard letters of undertaking are executed by the insurers (always in line with the insurers guidelines and corporate requirements and provided always that in the case of Protection and Indemnity cover, it will only be on market standard form).
(f)
Within reasonable time prior to and no later than on the date of the expiry of the relevant Insurances, the Obligors shall procure the delivery to the Agent of a certificate from the insurance broker(s) through whom the Insurances referred to in paragraph (a) have been renewed and taken out in respect of each Vessel with insurance values as required by paragraphs (b) and (c), that such Insurances are


in full force and effect and that the interests of the Agent (on behalf of the Finance Parties) have been noted by the relevant insurers.
(g)
If any of the Insurances referred to in paragraph (a) form part of a fleet cover, the Borrower shall procure that the insurers shall undertake to the Agent that they shall neither set-off against any claims in respect of a Vessel any premiums due in respect of other units under such fleet cover or any premiums due for other insurances, nor cancel such Insurance for reason of non-payment of premiums for other units under such fleet cover or of premiums for such other Insurances.
(h)
The Obligors shall ensure that each Vessel is always employed in conformity with the terms of the relevant insurances and comply with such requirements as to extra premium or otherwise as the insurers may prescribe.
(i)
The Obligors will not make any change to the Insurances which may be detrimental to the Finance Parties or any material change to the Insurances (including but not limited to any changes to arrangements for war and allied perils (including piracy) coverage whereby trading to conditional (excluded) areas which are not declared to the annual policy) without the prior written consent of the Agent.
23.2
Total Loss
In the event that a Vessel shall suffer a Total Loss, the Borrower shall obtain and present to the Agent a written confirmation from the relevant insurers that the claim relating to the Total Loss has been accepted in full, and promptly upon receipt of insurance proceeds in respect of the Total Loss, apply such proceeds in prepayment of the Loan in accordance with Clause 7.3 (Sale or Total Loss).
23.3
Notification
The Obligors shall promptly upon becoming aware, notify the Agent of the occurrence of any of the following in respect of a Vessel:
(a)
any accident or casualty to the Vessel involving repairs the cost of which is likely to exceed USD 1,000,000 in the case of any Crew Vessels and USD 2,000,000 in the case of any PSV Vessels or the equivalent thereof in any other currency;
(b)
any occurrence in consequence whereof the Vessel has become or is likely to become a Total Loss;
(c)
any arrest or detention of the Vessel or the exercise or purported exercise of any lien on a Vessel;
(d)
any material requirement made in relation to the Vessel by any insurer or classification society or by any competent authority which should, but is not, or cannot be complied with within its due date;
(e)
any claim for a material breach of the ISM Code, the ISPS Code or Marpol being made against any Obligor, any charterer or any Manager or otherwise in connection with the Vessel;


(f)
any Environmental Claim against the Vessel;
(g)
the Vessel being scheduled to call any ports in breach of Applicable Sanctions;
(h)
the dry docking of the Vessel; or
(i)
any other matter, event or incident, actual or threatened, the effect of which will or is reasonably likely to lead a material breach of the ISM Code, the ISPS Code or Marpol,
and the Obligors will keep the Agent advised on a regular basis and in such detail as the Agent shall require on the relevant party's response to any of the above mentioned events or matters.
23.4
Compliance with international regulations and laws
The Obligors shall at all times:
(a)
comply, and ensure that each Vessel is employed in compliance, with in all material respects:
(i)
the ISM Code;
(ii)
the ISPS Code; and
(iii)
Marpol;
(b)
comply, and ensure that each Vessel is employed in compliance, in all material respects with any mandatory applicable national or international law, regulation, convention or treaty in a jurisdiction which an Obligor conducts business or a Vessel will be operating, including Sanctions and Environmental Laws;
(c)
comply in all material respects with any mandatory applicable law, regulation or requirement in the jurisdiction of the Approved Ship Registry where a Vessel is registered;
(d)
in the event of hostilities in any part of the world (whether war is declared or not), not employ any Vessel in any zone which is declared a war zone by any government or by the war risk insurers of the Vessel, unless the Obligors have (at their own expense) effected any special, additional or modified insurance cover which shall be necessary or customary for first class shipowners, and has provided evidence of such cover to the Agent; and
(e)
obtain, maintain and ensure compliance in all material respects with all requisite licenses, certificates, approvals and permits required under any such mandatory applicable laws, rules and regulations at all times valid and enforceable in all respects, including:


(i)
the Document of Compliance and Safety Management Certificate issued pursuant to the ISM Code in relation to the Vessel; and
(ii)
a valid and current International Ship Security Certificate issued under the ISPS Code.
23.5
Class
(a)
The Obligors shall have each Vessel classified and maintained in a class notation acceptable to the Lenders with an Approved Classification Society, and at all times in all material respects comply with the rules and regulations of the relevant classification society without any material overdue recommendations and adverse notations and shall promptly provide the Agent with copies of any survey reports being issued. There shall be no change in the class notation of a Vessel without the prior written consent of the Agent (acting on the instructions of the Majority Lenders).
(b)
The Obligors shall procure that the relevant Approved Classification Society sends to the Agent, following receipt of a written request from the Agent, copies of all class records held by such Approved Classification Society in relation to a Vessel.
23.6
Ship registry
Each Vessel Owner shall maintain the registration of the Vessel owned by it in its name with an Approved Ship Registry, and shall not, without the prior written consent of the Agent (acting on the instructions of the Lenders) change the flag or registry of the Vessel (such consent to be unreasonably withheld). Consent has been given for the Hermit Horizon and Hermit Galaxy to transfer from the United Kingdom Ship Registry to the Norwegian Ship Registry (NOR) and Hermit Protector to transfer from the Norwegian Ship Registry (NOR) to the United Kingdom Ship Registry within three (3) months of the date of this Agreement.
23.7
Maintenance and repairs
(a)
The Obligors shall procure that each Vessel is kept in good and safe condition and state of repair consistent with first class ownership and management practice.
(b)
No Obligor shall, and the Obligors shall procure that no charterer of a Vessel or any other person will, put a Vessel into the possession of any person for the purpose of work being done upon it in an amount exceeding or likely to exceed USD 1,000,000 in respect of the Crew Vessels and USD 2,000,000 in respect of the PSV Vessels or the equivalent thereof in any other currency, unless that person has first given a written undertaking in favour of the Agent, on terms satisfactory to the Agent (acting on the instructions of the Majority Lenders), not to exercise any lien or withholding right on the Vessel for the cost of such work or for any other reason.
23.8
Modifications
(a)
Each Obligor shall, and the Obligors shall procure that no charterer of a Vessel or any other person will, not:


(i)
make any modifications to the Vessel or to the equipment installed on the Vessel; or
(ii)
remove any parts or equipment from the Vessel,
which, in either case, would materially alter the structure, type, or performance characteristics of the Vessel or materially reduce its value.
23.9
Inspection
The Obligors shall permit, and shall procure that any charterers permit, any person appointed by the Agent to inspect each Vessel for the account of the Obligors:
(a)
up to once a year;
(b)
additionally at any time giving reasonable cause for inspection of a Vessel at the Lenders' cost except where an Event of Default has occurred and is continuing,
upon the Agent giving prior written notice, always provided that such inspection shall not interfere with the normal operation and trading of the Vessel, provided however that following the occurrence of an Event of Default, the Agent, or any person appointed by the Agent, is entitled to carry out an inspection at any time and whether or not it interferes with the trading and operation of the Vessel.
23.10
Management
(a)
The Obligors shall procure that the commercial management of each Vessel shall be performed by the Commercial Manager pursuant to the terms of the Commercial Management Agreements and the technical management by the Technical Manager pursuant to the terms of the Technical Management Agreements.
(b)
The Obligors shall procure that any Manager issues a subordination statement, as may be required and in form and substance acceptable to the Agent (acting on the instructions of the Lenders), whereby the Manager subordinates its claims under the relevant Management Agreement(s) and/or in respect of the Insurances to the claims of the Finance Parties under the Finance Documents.
(c)
If:
(i)
any Manager breaches any provision of a subordination statement issued pursuant to paragraph (b) above which the Agent considers material; and
(ii)
the relevant Vessel Owner or Intragroup Charterer (as the case may be) that owns or has chartered the relevant Vessel fails to remedy the breach within a period of 15 days of it becoming aware of the occurrence of such circumstance or breach or of the receipt of a written notification from the Agent requesting it to remedy such circumstance or breach,



that Obligor shall promptly substitute the relevant Manager with another Manager and ensure that such replacement Manager executes and delivers to the Agent a subordination statement in accordance with paragraph (b) above.
23.11
Employment
Notwithstanding any other provision of this Agreement, the Obligors shall not, without the prior written consent of the Agent (acting on the instructions of the Lenders) employ any Vessel under any bareboat charterparty, any time charterparty or any other contract of employment exceeding 18 months firm period or any pooling arrangements.
23.12
Earnings of the Vessel
The Obligors shall procure that all Earnings are paid to the applicable Earnings Account.
23.13
Disposal
No Obligor shall, without the prior written consent of the Agent (acting on instructions of the Lenders) enter into a single transaction or series of transactions (whether related or not and whether voluntary or involuntary) to sell, lease, transfer, or otherwise dispose of any Vessel or shares in any entity owning (directly or indirectly) any Vessel, save for a sale of a Vessel or such entity in accordance with Clause 7.3 (Sale or Total Loss).
23.14
Minimum value
(a)
The Borrower shall ensure that the aggregate Fair Market Value of the Vessels is at all times:
(i)
from an including the date of this Agreement to an including 7 December 2021, at least 115 per cent. of the outstanding amount of the Loan;
(ii)
from an including 8 December 2021 to an including 7 December 2022, at least 125 per cent. of the outstanding amount of the Loan; and
(iii)
at all times thereafter, at least 130 per cent. of the outstanding amount of the Loan
(b)
The Borrower shall, if the Fair Market Value does not at any time comply with the requirements set out in paragraph (a) above, within 15 days from the Agent's written notice thereof at the Borrower's election, either:
(i)
provide additional Security by way of a cash collateral in USD in favour of the Agent (on behalf of the Finance Parties);
(ii)
provide other additional Security acceptable to the Agent (acting on the instructions of the Majority Lenders); or
(iii)
prepay such portion of the Loan in accordance with Clause 7.4 (Voluntary prepayment of Loans),


in order to restore compliance with the applicable requirements set out in paragraph (a) above.
(c)
The Borrower shall, at its own expense, arrange for the Fair Market Value of each Vessel to be determined (i) quarterly in connection with the delivery of the relevant Compliance Certificate and (ii) promptly upon request of the Agent at any other time if the Agent reasonably suspects that an Event of Default has occurred.
(d)
The valuations used to determine the Fair Market Value of a Vessel shall be no older than 30 days at the time of the applicable measurement.
23.15
Sustainable vessel dismantling
The Obligors shall procure that any PSV Vessel owned by the Group which is taken out of service for dismantling or sold to an intermediary with the intention of being scrapped, is recycled at a recycling yard which conducts it recycling business in a socially and environmentally responsible manner in compliance with the IMO Convention for the Safe and Environmentally Sound Recycling of Ships and with any future guideline issued by the IMO in connection with such Convention.
23.16
Inventory of Hazardous Materials
The Obligors shall procure that each PSV Vessel maintains an inventory of hazardous materials, being the document listing all the potentially hazardous materials, on board each Vessel.
24.
EVENTS OF DEFAULT
Each of the events or circumstances set out in Clause 24 is an Event of Default (save for Clause 24.16 (Acceleration)).
24.1
Non-payment
An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place and in the currency in which it is expressed to be payable unless:
(a)
its failure to pay is caused by:
(i)
administrative or technical error; or
(ii)
a Disruption Event; and
(b)
payment is made within 3 Business Days of its due date.
24.2
Financial covenants and other obligations
Any requirement of Clause 21 (Financial Covenants), Clause 23.1 (Insurances), paragraph (b) of Clause 23.14 (Minimum Value), is not satisfied.
24.3
Other obligations
(a)
An Obligor does not comply with any provision of the Finance Documents (other than those referred to in Clause 24.1 (Non-payment) and Clause 24.2 (Financial covenants and other obligations)).


(b)
No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within 14 days of the earlier of (i) the Agent giving notice to the Borrower or relevant Obligor and (ii) the Borrower or an Obligor becoming aware of the failure to comply.
24.4
Misrepresentation
Any representation or statement made or deemed to be made by a Group Obligor in the Finance Documents or any other document delivered by or on behalf of any Group 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.
24.5
Cross default
(a)
Any Financial Indebtedness of the Borrower or any of its Subsidiaries is not paid when due nor within any originally applicable grace period.
(b)
Any Financial Indebtedness of the Borrower or any of its Subsidiaries 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 the Borrower or any of its Subsidiaries is cancelled or suspended by a creditor of the Borrower or any of its Subsidiaries as a result of an event of default (however described).
(d)
Any creditor of the Borrower or any of its Subsidiaries becomes entitled to declare any Financial Indebtedness of the Borrower or any of its Subsidiaries due and payable prior to its specified maturity as a result of an event of default (however described).
(e)
No Event of Default will occur under this Clause 24.5 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within the preceding paragraphs is less than USD 5,000,000 (or its equivalent in any other currency or currencies) in aggregate for the Group.
24.6
Insolvency
(a)
Any Group Obligor:
(i)
is unable or admits inability to pay its debts as they fall due;
(ii)
suspends or threatens to suspend making payments on any of its debts; or
(iii)
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 Obligor 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 Obligor.
24.7
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 Obligor other than a solvent liquidation or reorganisation of any Group Obligor which is not an Obligor;
(ii)
a composition, compromise, assignment or arrangement with any creditor of any Group Obligor;
(iii)
the appointment of a liquidator (other than in respect of a solvent liquidation of any Group Obligor which is not an Obligor), receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of any Group Obligor or any of its assets; or
(iv)
enforcement of any Security over any assets of any of any Group Obligor,
or any analogous procedure or step is taken in any jurisdiction.
(b)
Paragraph (a) does not apply to any winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within 14 days of commencement.
24.8
Creditors' process
Any maritime lien or other lien (not permitted under Clause 22.8 (Negative pledge)), expropriation, injunction, arrest, attachment, sequestration, distress or execution affects any asset or assets of any Group Obligor or any Obligor and is not discharged within 14 days.
24.9
Ownership of the Obligors
An Obligor (other than the Borrower) is not or ceases to be a direct or indirect Subsidiary of the Borrower.
24.10
Unlawfulness and invalidity
(a)
It is or becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents or any Transaction Security created or expressed to be created or evidenced by the Transaction Security Documents ceases to be effective.
(b)
Any obligations of any Obligor under and Finance Documents are not or cease to be legal, valid, binding or enforceable and the cessation individually or cumulatively materially and adversely affect the interests of the Finance Parties under the Finance Documents.
(c)
Any Finance Document ceases to be in full force and effect or any Transaction Security ceases to be legal, valid, binding, enforceable or effective or is alleged by a party to it (other than a Finance Party) to be ineffective.
24.11
Cessation of business


Any Group Obligor suspends or ceases to carry on (or threatens to suspend or cease to carry on) all or a material part of its business (except as a result of a transaction permitted by the terms of this Agreement).
24.12
Litigation
Any litigation, arbitration, administrative, governmental, regulatory or other investigations, proceedings or disputes are commenced or threatened in relation to the Finance Documents or the transactions contemplated by the Finance Documents or against any Group Obligor or their assets which have or are reasonably likely to have a Material Adverse Effect.
24.13
Material adverse change
Any event or circumstance occurs which the Majority Lenders reasonably believe has or is reasonably likely to have a Material Adverse Effect.
24.14
Repudiation
An Obligor repudiates or evidences an intention to repudiate a Finance Document or any of the Transaction Security.
24.15
Equity Lines of Credit
(a)
Any Equity Line of Credit ceases to be in full force and effect (other than due to it being fully utilised).
(b)
Any default by a provider of any Equity Line of Credit to timely fulfil its obligations thereunder relating to any utilisation request made by the Borrower in respect of such Equity Line of Credit.
(c)
Any party thereto repudiates or evidences an intention to repudiate an Equity Line of Credit.
(d)
It is or becomes unlawful for any provider of any Equity Line of Credit to perform any of its obligations thereunder.
(e)
Any obligations of any provider of any Equity Line of Credit are not or cease to be legal, valid, binding or enforceable and the cessation individually or cumulatively materially and adversely affect the interests of the Finance Parties under the Finance Documents.
24.16
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:
(a)
by notice to the Borrower:
(i)
cancel the Total Commitments whereupon they shall immediately be cancelled;
(ii)
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, whereupon they shall become immediately due and payable;


(iii)
declare that all or part of the Loan, together with accrued interest and all other amounts accrued or outstanding under the Finance Documents, be payable on demand, whereupon they shall immediately become payable on demand by the Agent on the instructions of the Majority Lenders; and/or
(iv)
enforce any or all of the Transaction Security;
(b)
exercise any or all of its rights, remedies, powers or discretions under the Finance Documents.


SECTION 9
CHANGES TO PARTIES
25.
CHANGES TO THE LENDERS
25.1
Assignments and transfers by the Lenders
Subject to this Clause 25, a Lender (the "Existing Lender") may (in its sole discretion):
(a)
assign any of its rights; or
(b)
transfer any of its rights and obligations,
in relation to a portion of its participation in the Loan of USD 5,000,000 or more (or if less it's entire participation in the Loan) to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the "New Lender").
25.2
Other conditions of assignment or transfer
(a)
An assignment will only be effective on:
(i)
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 other Finance Parties as it would have been under if it had been an Original Lender; and
(ii)
performance by the Agent of all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to such assignment to a New Lender, the completion of which the Agent shall promptly notify to the Existing Lender and the New Lender.
(b)
A transfer will only be effective if the procedure set out in Clause 25.5 (Procedure for transfer) is complied with.
(c)
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. This paragraph (c) shall not apply in respect of an assignment or transfer made in the ordinary course of the primary syndication of the Facility.
(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 this Agreement on or prior to the date on which the transfer or assignment becomes effective in accordance with this Agreement and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender.
25.3
Assignment or transfer fee
The New Lender shall, on the date upon which an assignment or transfer takes effect, pay to the Agent (for its own account) a fee of USD 3,500.
25.4
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, the Transaction Security or any other documents;
(ii)
the financial condition of any Obligor;
(iii)
the performance and observance by any Obligor 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.
(b)
Each New Lender confirms to the Existing Lender and the other Finance Parties that it:
(i)
has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document or the Transaction Security; and
(ii)
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.


(c)
Nothing in any Finance Document obliges an Existing Lender to:
(i)
accept a re-transfer or re-assignment from a New Lender of any of the rights and obligations assigned or transferred under this Clause 25; 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 otherwise.
25.5
Procedure for assignment and transfer
(a)
Subject to the conditions set out in Clause 25.2 (Other conditions of assignment or transfer) a transfer is effected in accordance with paragraph (c) below when the Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to paragraph (b) below, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate 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.
(b)
The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender.
(c)
On the Transfer Date:
(i)
to the extent that in the Transfer Certificate the Existing Lender seeks to transfer its rights and obligations under the Finance Documents and in respect of the Transaction Security each of the Obligors and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and in respect of the Transaction Security and their respective rights against one another under the Finance Documents and in respect of the Transaction Security shall be cancelled (being the "Discharged Rights and Obligations");
(ii)
each of the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor and the New Lender have assumed and/or acquired the same in place of that Obligor and the Existing Lender;
(iii)
the Agent, the Arranger, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves and in respect of the Transaction Security 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 Agent, the Arranger and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and


(iv)
the New Lender shall become a Party as a "Lender".
25.6
Copy of Transfer Certificate to the Borrower
The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate send to the Borrower a copy of that Transfer Certificate.
25.7
Security over Lenders' rights
In addition to the other rights provided to Lenders under this Clause 25, each Lender may without consulting with or obtaining consent from any Obligor, at any time charge, assign or otherwise create Security in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender including, without limitation:
(a)
any charge, assignment or other Security to secure obligations to a federal reserve or central bank; and
(b)
any charge, assignment or other Security granted to any holders (or trustee, agent or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities,
except that no such charge, assignment or Security shall:
(i)
release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or other Security for the Lender as a party to any of the Finance Documents; or
(ii)
require any payments to be made by an Obligor 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.
26.
CHANGES TO THE OBLIGORS
26.1
Assignments and transfer by Obligors
No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.
26.2
Additional Guarantors
(a)
Subject to the other provisions of this Agreement, the Borrower shall procure that:
(i)
any entity (which is not an Obligor) that provides any Transaction Security;
(ii)
any member of the Group (which is not an Obligor) incorporated for the purposes of qualifying for UK tonnage tax;
(iii)
any wholly owned direct or indirect Subsidiary of the Borrower (which is not an Obligor) becoming the owner a Vessel; or
(iv)
any member of the Group or any Affiliate of a member of the Group employing a Vessel pursuant to a Charterparty,


such entity shall become an Additional Guarantor prior to or on the date on which the relevant event set out in paragraphs (i) to (iv) above occurs.
(b)
A member of the Group or any Affiliate of a member of the Group shall become an Additional Guarantor if:
(i)
the Borrower delivers to the Agent a duly completed and executed Accession Agreement; and
(ii)
the Agent has received all of the documents and other evidence listed in Part III of Schedule 2 (Conditions precedent) in relation to that Additional Guarantor, each in form and substance satisfactory to the Agent.
(c)
The Agent shall notify the Borrower and the Lenders promptly upon being satisfied that it has received (in form and substance satisfactory to it) all the documents and other evidence listed in Part III of Schedule 2 (Conditions precedent).
(d)
Other than to the extent that the Majority Lenders notify the Agent in writing to the contrary before the Agent gives the notification described in paragraph ‎(d) above, 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.
26.3
Repetition of representations
Delivery of an Accession Agreement constitutes confirmation by the relevant entity that the Repeating Representations are true and correct in relation to it as at the date of the delivery of the Accession Agreement, made by reference to the facts and circumstances then existing.


SECTION 10
THE FINANCE PARTIES
27.
ROLE OF THE AGENT, THE ARRANGER AND THE REFERENCE BANKS
27.1
Appointment of the Agent
(a)
Each of the Arranger and the Lenders appoints the Agent to act as its agent under and in connection with the Finance Documents.
(b)
Each of the Finance Parties appoints the Agent to act as its security agent under and in connection with the Finance Documents, and the Parties agree that the Agent holds the Transaction Security as such agent for the Finance Parties on the terms contained in this Agreement.
(c)
Each of the Finance Parties authorises the Agent to perform the duties, obligations and responsibilities and to 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.
27.2
Instructions
(a)
The 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 Agent in accordance with any instructions given to it by:
(A)
all Lenders if the relevant Finance Document stipulates the matter is an all Lender decision; and
(B)
in all other cases, the Majority Lenders; 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 Agent shall be entitled to request instructions, or clarification of any instruction, from the Majority Lenders (or, if the relevant Finance Document stipulates the matter is a decision for any other Lender or group of Lenders, from that Lender or group of Lenders) as to whether, and in what manner, it should exercise or refrain from exercising any right, power, authority or discretion. The Agent may refrain from acting unless and until it receives any such instructions or clarification that it has requested.
(c)
Save in the case of decisions stipulated to be a matter for any other Lender or group of Lenders under the relevant Finance Document and unless a contrary indication appears in a Finance Document, any instructions given to the Agent by the Majority Lenders shall override any conflicting instructions given by any other Parties and will be binding on all Finance Parties.


(d)
The Agent may refrain from acting in accordance with any instructions of any Lender or group of Lenders 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 Agent may act (or refrain from acting) as it considers to be in the best interest of the Lenders.
(f)
The Agent is not authorised to act on behalf of a Finance Party (without first obtaining that Finance Party's consent) in any legal or arbitration proceedings relating to any Finance Document. This paragraph (f) shall not apply to any legal or arbitration proceeding relating to the perfection, preservation or protection of rights under the Transaction Security Documents or enforcement of the Transaction Security or Transaction Security Documents.
27.3
Duties of the Agent
(a)
The Agent's duties under the Finance Documents are solely mechanical and administrative in nature.
(b)
Subject to paragraph (c) below, 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 25.6 (Copy of Transfer Certificate to the Borrower), paragraph (b) above shall not apply to any Transfer Certificate.
(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 the Arranger) under this Agreement it shall promptly notify the other Finance Parties.
(g)
The Agent shall have only those duties, obligations and responsibilities expressly specified in the Finance Documents to which it is expressed to be a party (and no others shall be implied).
27.4
Role of the Arranger
Except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party under or in connection with any Finance Document.
27.5
No fiduciary duties


(a)
Nothing in any Finance Document constitutes the Agent or the Arranger as a trustee or fiduciary of any other person.
(b)
Neither the Agent nor the Arranger 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.
27.6
Business with the Group
The Agent and the Arranger may accept deposits from, lend money to and generally engage in any kind of banking or other business with any of the Obligors.
27.7
Rights and discretions
(a)
The Agent may:
(i)
rely on any representation, communication, notice or document believed by it to be genuine, correct and appropriately authorised;
(ii)
assume that:
(A)
any instructions received by it from the Majority Lenders, any Lenders or any group of Lenders are duly given in accordance with the terms of the Finance Documents;
(B)
unless it has received notice of revocation, that those instructions have not been revoked; and
(C)
if it receives any instructions to act in relation to the Transaction Security, that all applicable conditions under the Finance Documents for so acting have been satisfied; and
(iii)
rely on a certificate from any person:
(A)
as to any matter of fact or circumstance which might reasonably be expected to be within the knowledge of that person; or
(B)
to the effect that such person approves of any particular dealing, transaction, step, action or thing,
as sufficient evidence that that is the case and, in the case of paragraph (A) above, may assume the truth and accuracy of that certificate.
(b)
The Agent may assume (unless it has received notice to the contrary in its capacity as agent or security agent for the Lenders or the Finance Parties) that:
(i)
no Default has occurred (unless it has actual knowledge of a Default arising under Clause 24.1 (Non-payment));
(ii)
any right, power, authority or discretion vested in any Party or any group of Lenders has not been exercised; and


(iii)
any notice or request made by the Borrower (other than the Utilisation Request or a Selection Notice) is made on behalf of and with the consent and knowledge of all the Obligors.
(c)
The Agent may engage and pay for the advice or services of any lawyers, accountants, tax advisers, surveyors or other professional advisers or experts.
(d)
Without prejudice to the generality of paragraph (c) above or paragraph (e) below, the Agent may at any time engage and pay for the services of any lawyers to act as independent counsel to the Agent (and so separate from any lawyers instructed by the Lenders) if the Agent in its reasonable opinion deems this to be necessary.
(e)
The Agent may rely on the advice or services of any lawyers, accountants, tax advisers, surveyors or other professional advisers or experts (whether obtained by the Agent or by any other Party) and shall not be liable for any damages, costs or losses to any person, any diminution in value or any liability whatsoever arising as a result of its so relying.
(f)
The Agent may act in relation to the Finance Documents through its officers, employees and agents.
(g)
Unless a Finance Document expressly provides otherwise the Agent may disclose to any other Party any information it reasonably believes it has received as agent or security agent under this Agreement.
(h)
Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor the 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.
(i)
Notwithstanding any provision of any Finance Document to the contrary, the Agent is not obliged to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties, obligations or responsibilities or the exercise of any right, power, authority or discretion if it has grounds for believing the repayment of such funds or adequate indemnity against, or security for, such risk or liability is not reasonably assured to it.
27.8
Responsibility for documentation
Neither the Agent nor the Arranger is responsible or liable for:
(a)
the adequacy, accuracy or completeness of any information (whether oral or written) supplied by the Agent, the Arranger, an Obligor or any other person in or in connection with any Finance Document or the transactions contemplated in 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;
(b)
the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or the Transaction Security or any other agreement, arrangement or


document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Transaction Security; or
(c)
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 applicable law or regulation relating to insider dealing or otherwise.
27.9
No duty to monitor
The Agent shall not be bound to enquire:
(a)
whether or not any Default has occurred;
(b)
as to the performance, default or any breach by any Party of its obligations under any Finance Document; or
(c)
whether any other event specified in any Finance Document has occurred.
27.10
Exclusion of liability
(a)
Without limiting paragraph (b) below (and without prejudice to any other provision of any Finance Document excluding or limiting the liability of the Agent), the Agent will not be liable for:
(i)
any damages, costs or losses to any person, any diminution in value, or any liability whatsoever arising as a result of taking or not taking any action under or in connection with any Finance Document or the Transaction Security, unless directly caused by its gross negligence or wilful misconduct;
(ii)
exercising, or not exercising, any right, power, authority or discretion given to it by, or in connection with, any Finance Document or the Transaction Security or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with, any Finance Document or the Transaction Security, other than by reason of its gross negligence or wilful misconduct;
(iii)
any shortfall which arises on the enforcement or realisation of the Transaction Security; or
(iv)
without prejudice to the generality of paragraphs (i) and (ii) above, any damages, costs or losses to any person, any diminution in value or any liability whatsoever (including, without limitation, for 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:
(A)
any act, event or circumstance not reasonably within its control; or
(B)
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: nationalisation,


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.
(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 or any Transaction Security and any officer, employee or agent of the Agent may rely on this Clause.
(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 the Arranger 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 unlawful for any Lender (or for any Affiliate of any Lender) or Finance Party,
on behalf of any Lender or Finance Party and each Lender and Finance Party confirms to the Agent and the Arranger 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 the Arranger.
(e)
Without prejudice to any provision of any Finance Document excluding or limiting the Agent's liability, any liability of the Agent arising under or in connection with any Finance Document or the Transaction Security shall be limited to the amount of actual loss which has been suffered (as determined by reference to the date of default of the Agent or, if later, the date on which the loss arises as a result of such default) but without reference to any special conditions or circumstances known to the Agent at any time which increase the amount of that loss. In no event shall the Agent be liable for any loss of profits, goodwill, reputation, business opportunity or anticipated saving, or for special, punitive, indirect or consequential damages, whether or not the Agent has been advised of the possibility of such loss or damages.
27.11
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 any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent (otherwise than by reason of the Agent's gross negligence or wilful misconduct) (or, in the case of any cost, loss or liability pursuant to Clause 30.10 (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) in acting as Agent under the Finance Documents (unless the Agent has been reimbursed by an Obligor pursuant to a Finance Document).
27.12
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 Borrower.
(b)
Alternatively the Agent may resign by giving 30 days' notice to the Lenders and the Borrower, in which case the Majority Lenders (after consultation with the Borrower) may appoint a successor Agent.
(c)
If the Majority Lenders have not appointed a successor Agent in accordance with paragraph (b) above within 20 days after notice of resignation was given, the retiring Agent (after consultation with the Borrower) may appoint a successor Agent.
(d)
If the Agent wishes to resign because (acting reasonably) it has concluded that it is no longer appropriate for it to remain as agent or security agent and the Agent is entitled to appoint a successor Agent under paragraph (c) above, the Agent may (if it concludes (acting reasonably) that it is necessary to do so in order to persuade the proposed successor Agent to become a party to this Agreement as Agent) agree with the proposed successor Agent amendments to this Clause 27 and any other term of this Agreement dealing with the rights or obligations of the Agent consistent with then current market practice for the appointment and protection of corporate trustees together with any reasonable amendments to the agency fee payable under this Agreement which are consistent with the successor Agent's normal fee rates and those amendments will bind the Parties.
(e)
The retiring Agent shall 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. The Borrower shall, within three Business Days of demand, reimburse the retiring Agent for the amount of all costs and expenses (including legal fees) properly incurred by it in making available such documents and records and providing such assistance.
(f)
The Agent's resignation notice shall only take effect upon the appointment of a successor and (where applicable) the transfer of all of the Transaction Security to that successor.
(g)
Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its


obligations under paragraph (e) above) but shall remain entitled to the benefit of Clause 14.3 (Indemnity to the Agent) and this Clause 27 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date). Any 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.
(h)
The Agent shall resign in accordance with paragraph (b) above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to paragraph (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 12.6(a) (FATCA information) and 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 12.6(a) (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 Borrower 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
(iv)
and (in each case) 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 that Lender, by notice to the Agent, requires it to resign.
27.13
Replacement of the Agent
(a)
After consultation with the Borrower, the Majority Lenders may, by giving 30 days' notice to the Agent replace the Agent by appointing a successor Agent.
(b)
The retiring Agent shall (at the expense of the Lenders) 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.
(c)
The appointment of the successor Agent shall take effect on the date specified in the notice from the Majority Lenders to the retiring Agent. As from such date, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its obligations under paragraph (b) above) but shall remain entitled to the benefit of Clause 14.3 (Indemnity to the Agent) and this Clause 27 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date).


(d)
Any successor Agent 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.
27.14
Confidentiality
(a)
In acting as agent or security agent for the Finance Parties, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.
(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.
27.15
Relationship with the Finance Parties
(a)
The Agent may treat the person shown in its records as Finance Party at the opening of business (in the place of the Agent's principal office as notified to the Finance Parties from time to time) as the Finance Party 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 Finance Party to the contrary in accordance with the terms of this Agreement.
(b)
Any Finance Party may by notice to the Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or despatched to that Finance Party under the Finance Documents.
27.16
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 and Finance Party confirms to the Agent and the Arranger 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 of the Obligors;
(b)
the legality, validity, effectiveness, adequacy or enforceability of any Finance Document, the Transaction Security and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Transaction Security;
(c)
whether that Lender 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 Finance Document, the Transaction Security, 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 the Transaction Security;
(d)
the adequacy, accuracy or completeness of any other information provided by the Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and
(e)
the right or title of any person in or to, or the value or sufficiency of any part of the Charged Property, the priority of any of the Transaction Security or the existence of any Security affecting the Charged Property.
27.17
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.
27.18
Role of Reference Banks
(a)
No Reference Bank is under any obligation to provide a quotation or any other information to the Agent.
(b)
No Reference Bank will be liable for any action taken by it under or in connection with any Finance Document, or for any Reference Bank Quotation, unless directly caused by its gross negligence or wilful misconduct.
(c)
No Party (other than the relevant Reference Bank) may take any proceedings against any officer, employee or agent of any Reference Bank in respect of any claim it might have against that Reference Bank or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document, or to any Reference Bank Quotation, and any officer, employee or agent of each Reference Bank may rely on this Clause 27.18.
27.19
Third party Reference Banks
A Reference Bank which is not a Party may rely on Clause 27.18 (Role of Reference Banks), Clause 36.3 (Other exceptions) and Clause 38 (Confidentiality of Funding Rates and Reference Bank Quotations).
27.20
No responsibility to perfect Transaction Security
The Agent shall not be liable for any failure to:
(a)
require the deposit with it of any deed or document certifying, representing or constituting the title of any Obligor to any of the Charged Property;


(b)
obtain any licence, consent or other authority for the execution, delivery, legality, validity, enforceability or admissibility in evidence of any Finance Document or the Transaction Security;
(c)
register, file or record or otherwise protect any of the Transaction Security (or the priority of any of the Transaction Security) under any law or regulation or to give notice to any person of the execution of any Finance Document or of the Transaction Security;
(d)
take, or to require any Obligor to take, any step to perfect its title to any of the Charged Property or to render the Transaction Security effective or to secure the creation of any ancillary Security under any law or regulation; or
(e)
require any further assurance in relation to any Security Document.
27.21
Delegation by the Agent
(a)
The Agent may, at any time, delegate or sub-delegate by power of attorney or otherwise to any person for any period, all or any right, power, authority or discretion vested in it in its capacity as such.
(b)
The Agent shall not be bound to supervise, or be in any way responsible for any damages, costs or losses incurred by reason of any misconduct, omission or default on the part of, any such delegate or sub-delegate.
27.22
Acceptance of title
The Agent shall be entitled to accept without enquiry, and shall not be obliged to investigate, any right and title that any Obligor may have to any of the Charged Property and shall not be liable for, or bound to require any Obligor to remedy, any defect in its right or title.
28.
CONDUCT OF BUSINESS BY THE FINANCE PARTIES
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.
29.
SHARING AMONG THE FINANCE PARTIES
29.1
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 30 (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 30 (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 30.5 (Partial payments).
29.2
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 30.5 (Partial payments) towards the obligations of that Obligor to the Sharing Finance Parties.
29.3
Recovering Finance Party's rights
On a distribution by the Agent under Clause 29.2 (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.
29.4
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.
29.5
Exceptions


(a)
This Clause 29 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.
(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, 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.


SECTION 11
ADMINISTRATION
30.
PAYMENT MECHANICS
30.1
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 and with such bank as the Agent, in each case, specifies.
30.2
Distributions by the Agent
Each payment received by the Agent under the Finance Documents for another Party shall, subject to Clause 30.3 (Distributions to an Obligor) and Clause 30.4 (Clawback and pre-funding) 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.
30.3
Distributions to an Obligor
The Agent may (with the consent of the Obligor or in accordance with Clause 31 (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.
30.4
Clawback and pre-funding
(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)
Unless paragraph (c) below applies, 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.


(c)
If the Agent has notified the Lenders that it is willing to make available amounts for the account of the Borrower before receiving funds from the Lenders then if and to the extent that the Agent does so but it proves to be the case that it does not then receive funds from a Lender in respect of a sum which it paid to the Borrower:
(i)
the Borrower shall on demand refund it to the Agent; and
(ii)
the Lender by whom those funds should have been made available or, if that Lender fails to do so, the Borrower, shall on demand pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding cost incurred by it as a result of paying out that sum before receiving those funds from that Lender.
30.5
Partial payments
(a)
If the Agent receives a payment that is insufficient to discharge all the amounts then due and payable by an Obligor under the Finance Documents, the Agent shall apply that payment towards the obligations of that Obligor under the Finance Documents in the following order:
(i)
first, in or towards payment pro rata of any unpaid amount owing to the Agent under the Finance Documents;
(ii)
secondly, in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under this Agreement;
(iii)
thirdly, in or towards payment pro rata of any principal due but unpaid under this Agreement; and
(iv)
fourthly, 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 the Lenders, vary the order set out in paragraphs (a)(ii) to (a)(iv) above.
(c)
Paragraphs (a) and (b) above will override any appropriation made by an Obligor.
30.6
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.
30.7
Business Days
(a)
Any payment under any Finance Document 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.
30.8
Currency of account


(a)
Subject to paragraphs (b) and (c) below, USD is the currency of account and payment for any sum due from an Obligor under any Finance Document.
(b)
Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.
(c)
Any amount expressed to be payable in a currency other than USD shall be paid in that other currency.
30.9
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 Borrower); 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 Borrower) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Market and otherwise to reflect the change in currency.
30.10
Disruption to payment systems etc.
If either the Agent determines (in its discretion) that a Disruption Event has occurred or the Agent is notified by the Borrower that a Disruption Event has occurred:
(a)
the Agent may, and shall if requested to do so by the Borrower, consult with the Borrower with a view to agreeing with the Borrower 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 Borrower 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 Borrower shall (whether or not it is finally determined that a 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 36 (Amendments and Waivers);
(e)
the Agent shall not be liable for any damages, costs or losses to any person, any diminution in value or any liability 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 30.10; and
(f)
the Agent shall notify the Finance Parties of all changes agreed pursuant to paragraph (d) above.
31.
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.
32.
NOTICES
32.1
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 letter, e-mail or by way of posting to a secure website.
32.2
Addresses
The address and e-mail address (and the department or officer, if any, for whose attention the communication is to be made) of each 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 the Borrower:
c/o Scorpio Services Holding Limited
“Le Millenium” 9 Boulevard Charles III, MC 98000
Monaco    
E-mail address:    legal@scorpiogroup.net
Attention: Legal Department

(b)
in the case of the Agent:
DNB Bank ASA
Dronning Eufemias gate 30


P.O. Box 1600 Sentrum
0021 Oslo
Norway
E-mail address:    agentdesk@dnb.no
Attention: Agent Desk

(c)
in the case of each Lender or any other Obligor, that notified in writing to the Agent on or prior to the date on which it becomes a Party,
or any substitute address, e-mail address or department or officer as the 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.
32.3
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 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;
(ii)
if by way of e-mail, when actually received in readable form; and
(iii)
if by way of a secure website, when actually made available in readable form,
and, if a particular department or officer is specified as part of its address details provided under Clause 32.2 (Addresses), if addressed to that department or officer.
(b)
Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent and then only if it is expressly marked for the attention of the department or officer identified above (or any substitute department or officer as the Agent shall specify for this purpose).
(c)
All notices from or to an Obligor shall be sent through the Agent.
(d)
Any communication or document made or delivered to the Borrower in accordance with this Clause 32.3 will be deemed to have been made or delivered to each of the Obligors.
(e)
Any communication or document which becomes effective, in accordance with paragraphs (a) to (d) above, after 5:00 p.m. in the place of receipt shall be deemed only to become effective on the following day.
32.4
Notification of address and e-mail address
Promptly upon receipt of notification of an address or e-mail address or change of address or e-mail address pursuant to Clause 32.2 (Addresses) or changing its own address or e-mail address, the Agent shall notify the other Parties.
33.
CALCULATIONS AND CERTIFICATES


33.1
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.
33.2
Certificates and Determinations
Any certification or determination by a Finance Party 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.
33.3
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 Relevant Market differs, in accordance with that market practice.
34.
PARTIAL INVALIDITY
If, at any time, any provision of a Finance Document 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.
35.
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 Finance Document 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 each Finance Document are cumulative and not exclusive of any rights or remedies provided by law.
36.
AMENDMENTS AND WAIVERS
36.1
Required consents
(a)
Subject to Clause 36.2 (All Lender matters) and Clause 36.3 (Other exceptions) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Obligors and any such amendment or waiver will be binding on all Parties.
(b)
The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this Clause 36.
36.2
All Lender matters
An amendment, waiver or (in the case of a Transaction Security Document) a consent of any term of any Finance Document that has the effect of changing or which relates to:


(a)
the definition of "Majority Lenders" in Clause 1.1 (Definitions);
(b)
an extension to the date of payment of any amount under the Finance Documents;
(c)
a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fees or commission payable;
(d)
a change in currency of payment of any amount under the Finance Documents;
(e)
an increase in any Commitment, an extension of the Availability Period or any requirement that a cancellation of Commitments reduces the Commitments of the Lenders rateably under the Facility;
(f)
a change to the Borrower or Guarantors other than in accordance with Clause 26 (Changes to the Obligors);
(g)
any provision which expressly requires the consent of all the Lenders;
(h)
Clause 2.2 (Finance Parties' rights and obligations), Clause 5.1 (Delivery of a Utilisation Request), Clause 7.1 (Illegality), Clause 7.2 (Change of control), Clause 7.7 (Application of prepayments), Clause 25 (Changes to the Lenders), Clause 26 (Changes to the Obligors), Clause 29 (Sharing among the Finance Parties), this Clause 36, Clause 41 (Governing law) or Clause 42.1 (Jurisdiction);
(i)
(other than as expressly permitted by the provisions of any Finance Document) the nature or scope of (A) the guarantee and indemnity granted under Clause 17 (Guarantee and indemnity), (B) the Charged Property or (C) the manner in which the proceeds of enforcement of the Transaction Security are distributed (except in the case of paragraphs (B) and (C) above, insofar as it relates to a sale or disposal of an asset which is the subject of the Transaction Security where such sale or disposal is expressly permitted under this Agreement or any other Finance Document); or
(j)
the release of any guarantee and indemnity granted under Clause 17 (Guarantee and indemnity) or of any Transaction Security unless permitted under this Agreement or any other Finance Document or relating to a sale or disposal of an asset which is the subject of the Transaction Security where such sale or disposal is expressly permitted under this Agreement or any other Finance Document,
shall not be made without the prior consent of all the Lenders.
36.3
Other exceptions
An amendment or waiver which relates to the rights or obligations of the Agent, the Arranger or a Reference Bank (each in their capacity as such) may not be effected without the consent of the Agent, the Arranger or that Reference Bank, as the case may be.
36.4
Replacement of Screen Rate
Subject to paragraph (a) of Clause 36.3 (Other exceptions), any amendment or waiver which relates to:


(a)
providing for the use of a Replacement Benchmark; 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 all Lenders in their sole discretion.
36.5
Replacement of Defaulting Lender
(a)
The Borrower may, at any time a Lender has become and continues to be a Defaulting Lender, by giving ten Business Days' prior written notice to the Agent and such Lender:
(i)
replace such Lender by requiring such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to Clause 25 (Changes to the Lenders) all (and not part only) of its rights and obligations under this Agreement;
(ii)
require such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to Clause 25 (Changes to the Lenders) all (and not part only) of the undrawn Commitment(s) of the Lender; or
(iii)
require such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to Clause 25 (Changes to the Lenders) all (and not part only) of its rights and obligations in respect of the Facility,
to another Lender or bank or financial institution acceptable to the Majority Lenders (acting reasonably) (a "Replacement Lender") which confirms its willingness to assume and does assume all the obligations, or all the relevant


obligations, of the transferring Lender in accordance with Clause 25 (Changes to the Lenders).
(b)
Any transfer of rights and obligations of a Defaulting Lender pursuant to this Clause 36.5 shall be subject to the following conditions:
(i)
the Borrower shall have no right to replace the Agent;
(ii)
neither the Agent nor the Defaulting Lender shall have any obligation to the Borrower to find a Replacement Lender;
(iii)
the transfer must take place no later than three (3) Months after the notice referred to in paragraph (a) above;
(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; and
(v)
the Defaulting Lender shall only be obliged to transfer its rights and obligations pursuant to paragraph (a) 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 transfer to the Replacement Lender.
(c)
The Defaulting Lender shall perform the checks described in paragraph (b)(v) above as soon as reasonably practicable following delivery of a notice referred to in paragraph (a) above and shall notify the Agent and the Borrower when it is satisfied that it has complied with those checks.
37.
CONFIDENTIAL INFORMATION
37.1
Confidentiality
Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by Clause 37.2 (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.
37.2
Disclosure of Confidential Information
Any Finance Party may disclose:
(a)
to any of its Affiliates and Related Funds and any of its or their officers, directors, employees, professional advisers, auditors, 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 paragraph (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, and, in each case, to any of that person's Affiliates, Related Funds, 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, Related Funds, Representatives and professional advisers;
(iii)
appointed by any Finance Party or by a person to whom paragraph (b)(i) or (ii) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf (including, without limitation, any person appointed under paragraph (b) of Clause 27.15 (Relationship with the Finance Parties));
(iv)
who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in paragraph (b)(i) or (b)(ii) above;
(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) in respect of its rights under the Finance Documents;
(viii)
to whom information is required to be disclosed in connection with, or for the purposes of, any contemplated or on-going public or private enforcement of any Transaction Security (including, without limitation, appraisers and/or financial advisors and potential buyers of, or investors in, assets subject to any Transaction Security);
(ix)
who is a Party; or


(x)
with the consent of the Borrower,
in each case, such Confidential Information as that Finance Party shall consider appropriate if:
(A)
in relation to paragraphs (b)(i), (b)(ii) and b(iii) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information;
(B)
in relation to paragraph (b)(iv) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information;
(C)
in relation to paragraphs (b)(v), (b)(vi) and (b)(vii) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances;
(c)
to any person appointed by that Finance Party or by a person to whom paragraph (b)(i) or (b)(ii) above 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 paragraph (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 Borrower and the relevant Finance Party; and
(d)
to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such rating agency to carry out its normal rating activities in relation to the Finance Documents and/or the Obligors.
37.3
Entire agreement
This Clause 37 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.


37.4
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.
37.5
Notification of disclosure
Each of the Finance Parties agrees (to the extent permitted by law and regulation) to inform the Borrower:
(a)
of the circumstances of any disclosure of Confidential Information made pursuant to paragraph (b)(v) of Clause 37.2 (Disclosure of Confidential Information) except where such disclosure is made to any of the persons referred to in that paragraph 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 37.
37.6
Continuing obligations
The obligations in this Clause 37 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.
38.
CONFIDENTIALITY OF FUNDING RATES AND REFERENCE BANK QUOTATIONS
38.1
Confidentiality and disclosure
(a)
The Agent and each Obligor agree to keep each Funding Rate (and, in the case of the Agent, each Reference Bank Quotation) confidential and not to disclose it to anyone, save to the extent permitted by paragraphs (b) and (c) below.
(b)
The Agent may disclose:
(i)
any Funding Rate (but not, for the avoidance of doubt, any Reference Bank Quotation) to the Borrower pursuant to Clause 8.4 (Notification of rates of interest); and
(ii)
any Funding Rate or any Reference Bank Quotation to any person appointed by it to provide administration services in respect of one or more of the Finance Documents to the extent necessary to enable such service provider to provide those services if the service provider to whom that 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 Agent and the relevant Lender or Reference Bank, as the case may be.
(c)
The Agent may disclose any Funding Rate or any Reference Bank Quotation, and each Obligor may disclose any Funding Rate, to:
(i)
any of its Affiliates and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives if any person to whom that Funding Rate or Reference Bank Quotation is to be given pursuant to this paragraph (i) is informed in writing of its confidential nature and that it 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 that Funding Rate or Reference Bank Quotation or is otherwise bound by requirements of confidentiality in relation to it;
(ii)
any person 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 if the person to whom that Funding Rate or Reference Bank Quotation is to be given is informed in writing of its confidential nature and that it may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of the Agent or the relevant Obligor, as the case may be, it is not practicable to do so in the circumstances;
(iii)
any person 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 if the person to whom that Funding Rate or Reference Bank Quotation is to be given is informed in writing of its confidential nature and that it may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of the Agent or the relevant Obligor, as the case may be, it is not practicable to do so in the circumstances; and
(iv)
any person with the consent of the relevant Lender or Reference Bank, as the case may be.
38.2
Related obligations
(a)
The Agent and each Obligor acknowledge that each Funding Rate (and, in the case of the Agent, each Reference Bank Quotation) is or may be price-sensitive information and that its use may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and the Agent and each Obligor undertake not to use any Funding Rate or, in the case of the Agent, any Reference Bank Quotation for any unlawful purpose.


(b)
The Agent and each Obligor agree (to the extent permitted by law and regulation) to inform the relevant Lender or Reference Bank, as the case may be:
(i)
of the circumstances of any disclosure made pursuant to paragraph (c)(ii) of Clause 38.1 (Confidentiality and disclosure) except where such disclosure is made to any of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and
(ii)
upon becoming aware that any information has been disclosed in breach of this Clause 38.
38.3
No Event of Default
No Event of Default will occur under Clause 24.3 (Other obligations) by reason only of an Obligor's failure to comply with this Clause 38.
39.
BAIL-IN ACTION
39.1
Bail-in definitions
In this Clause 39:
"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.
"EEA Member Country" means any member state of the European Union, Iceland, Liechtenstein and Norway.
"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.
"Resolution Authority" means any body which has authority to exercise any Write-down and Conversion Powers.
"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.
39.2
Contractual recognition of bail-in
Notwithstanding any other term of any Finance Document or any other agreement, arrangement or understanding between the Parties, each Party 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:
(b)
any Bail-In Action in relation to any such liability, including (without limitation):


(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.
40.
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.



SECTION 12
GOVERNING LAW AND ENFORCEMENT
41.
GOVERNING LAW
This Agreement is governed by Norwegian law.
42.
ENFORCEMENT
42.1
Jurisdiction
(a)
The courts of Norway have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (each a "Dispute") and the Parties therefore irrevocably submit to the exclusive jurisdiction of the Oslo district court (Oslo tingrett).
(b)
Notwithstanding paragraph (a) above, 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.
42.2
Service of process
Without prejudice to any other mode of service allowed under any relevant law, each Obligor (other than any Obligor incorporated in Norway):
(a)
irrevocably appoints NAO Norway AS as its agent for service of process in relation to any proceedings before the Norwegian courts in connection with any Finance Document; and
(b)
agrees that failure by a process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned.
This Agreement has been entered into on the date stated at the beginning of this Agreement.
SCHEDULE 1
THE ORIGINAL PARTIES
Part I
The Guarantors


#
Original Guarantor
Company registration number (or equivalent, if any) and jurisdiction
•
Petro Craft 2017-1 Shipping Company Limited
93183, Marshall Islands
2.    
Petro Craft 2017-2 Shipping Company Limited
93184, Marshall Islands
3.    
Petro Craft 2017-3 Shipping Company Limited
93185, Marshall Islands
4.    
Petro Craft 2017-4 Shipping Company Limited
93186, Marshall Islands
5.    
Petro Craft 2017-5 Shipping Company Limited
93188, Marshall Islands
6.    
Petro Craft 2017-7 Shipping Company Limited
93228, Marshall Islands
7.    
Petro Craft 2017-8 Shipping Company Limited
93230, Marshall Islands
8.    
Petro Combi 6030-01 Shipping Company Limited
96682, Marshall Islands
9.    
Petro Combi 6030-02 Shipping Company Limited
96683, Marshall Islands
10.    
Petro Combi 6030-03 Shipping Company Limited
96684, Marshall Islands
11.    
Petro Combi 6030-04 Shipping Company Limited
96685, Marshall Islands
12.    
Hermit Fighter Shipping Company Limited
100493, Marshall Islands
13.    
Hermit Prosper Shipping Company Limited
100494, Marshall Islands
14.    
Hermit Power Shipping Company Limited
100495, Marshall Islands
15.    
Hermit Thunder Shipping Company Limited
100496, Marshall Islands
16.    
Guardian Shipping Company Limited
100497, Marshall Islands
17.    
Hermit Protector Shipping Company Limited
100498, Marshall Islands
18.    
Hermit Viking Shipping Company Limited
100499, Marshall Islands
19.    
Hermit Storm Shipping Company Limited
100500, Marshall Islands
20.    
Hermit Galaxy Shipping Company Limited
100501, Marshall Islands
21.    
Hermit Horizon Shipping Company Limited
100502, Marshall Islands
22.    
NAO Norway AS
920325505, Norway
23.    
Delta PSV Norway AS
822320877, Norway
24.    
Delta Cistern V Limited
54510, Bermuda
25.    
Sierra Cistern V Limited
54513, Bermuda
26.    
Blue Power Limited
48473, Bermuda
27.    
CB Holdco Limited
54512, Bermuda



Part II
The Original Lenders
Name of Original Lender
Commitment (USD)
DNB Bank ASA
66,452,566
Skandinaviska Enskilda Banken AB (Publ)
66,452,566
Total
132,905,132



SCHEDULE 2
CONDITIONS PRECEDENT
Part I
Conditions Precedent to the signing of this Agreement
1.
Obligors
(a)
A copy of the constitutional documents of each Obligor.
(b)
A copy of a resolution of the board of directors of each Obligor:
(i)
approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;
(ii)
authorising a specified person or persons to execute the Finance Documents to which it is a party 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, the Utilisation Request and a Selection Notice) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.
(c)
If applicable, a copy of a resolution signed by all the holders of the issued shares in each Guarantor, approving the terms of, and the transactions contemplated by, the Finance Documents to which the Guarantor is a party.
(d)
A certificate of an authorised signatory of the relevant Obligor:
(i)
confirming that borrowing or guaranteeing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on it to be exceeded;
(ii)
certifying that each copy document relating to it specified in this Part I of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement; and
(iii)
containing a specimen of the signature of each person authorised by the resolution referred to in paragraph (b) above.
2.
Finance Documents
(a)
This Agreement executed by the Obligors.
(b)
Any Fee Letter(s) executed by the Borrower.
(c)
The letter from the Agent or the Arranger to the Borrower regarding the effective annual interest in respect of the Facility executed by the Borrower.


3.
Other documents and evidence
(a)
A copy of any Management Agreement including any amendments thereto.
(b)
A copy of any Charterparty with a duration of 18 months or more (save that any Charterparty with an Intragroup Charterer shall be provided) including any amendments thereto.
(c)
A copy of the acceptance of appointment of any process agent required to be appointed pursuant to this Agreement.
(d)
A copy of the Group structure chart.
(e)
The Original Financial Statements
(f)
Evidence that the fees, costs and expenses then due from the Borrower pursuant to Clause 11 (Fees) and Clause 16 (Costs and expenses) have been paid or will be paid to the extent due.
(g)
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 Borrower 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.
(h)
Such documentation and other evidence needed for the Agent, the Arranger or any Lender to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in respect of each Obligor and this Agreement.
(i)
Any other document or instrument reasonably required by the Agent.

Part II
Conditions Precedent to the Utilisation
1.
Obligors
A confirmation from a duly authorised officer of each Obligor that there has been no change in the documents referred to in paragraph 1 (a) to (c) of Part I of this Schedule 2 in relation to the relevant Obligor since the date on which such documents where provided to the Agent or, as the case may be, a copy of any amendments thereto, and confirmation that the board resolution referred to in paragraph 1 (b) and any shareholder resolution referred to in paragraph 1 (c) of Part I of this Schedule 2 remain in full force and effect and has not been amended or superseded.


2.
Finance Documents
a)
All Transaction Security Documents executed by the Obligors party to that document.
b)
A copy of all notices required to be sent under the Transaction Security Documents executed by the relevant parties and duly acknowledged by the relevant addressees.
c)
A copy (or, if applicable, the original) of all other documents and instruments to be provided under the Transaction Security Documents (including proxies, powers of attorney, shareholders' registers (or equivalent), share certificates, transfers and stock transfer forms (or equivalent) and other documents of title).
3.
Vessels
a)
Evidence that all Insurances in respect of the Vessels in accordance with Clause 23.1 (Insurances) are in place.
b)
At the Borrower's cost, an insurance report from an international reputable insurance consultant acceptable to the Agent confirming the compliance with Clause 23.1 (Insurances).
c)
Transcript of or other confirmation satisfactory to the Agent from the Approved Ship Registry showing that the relevant Vessel Owner is registered as the owner of the relevant Vessel and that the Mortgage is registered on first priority and that no other encumbrances, maritime liens, mortgages or debts whatsoever are registered against the relevant Vessel.
d)
Evidence that the Vessel is classed with the highest class in accordance with Clause 23.5 (Class), free of all overdue recommendations of the relevant classification society.
e)
Copies of the following documentation:
(A)
the ISM Code Document of Compliance;

(B)
the ISM Code Safety Management Certificate; and

(C)
the ISPS Code Ship Security Certificate;

f)
Certificates of valuation issued no more than thirty one days prior to the Utilisation Date from two Approved Ship Brokers in accordance with the requirements of the definition of "Fair Market Value".
4.
Legal opinions
Legal opinions of legal advisers (including without limitation, special maritime counsel) to the Agent in all relevant jurisdictions.
5.
Other documents and evidence
a)
Evidence that the Borrower has received cash consideration of USD 35,000,000 or more following a share issue in the Borrower occurring after the date of this Agreement, such amount to be reduced by (i) the amount of any cash consideration received by the Borrower


under the Existing Equity Line of Credit prior to the date of this Agreement, (ii) the amount irrevocably and unconditionally available to the Borrower under the Existing Equity Line of Credit, (iii) the amount irrevocably and unconditionally available to the Borrower under the Additional Equity Line of Credit and (iv) any other equity investments in form and substance acceptable to the Lenders.
b)
Evidence that any existing Financial Indebtedness in relation to the Vessels (and any unpaid costs or expenses related thereto) has been discharged in full, all commitments thereunder have been irrevocably cancelled and any Security in relation thereto will be released.

Part III
Conditions Precedent to the accession of an Additional Guarantor
1.
An Accession Agreement, duly executed by the Additional Guarantor and the Borrower.
2.
A copy of the constitutional documents of the Additional Guarantor.
3.
A copy of a resolution of the board of directors of the Additional Guarantor:
(a)
approving the terms of, and the transactions contemplated by, the Accession Agreement and the Finance Documents and resolving that it execute the Accession Agreement;
(a)
authorising a specified person or persons to execute the Accession Agreement on its behalf; and
(b)
authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices to be signed and/or despatched by it under or in connection with the Finance Documents.
4.
If applicable, a copy of a resolution signed by all the holders of the issued shares of the Additional Guarantor, approving the terms of, and the transactions contemplated by, the Finance Documents to which the Additional Guarantor is a party.
5.
A certificate of an authorised signatory of the Additional Guarantor:
(a)
confirming that borrowing or guaranteeing, as appropriate, the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on it to be exceeded;
(a)
certifying that each copy document listed in this Part III of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of the Accession Agreement; and
(b)
containing a specimen of the signature of each person authorised by the resolution referred to in paragraph 3 above.


6.
A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable in connection with the entry into and performance of the transactions contemplated by the Accession Agreement or for the validity and enforceability of any Finance Document.
7.
All Transaction Security Documents executed by the Obligors party to that document.
8.
A copy of all notices required to be sent under the Transaction Security Documents executed by the relevant parties and duly acknowledged by the relevant addressees.
9.
A copy (or, if applicable, the original) of all other documents and instruments to be provided under the Transaction Security Documents (including proxies, powers of attorney, shareholders' registers (or equivalent), share certificates, transfers and stock transfer forms (or equivalent) and other documents of title).
10.
In the case of an Additional Guarantor that is to become a Vessel Owner, a transcript of or other confirmation satisfactory to the Agent from the Approved Ship Registry showing that the Additional Guarantor is registered as the owner of the relevant Vessel and that the Mortgage is registered on first priority and that no other encumbrances, maritime liens, mortgages or debts whatsoever are registered against the relevant Vessel.
11.
If available, the latest audited financial statements of the Additional Guarantor.
12.
Legal opinions of legal advisers to the Arranger and the Agent in the relevant jurisdictions.
13.
Such documentation and other evidence needed for the Agent or any Lender to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in respect of the accession of the Additional Guarantor to this Agreement.
14.
Any other document or instrument reasonably required by the Agent.





SCHEDULE 3
REQUESTS AND NOTICES
Part I
Utilisation Request for the Loan
From:    Hermitage Offshore Services Ltd. as Borrower
To:    DNB Bank ASA as Agent
Dated:    
Hermitage Offshore Services Ltd. – Term Facility Agreement dated 14 January 2020 (the "Agreement")

16.
We refer to the Agreement. This is a Utilisation Request. Terms defined in the Agreement have the same meaning in this Utilisation Request unless given a different meaning in this Utilisation Request.
17.
We wish to borrow the Loan on the following terms:
(a)
Proposed Utilisation Date:
[ ] (or, if that is not a Business Day, the next Business Day)

(b)
Currency of Loan:
USD
(c)
Amount:
[ ] or, if less, the Available Facility
(d)
Interest Period:
[ ]
18.
We confirm that each condition specified in Clause 4.2 (Further conditions precedent) of the Agreement is satisfied on the date of this Utilisation Request.
19.
The proceeds of this Loan should be credited to [account].
20.
This Utilisation Request is irrevocable.
Yours faithfully

…………………………………........……
authorised signatory for
Hermitage Offshore Services Ltd.


Part II
Selection Notice

From:    Hermitage Offshore Services Ltd. as Borrower

To:    DNB Bank ASA as Agent

Dated:
Hermitage Offshore Services Ltd. – Term Facility Agreement dated 14 January 2020 (the "Agreement")
1.
We refer to the Agreement. This is a Selection Notice. Terms defined in the Agreement have the same meaning in this Selection Notice unless given a different meaning in this Selection Notice.
2.
We refer to the following Loan with an Interest Period ending on [ ].
3.
We request that the next Interest Period for the above Loan is [ ].
4.
This Selection Notice is irrevocable.
Yours faithfully
…………………………………........
authorised signatory for
Hermitage Offshore Services Ltd.



SCHEDULE 4
FORM OF TRANSFER CERTIFICATE
To:    DNB Bank ASA as Agent
From:
[The Existing Lender] (the "Existing Lender") and [The New Lender] (the "New Lender")
Dated:    
Hermitage Offshore Services Ltd. – USD 132,905,132 Term Facility Agreement dated 14 January 2020 (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 25.5 (Procedure for transfer) of the Agreement:
(a)
The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender, and in accordance with Clause 25.5 (Procedure for transfer) of the Agreement, all of the Existing Lender's rights and obligations under the Agreement and the other Finance Documents and in respect of the Transaction Security which relate to that portion of the Existing Lender's Commitment and participations in the Loan under the Agreement as specified in the Schedule.
(b)
The proposed Transfer Date is [ ].
(c)
The Facility Office and address, e-mail address and attention details for notices of the New Lender for the purposes of Clause 32.2 (Addresses) of the Agreement are set out in the Schedule.
3.
The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in paragraph (c) of Clause 25.4 (Limitation of responsibility of Existing Lenders) of the Agreement.
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 is governed by Norwegian law.
6.
This Transfer Certificate has been entered into on the date stated at the beginning of this Transfer Certificate.
Note:
The execution of this Transfer Certificate may not transfer a proportionate share of the Existing Lender's interest in the Transaction Security in all jurisdictions. It is the responsibility of the New Lender to ascertain whether any other documents or


other formalities are required to perfect a transfer of such a share in the Existing Lender's Transaction Security in any jurisdiction and, if so, to arrange for execution of those documents and completion of those formalities.


THE SCHEDULE
Commitment/rights and obligations to be transferred
[insert relevant details]
[Facility Office address, e-mail address and attention details for notices and account details for payments,]
[Existing Lender]
[New Lender]
By: …………………………………........……
By: …………………………………........……

This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed as [ ].
DNB Bank ASA
By: …………………………………........……



SCHEDULE 5
FORM OF COMPLIANCE CERTIFICATE
To:     DNB Bank ASA as Agent
From:    Hermitage Offshore Services Ltd. as Borrower
Dated:    
Hermitage Offshore Services Ltd. – USD 132,905,132 Term Facility Agreement dated 14 January 2020 (the "Agreement")
1.
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.
We confirm that: [Insert details of covenants to be certified]
3.
[We confirm that no Default is continuing.]*

Signed:
…………………………………........………
 
[Chief Executive Officer / Chief Financial Officer]
 
of
 
Hermitage Offshore Services Ltd.











*
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.


SCHEDULE 6
THE VESSELS
#
Vessel

Type
Built
IMO Number

Vessel Owner
1
Hermit Fighter
PSV
2012
9613692
Hermit Fighter Shipping Company Limited
2
Hermit Prosper
PSV
2012
9613707
Hermit Prosper Shipping Company Limited
3
Hermit Power
PSV
2013
9651890
Hermit Power Shipping Company Limited
4
Hermit Thunder
PSV
2013
9665102
Hermit Thunder Shipping Company Limited
5
NAO Guardian
PSV
2013
9665114
Guardian Shipping Company Limited
6
Hermit Protector
PSV
2013
9665126
Hermit Protector Shipping Company Limited
7
Hermit Viking
PSV
2015
9722522
Hermit Viking Shipping Company Limited
8
Hermit Storm
PSV
2015
9722510
Hermit Storm Shipping Company Limited
9
Hermit Galaxy
PSV
2016
9748344
Hermit Galaxy Shipping Company Limited
10
Hermit Horizon
PSV
2016
9747493
Hermit Horizon Shipping Company Limited
11
Petro Craft 2005-1
Crew Vessel
2015
N/A
Petro Craft 2017-1 Shipping Company Limited
12
Petro Craft 2005-2
Crew Vessel
2015
N/A
Petro Craft 2017-2 Shipping Company Limited
13
Petro Craft 1605-1
Crew Vessel
2012
N/A
Petro Craft 2017-3 Shipping Company Limited
14
Petro Craft 1605-2
Crew Vessel
2012
N/A
Petro Craft 2017-4 Shipping Company Limited
15
Petro Craft 1605-3
Crew Vessel
2012
N/A
Petro Craft 2017-5 Shipping Company Limited
16
Petro Craft 1605-5
Crew Vessel
2013
N/A
Petro Craft 2017-7 Shipping Company Limited
17
Petro Craft 1605-6
Crew Vessel
2013
N/A
Petro Craft 2017-8 Shipping Company Limited
18
Petro Craft 1905-1
Crew Vessel
2019
N/A
Petro Combi 6030-01 Shipping Company Limited
19
Petro Craft 1905-2
Crew Vessel
2019
N/A
Petro Combi 6030-02 Shipping Company Limited
20
Petro Craft 1905-3
Crew Vessel
2019
N/A
Petro Combi 6030-03 Shipping Company Limited
21
Petro Craft 1905-4
Crew Vessel
2019
N/A
Petro Combi 6030-04 Shipping Company Limited




SCHEDULE 7
FORM OF ACCESSION AGREEMENT
To:    DNB Bank ASA as Agent
From:    [Subsidiary/Affiliate] and Hermitage Offshore Services Ltd. as Borrower
Dated:    
Hermitage Offshore Services Ltd. –USD 132,905,132] Term Facility Agreement dated 14 January 2020 (the "Agreement")
4.
We refer to the Agreement. This is an Accession Agreement. Terms defined in the Agreement have the same meaning in this Accession Agreement unless given a different meaning in this Accession Agreement.
5.
[Subsidiary/Affiliate] agrees to become an Additional Guarantor and to be bound by the terms of the Agreement as an Additional Guarantor pursuant to Clause 26.2 (Additional Guarantors) of the Agreement. [Subsidiary/Affiliate] is a company duly incorporated under the laws of [name of relevant jurisdiction].
6.
The Borrower confirms that no Default is continuing or would occur as a result of [Subsidiary/Affiliate] becoming an Guarantor.
7.
[Subsidiary/Affiliate's] administrative details are as follows:
Address:    
E-mail address:    
Attention:    
8.
This Accession Agreement is governed by Norwegian law.
9.
The courts of Norway have exclusive jurisdiction to settle any dispute arising out of or in connection with this Accession Agreement and the parties therefore irrevocably submit to the exclusive jurisdiction of the Oslo district court (Oslo tingrett).

Hermitage Offshore Services Ltd.
…………………………………........………
authorised signatory
[Subsidiary/Affiliate]
…………………………………........………
authorised signatory
DNB Bank ASA
…………………………………........………
authorised signatory




SIGNATURES

THE BORROWER
Hermitage Offshore Services Ltd.
By: /s/ Eleni Elpis Nassopoulou
Name: Eleni Elpis Nassopoulou
Title: Attorney-in-Fact
 

THE ORIGINAL GUARANTORS
Petro Craft 2017-1 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Craft 2017-2 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Craft 2017-3 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Craft 2017-4 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 



Petro Craft 2017-5 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Craft 2017-7 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Craft 2017-8 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Combi 6030-01 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Combi 6030-02 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Petro Combi 6030-03 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 



Petro Combi 6030-04 Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Blue Power Limited
By: /s/ Eleni Elpis Nassopoulou
Name: Eleni Elpis Nassopoulou
Title: Attorney-in-Fact
 

NAO Norway AS
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 


Delta PSV Norway AS
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Delta Cistern V Limited
By: /s/ Eleni Elpis Nassopoulou
Name: Eleni Elpis Nassopoulou
Title: Attorney-in-Fact
 

Sierra Cistern V Limited
By: /s/ Eleni Elpis Nassopoulou
Name: Eleni Elpis Nassopoulou
Title: Attorney-in-Fact
 



CB Holdco Limited
By: /s/ Eleni Elpis Nassopoulou
Name: Eleni Elpis Nassopoulou
Title: Attorney-in-Fact
 

Hermit Fighter Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Prosper Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Power Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Thunder Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Guardian Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 



Hermit Protector Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Viking Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Storm Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Galaxy Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 

Hermit Horizon Shipping Company Limited
By: /s/ Micha Withoft
Name: Micha Withoft
Title: Attorney-in-Fact
 




THE ARRANGERS
DNB Bank ASA
By: /s/ James Elvik-Bull
Name: James Elvik-Bull
Title: Attorney In Fact
 

Skandinaviska Enskilda Banken AB (Publ)
By: /s/ James Elvik-Bull
Name: James Elvik-Bull
Title: Attorney In Fact
 

THE AGENT
DNB Bank ASA
By: /s/ James Elvik-Bull
Name: James Elvik-Bull
Title: Attorney In Fact
 

THE ORIGINAL LENDERS
DNB Bank ASA
By: /s/ James Elvik-Bull
Name: James Elvik-Bull
Title: Attorney In Fact
 

Skandinaviska Enskilda Banken AB (Publ)
By: /s/ James Elvik-Bull
Name: James Elvik-Bull
Title: Attorney In Fact
 


Exhibit


Exhibit 8.1

The following is a list of the Company's significant subsidiaries as of April 30, 2020:

Company
Incorporated in
Ownership Percentage
Blue Power Limited*
Bermuda
100%
Delta Cistern V Limited*
Bermuda
100%
Sierra Cistern V Limited*
Bermuda
100%
CB Holdco Limited*
Bermuda
100%
AHTS Holdco Limited*
Bermuda
100%
Delta PSV Norway AS
Norway
100%
NAO Norway AS
Norway
100%

* Holding company for vessel-owning subsidiary.


Exhibit


Exhibit 12.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

I, Emanuele Lauro, certify that:
1. I have reviewed this annual report on Form 20-F of Hermitage Offshore Services Ltd. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 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
5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: April 30, 2020
/s/ Emanuele Lauro                
Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)




Exhibit


Exhibit 12.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

I, Christopher Avella, certify that:
1. I have reviewed this annual report on Form 20-F of Hermitage Offshore Services Ltd. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 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
5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: April 30, 2020
/s/ Christopher Avella                
Christopher Avella
Chief Financial Officer (Principal Financial Officer)






Exhibit


Exhibit 13.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Annual Report of Hermitage Offshore Services Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Emanuele Lauro, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: April 30, 2020

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




Exhibit


Exhibit 13.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Annual Report of Hermitage Offshore Services Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Christopher Avella, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: April 30, 2020

/s/ Christopher Avella                
Christopher Avella
Chief Financial Officer (Principal Financial Officer)






v3.20.1
SUBSEQUENT EVENTS (Details)
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Mar. 04, 2020
USD ($)
$ / shares
shares
Mar. 31, 2020
USD ($)
$ / shares
shares
Jan. 31, 2020
USD ($)
Apr. 08, 2019
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Subsequent Event [Line Items]              
Aggregate net proceeds       $ 0 $ 20,000,000 $ 0 $ 0
Subsequent Event              
Subsequent Event [Line Items]              
Additional equity raised as precedent to refinance loan facility     $ 15,000,000        
Subsequent Event | New Equity Line of Credit | SSH | Common Stock Purchase Agreement              
Subsequent Event [Line Items]              
Equity line of credit     $ 15,000,000        
Common shares multiplier     0.94        
Trailing period considered for equity line of credit     5 days        
Issuance of common shares under equity line of credit (shares) | shares 5,668,317 5,668,317          
Common stock price (in dollars per share) | $ / shares $ 0.88210 $ 0.88          
Aggregate net proceeds $ 5,000,000 $ 5,000,000          
Subsequent Event | Loan Facility | New Term Loan Facility              
Subsequent Event [Line Items]              
Principal balance     $ 132,900,000.0        
v3.20.1
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]        
Charter revenue $ 5,258 $ 36,555 $ 20,654 $ 17,895
Vessel operating expenses (6,612) (27,230) (25,173) (20,454)
Voyage expenses (395) (1,124) (2,215) (1,815)
General and administrative costs (1,207) (4,534) (4,757) (4,222)
Depreciation (2,205) (8,452) (17,298) (17,472)
Impairment loss on vessels 0 0 (160,080) 0
Net operating loss (5,161) (4,785) (188,869) (26,068)
Interest income 21 39 207 298
Interest expense (2,555) (6,571) (8,031) (4,880)
Other financial expenses, net 32 (136) (601) 327
Net finance expenses (2,502) (6,668) (8,425) (4,255)
Loss before income taxes (7,663) (11,453) (197,294) (30,323)
Income tax benefit 0 0 0 997
Net loss and comprehensive loss $ (7,663) $ (11,453) $ (197,294) $ (29,326)
Basic and diluted loss per share (in dollars per share) $ (1.04) $ (0.56) $ (31.50) $ (5.33)
Basic and diluted average number of common shares outstanding (shares) 7,374,069 20,481,174 6,263,094 5,499,561
v3.20.1
NATURE OF BUSINESS
 12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF BUSINESS
NATURE OF BUSINESS
Hermitage Offshore Services Ltd. and its subsidiaries, formerly "Nordic American Offshore Ltd." (together "we", "our", "us", or the "Company"), is an offshore support vessel ("OSV") company organized under the laws of Bermuda that owns 23 vessels consisting of ten platform supply vessels ("PSVs"), two anchor handling tug supply vessels (the "AHTS vessels"), and 11 crew boats. The Company’s vessels primarily operate in the North Sea and in West Africa.
On December 12, 2018, the Company entered into a share purchase agreement with Scorpio Offshore Investments Inc. ("SOI"), a related party, pursuant to which SOI invested $5.0 million in a private placement of the Company’s common shares at a price of $4.20 per share (the "Private Placement").  As part of the Private Placement, Mr. Emanuele Lauro was appointed Chairman and Chief Executive Officer of the Company. In addition, Mr. Robert Bugbee was appointed to the Company’s Board of Directors and to the office of President, Mr. Cameron Mackey was appointed Chief Operating Officer, and Mr. Filippo Lauro was appointed Vice President. Mr. Mackey was subsequently also appointed to the Company's Board of Directors. Concurrent with the Private Placement, the Company's former Chairman, Mr. Herbjørn Hansson, resigned from all of his positions at the Company.
On June 4, 2019, the Company changed its name to "Hermitage Offshore Services Ltd." and began trading on the New York Stock Exchange (the "NYSE") under its new name and changed its ticker symbol from "NAO" to "PSV" at the start of trading on June 7, 2019. We maintain our principal executive offices at the LOM Building, 27 Reid Street, Hamilton HM 11 Bermuda.
Reverse Asset Acquisition and Change in Basis of Accounting
In April 2019, the Company acquired 13 vessels consisting of two AHTS vessels and 11 crew boats from Scorpio Offshore Holding Inc. ("SOHI"), a related party, in exchange for 8,126,219 common shares of the Company. As part of this acquisition, the Company assumed the aggregate outstanding indebtedness of $9.0 million under the DVB Credit Facility (defined below in Note 7) relating to the two AHTS vessels. The assets acquired in this transaction are collectively referred to as the "SOHI Assets", and the transactions to acquire the SOHI Assets and the assumption of the related indebtedness, are referred to as the "Transaction".
As a result of the Transaction, SOHI and its affiliated entities, which are part of the Scorpio group of companies (collectively referred to as "Scorpio"), obtained a controlling voting interest in the Company.  Accordingly, under the relevant accounting guidance, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition.  Moreover, the Company determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination. 
Under the applicable accounting guidance, a reverse asset acquisition results in a change in the basis of accounting on the Transaction date. As a result, the financial information presented following the Transaction is not directly comparable to historical periods.
Since it has been determined that the Transaction constitutes a reverse acquisition of assets, the historical financial information prior to the date of the Transaction presented herein (and in future reports and filings) will continue to reflect the results and position of the Company prior to the Transaction rather than that of the SOHI Assets as would be required in a business combination. The Company believes that the historical financial information of the Company prior to the Transaction is more relevant to investors than the historical financial information of the SOHI Assets due to the relative carrying value of the Company's ten PSVs compared to the SOHI Assets and that the value and operating results of the PSVs are expected to be the ultimate driver of the Company's business in future periods. The results from the operations and cash flows of the SOHI Assets are included only in the Company's financial information from the Transaction date.
Accordingly, the Company's pre-Transaction financial information is presented for the period January 1, 2019 to April 8, 2019 (Predecessor), and for each of the years ended December 31, 2018 and 2017 (Predecessor). The Company’s post-Transaction financial information is presented for the period from April 9, 2019 to December 31, 2019 (Successor).
This Transaction is further described in Note 3.
Reverse Stock Split
On January 28, 2019, the Company effected a one-for-ten reverse stock split. All share and per share information for all periods has been retroactively adjusted to reflect the reverse stock split. The par value was adjusted from $0.01 per share to $0.10 per share as a result of the reverse stock split. The par value was subsequently reduced to $0.01 per share with effect from June 5, 2019 through a reduction in the issued and paid-up share capital of the Company, as described in Note 8.
v3.20.1
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES - Carrying Value and Estimated Fair Value (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Level 1 | Recurring | Fair Value    
Financial Assets and Liabilities Fair Value Disclosure [Abstract]    
Cash and cash equivalents $ 12,681 $ 8,446
Accounts receivable 8,381 2,602
Accounts payable 4,192 843
Accounts payable, related party 916 492
Other current liabilities 2,768 3,147
Level 1 | Recurring | Carrying Value    
Financial Assets and Liabilities Fair Value Disclosure [Abstract]    
Cash and cash equivalents 12,681 8,446
Accounts receivable 8,381 2,602
Accounts payable 4,192 843
Accounts payable, related party 916 492
Other current liabilities 2,768 3,147
Level 2 | Recurring | Fair Value    
Financial Assets and Liabilities Fair Value Disclosure [Abstract]    
Initial Credit Facility (132,905) (132,905)
DVB Credit Facility (9,000) 0
Level 2 | Recurring | Carrying Value    
Financial Assets and Liabilities Fair Value Disclosure [Abstract]    
Initial Credit Facility (132,905) (132,905)
DVB Credit Facility (9,000) 0
Level 2 | Nonrecurring | Fair Value    
Financial Assets and Liabilities Fair Value Disclosure [Abstract]    
Vessels 0 176,914
Level 2 | Nonrecurring | Carrying Value    
Financial Assets and Liabilities Fair Value Disclosure [Abstract]    
Vessels $ 0 $ 176,914
v3.20.1
RELATED PARTY TRANSACTIONS - Narrative (Details)
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Mar. 04, 2020
USD ($)
$ / shares
shares
Jun. 19, 2019
USD ($)
vessel
May 01, 2019
Mar. 31, 2020
USD ($)
$ / shares
shares
Jan. 31, 2020
USD ($)
Apr. 30, 2019
USD ($)
vessel
$ / shares
shares
Mar. 31, 2019
USD ($)
Apr. 08, 2019
USD ($)
vessel
Dec. 31, 2019
USD ($)
vessel
Dec. 31, 2018
USD ($)
vessel
Dec. 31, 2017
USD ($)
vessel
Related Party Transaction [Line Items]                      
Aggregate net proceeds               $ 0 $ 20,000,000 $ 0 $ 0
Number of PSVs | vessel   10           10 10 10 10
SOHI Transaction                      
Related Party Transaction [Line Items]                      
Total number of vessels acquired | vessel           13          
Number of AHTS vessels acquired | vessel           2          
Number of crew boats acquired | vessel           11          
Shares issued in asset acquisition (in shares) | shares           8,126,219          
NAT | Management Agreement                      
Related Party Transaction [Line Items]                      
Notice period for expiration of management agreement     180 days                
SOHI | SOHI Transaction                      
Related Party Transaction [Line Items]                      
Total number of vessels acquired | vessel           13          
Number of AHTS vessels acquired | vessel           2          
Number of crew boats acquired | vessel           11          
Shares issued in asset acquisition (in shares) | shares           8,126,219          
Shares issued price per share (in dollars per share) | $ / shares           $ 2.78          
Aggregate net consideration           $ 22,600,000          
SOI | Initial Equity Line of Credit                      
Related Party Transaction [Line Items]                      
Equity line of credit             $ 20,000,000        
Common shares multiplier             0.94        
Trailing period considered for equity line of credit             30 days        
SSH | Common Stock Purchase Agreement | New Equity Line of Credit | Subsequent Event                      
Related Party Transaction [Line Items]                      
Equity line of credit         $ 15,000,000            
Common shares multiplier         0.94            
Trailing period considered for equity line of credit         5 days            
Issuance of common shares under equity line of credit (shares) | shares 5,668,317     5,668,317              
Common stock price (in dollars per share) | $ / shares $ 0.88210     $ 0.88              
Aggregate net proceeds $ 5,000,000     $ 5,000,000              
SSH | Administrative Services Agreement                      
Related Party Transaction [Line Items]                      
Annual fee per vessel   $ 10,000                  
Notice period for termination of agreement   180 days                  
SCM and SSM | Master Agreement                      
Related Party Transaction [Line Items]                      
Notice period for termination of agreement                 24 months    
Notice period for sale of one or more vessels                 3 months    
Management fees period for sale of one or more vessels                 3 months    
Management fees period for sale of all or substantially all vessels                 24 months    
SCM | Master Agreement                      
Related Party Transaction [Line Items]                      
Percentage of gross revenues paid as management fee                 1.25%    
SSM | Master Agreement | AHTS vessels                      
Related Party Transaction [Line Items]                      
Annual fee per vessel                 $ 156,000    
SSM | Master Agreement | Crew boats                      
Related Party Transaction [Line Items]                      
Annual fee per vessel                 $ 43,800    
v3.20.1
CASH AND CASH EQUIVALENTS (Details) - USD ($)
 9 Months Ended 12 Months Ended
Dec. 31, 2019
Dec. 31, 2019
Dec. 31, 2018
Cash and Cash Equivalents      
Cash and cash equivalents $ 11,727,000 $ 11,727,000 $ 8,432,000
Cash and cash equivalents in DVB accounts (1) 927,000 927,000 0
Cash on vessels 27,000 27,000 14,000
Total cash and cash equivalents 12,681,000 12,681,000 $ 8,446,000
DVB Credit Facility      
Credit Facility      
Aggregate minimum liquidity requirement on pledged bank accounts 750,000 750,000  
Drydock reserve account, excess funding limit $ 3,600,000 $ 3,600,000  
Term for excess earnings to be used to repay credit facility 36 months 36 months  
Time from initial drawdown to begin consecutive quarterly installment payments 39 months 39 months  
Required quarterly installment payments per facility $ 200,000 $ 200,000  
v3.20.1
DEBT - Initial Credit Facility and New Term Loan Facility (Details)
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended 23 Months Ended 24 Months Ended
Apr. 30, 2018
Apr. 29, 2018
Jan. 31, 2020
USD ($)
vessel
Apr. 30, 2019
USD ($)
Dec. 31, 2018
USD ($)
$ / shares
Sep. 30, 2018
USD ($)
Apr. 08, 2019
USD ($)
Dec. 31, 2019
USD ($)
Dec. 06, 2023
Dec. 07, 2022
Dec. 31, 2018
USD ($)
$ / shares
Dec. 31, 2017
USD ($)
Dec. 06, 2023
Dec. 07, 2021
Dec. 06, 2023
USD ($)
Dec. 31, 2021
Dec. 12, 2018
$ / shares
Dec. 31, 2016
covenant
Mar. 31, 2015
USD ($)
Dec. 19, 2013
USD ($)
Debt Instrument [Line Items]                                        
Repayment of credit facility             $ 0 $ 0     $ 4,095,000 $ 0                
Initial Credit Facility                                        
Debt Instrument [Line Items]                                        
Condition precedent to raise additional equity, value       $ 15,000,000                                
Commitments from lenders to fund new term loan facility upon satisfaction of conditions precedent       $ 132,900,000                                
Initial Credit Facility | Revolving Credit Facility                                        
Debt Instrument [Line Items]                                        
Borrowing capacity                                     $ 150,000,000 $ 60,000,000
Financial covenants breached | covenant                                   3    
Repayment of credit facility         $ 1,900,000 $ 1,575,000                            
Security coverage ratio, minimum aggregate fair market value of vessels securing loan as percent of outstanding loan           150.00%                            
Credit facility outstanding         132,900,000     $ 132,900,000     $ 132,900,000                  
Initial Credit Facility | Revolving Credit Facility | LIBOR                                        
Debt Instrument [Line Items]                                        
Basis spread on variable rate (percent) 4.00% 2.00%                                    
Subsequent Event                                        
Debt Instrument [Line Items]                                        
Additional equity raised as precedent to refinance loan facility     $ 15,000,000                                  
Subsequent Event | New Term Loan Facility                                        
Debt Instrument [Line Items]                                        
Number of PSVs to collateralize loan | vessel     10                                  
Number of crew boats to collateralize loan | vessel     11                                  
Financial covenant, minimum cash and cash equivalents per vessel     $ 500,000                                  
Financial covenant, AHTS vessels excluded from minimum cash per vessel requirement | vessel     2                                  
Financial covenant, crew boats excluded from minimum cash per vessel requirement | vessel     11                                  
Financial covenant, minimum liquidity     $ 5,000,000                                  
Dividend restriction period (in months)     24 months                                  
Subsequent Event | New Term Loan Facility | Loan Facility                                        
Debt Instrument [Line Items]                                        
Principal balance     $ 132,900,000.0                                  
Forecast | New Term Loan Facility                                        
Debt Instrument [Line Items]                                        
Security coverage ratio, minimum aggregate fair market value of vessels securing loan as percent of outstanding loan                 130.00% 125.00%       115.00%            
Maximum net debt to total capitalization ratio                         0.65     0.70        
Forecast | New Term Loan Facility | Loan Facility                                        
Debt Instrument [Line Items]                                        
Frequency of payments                             semi-annual          
Periodic payments due                             $ 7,500,000          
Forecast | New Term Loan Facility | Loan Facility | LIBOR                                        
Debt Instrument [Line Items]                                        
Basis spread on variable rate (percent)                 5.50% 4.50%       3.50%            
Private Placement                                        
Debt Instrument [Line Items]                                        
Proceeds from issuance of private placement         $ 4,900,000                              
Share price (in dollars per share) | $ / shares         $ 4.20           $ 4.20                  
Private Placement | SOI                                        
Debt Instrument [Line Items]                                        
Proceeds from issuance of private placement         $ 5,000,000                              
Share price (in dollars per share) | $ / shares         $ 4.20           $ 4.20           $ 4.20      
v3.20.1
REVERSE ASSET ACQUISITION (Tables)
 12 Months Ended
Dec. 31, 2019
Asset Acquisition [Abstract]  
Schedule of Purchase Price Allocation of Identifiable Assets Acquired and Liabilities Assumed
The purchase price allocation of the identifiable assets acquired and liabilities assumed is set forth below:
In thousands of U.S. dollars

Cash and cash equivalents
$
1,657

Accounts receivable
3,212

Prepaid expenses
1,198

Fuel, lube oil, and consumables
981

Other current assets
1,098

Vessels, net (1)
154,744

Accounts payable
(1,836
)
Other current liabilities (2)
(4,151
)
Debt
(132,905
)
Other long-term liabilities (2)
(190
)
Net assets acquired and liabilities assumed
$
23,808

(1)     Vessels, net - The difference between the Transaction price and the fair value of the net assets acquired, excluding vessels, was allocated to vessels which were the Company's only long-lived assets. This amount was allocated to the ten individual PSVs on a relative fair value basis (primarily by the age of each vessel). This resulted in a reduction of $20.7 million when comparing the aggregate carrying value of these vessels prior to and subsequent to the Transaction date. Additionally, a component of the cost of each vessel is related to drydock and engine overhaul costs which was estimated based on recent costs, adjusted for each individual vessel based on the estimated period until the next drydock or engine overhaul and are being depreciated on a straight-line basis over that period.
(2)     Other current and other long-term liabilities (unfavorable contracts) - Other current liabilities and other long-term liabilities include liabilities of $1.4 million and $0.1 million respectively, as a result of an analysis of term contracts for PSVs at rates below market value at the Transaction date. The resulting liabilities are recorded as an adjustment to revenues from the Transaction date until the end of the related term contracts, the last of which ends in December 2020.
v3.20.1
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES
We categorize our fair value estimates using a fair value hierarchy based on the inputs used to measure fair value for those assets and liabilities that are recorded on the balance sheet as fair value. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:
Level 1.
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2.
Inputs, other than the quoted prices in active markets that are observable either directly or indirectly; and
Level 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments and other assets accounted for under fair value.
-
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accounts payable, related party, and other current liabilities are reasonable estimates of fair value.
-
The estimated fair value for the long-term debt is considered to be equal to the carrying values since it reflects both a recently revised margin and variable interest rates which approximate market rates.
The carrying value and estimated fair value of the Company’s financial instruments and other assets accounted for under fair value at December 31, 2019 (Successor) and 2018 (Predecessor) are as follows:
 
 
 
Successor
 
Predecessor
In thousands of U.S. dollars
Fair Value Hierarchy Level

2019 Fair Value

2019 Carrying Value

2018 Fair Value

2018 Carrying Value
Recurring









Cash and cash equivalents
1

$
12,681


$
12,681


$
8,446


$
8,446

Accounts receivable
1

8,381


8,381


2,602


2,602

Accounts payable
1

4,192


4,192


843


843

Accounts payable, related party
1

916


916


492


492

Other current liabilities
1

2,768


2,768


3,147


3,147

Initial Credit Facility
2

(132,905
)

(132,905
)

(132,905
)

(132,905
)
DVB Credit Facility
2

(9,000
)

(9,000
)

—


—















Non-recurring













Vessels
2

—


—


176,914


176,914


The estimated fair values for the Initial Credit Facility and DVB Credit Facility are considered to approximate their carrying values because the interest rates on these instruments change with, or approximate, market interest rates and the interest margins under each loan approximate market rates.
Foreign Currency and Interest Rate Risk
Certain of our contracts with customers for our PSVs are denominated in the British Pound, the Norwegian Kroner, and, to a lesser extent, the Euro. Additionally, certain of the Company's vessel operating costs are denominated in these currencies as well. Transactions in foreign currencies during the year are translated into U.S. dollars at the rates of exchange in effect at the date of the transactions. We do not have any contracts denominated in a foreign currency that extend for greater than one year from December 31, 2019. We recorded the following exchange gain or losses during the historical periods presented:

Successor

 
Predecessor

For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Exchange gain/(loss)
56


 
(164
)

(626
)

327


Additionally, we are exposed to the impact of interest rate changes primarily through our variable-rate borrowings, which consist of borrowings under our New Term Loan Facility and DVB Credit Facility (both of which are described in Note 7).
•
The New Term Loan Facility (which was executed in January 2020 and was utilized to refinance the Initial Credit Facility (also defined in Note 7)) has a principal balance of $132.9 million, is expected to be repaid in equal semi-annual installments of $7.5 million beginning in December 2021 with a balloon payment due upon maturity in December 2023, and bears interest at LIBOR plus a margin of 4.50% from December 2021 through December 2022 and LIBOR plus a margin of 5.5% from December 2022 through the maturity date of December 2023.
•
The DVB Credit Facility has a principal balance of $9.0 million, is expected to be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022, and bears interest at LIBOR plus a margin of 2.75%.
Significant increases in interest rates could adversely affect our net income and our ability to service our debt.
While there are no derivatives in place as of the date of these financial statements, nor were any in place for any of the historical periods presented, we may in the future use derivatives to partially offset our exposure to foreign currency and interest rate risk on expected future cash flows and certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations or the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
v3.20.1
INTEREST COSTS (Tables)
 12 Months Ended
Dec. 31, 2019
Interest Expense [Abstract]  
Schedule of Interest Costs
Interest costs consist of interest incurred on the long-term debt, the commitment fee and amortization of the deferred financing cost related to the Initial Credit Facility and the DVB Credit Facility described in Note 7.
 
Successor
 
 
Predecessor
 
For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Interest costs
$
6,571


 
$
2,445

 
$
7,574


$
4,428

Amortization of deferred financing costs
0


 
90

 
359


359

Commitment fee
0


 
20

 
98


93

Total interest costs
$
6,571


 
$
2,555

 
$
8,031


$
4,880
v3.20.1
NATURE OF BUSINESS (Details)
$ / shares in Units, $ in Thousands
 1 Months Ended 12 Months Ended
Jan. 28, 2019
$ / shares
Dec. 12, 2018
USD ($)
$ / shares
Apr. 30, 2019
USD ($)
vessel
shares
Dec. 31, 2017
USD ($)
vessel
Dec. 31, 2019
vessel
$ / shares
Jun. 19, 2019
vessel
Jun. 05, 2019
$ / shares
Jun. 04, 2019
$ / shares
Apr. 08, 2019
vessel
Jan. 27, 2019
$ / shares
Dec. 31, 2018
vessel
$ / shares
Dec. 11, 2018
$ / shares
Organization, Consolidation and Presentation of Financial Statements [Abstract]                        
Number of vessels under operations         23           10  
Number of PSVs       10 10 10     10   10  
Number of AHTS vessels         2              
Number of crew boats         11              
Nature of Business [Line Items]                        
Common stock issued value | $       $ 48,336                
Reverse stock split conversion ratio 0.1                      
Common shares, par value (in dollars per share) | $ / shares $ 0.10       $ 0.01   $ 0.01 $ 0.10   $ 0.01 $ 0.10 $ 0.10
SOHI Transaction                        
SOHI Transaction                        
Total number of vessels acquired     13                  
Number of AHTS vessels acquired     2                  
Number of crew boats acquired     11                  
Shares issued in asset acquisition (in shares) | shares     8,126,219                  
Debt assumed | $     $ 9,000                  
Private Placement                        
Nature of Business [Line Items]                        
Share price (in dollars per share) | $ / shares                     4.20  
Private Placement | SOI                        
Nature of Business [Line Items]                        
Common stock issued value | $   $ 5,000                    
Share price (in dollars per share) | $ / shares   $ 4.20                 $ 4.20  
v3.20.1
INTEREST COSTS
 12 Months Ended
Dec. 31, 2019
Interest Expense [Abstract]  
INTEREST COSTS
INTEREST COSTS
Interest costs consist of interest incurred on the long-term debt, the commitment fee and amortization of the deferred financing cost related to the Initial Credit Facility and the DVB Credit Facility described in Note 7.
 
Successor
 
 
Predecessor
 
For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Interest costs
$
6,571


 
$
2,445

 
$
7,574


$
4,428

Amortization of deferred financing costs
0


 
90

 
359


359

Commitment fee
0


 
20

 
98


93

Total interest costs
$
6,571


 
$
2,555

 
$
8,031


$
4,880
v3.20.1
DEBT
 12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
DEBT
DEBT
Initial Credit Facility
On December 19, 2013, we entered into a $60.0 million revolving credit facility (the “Initial Credit Facility”) with DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ). In March 2015, we expanded the availability under our Initial Credit Facility from $60.0 million to $150.0 million to partially finance the purchase of certain of the PSVs in our fleet.
As of December 31, 2016, as a result of a significant deterioration in market conditions, we were in breach of three of the financial covenants under this facility, (i) the minimum value adjusted amount of equity, (ii) the minimum value adjusted equity ratio clause and (iii) a minimum level of liquidity. In 2017 a waiver was obtained from the lenders lowering (i) the minimum value of equity and (ii) the minimum value adjusted equity ratio covenant requirements to levels at which the Company was in compliance, and suspending (iii) the minimum level of liquidity covenant. These waivers were effective until April 30, 2018. On April 30, 2018 we executed an amendment to the Initial Credit Facility that extended the waiver period until December 31, 2019. Under the terms of the waiver, we were unable to draw further on the Initial Credit Facility until we complied with the original terms and conditions set forth thereunder, and the interest rate increased from LIBOR plus a margin of 2.0% to LIBOR plus a margin of 4.0%.
In September 2018, we made an unscheduled payment of $1.575 million on our Initial Credit Facility to regain compliance with the security coverage ratio (requiring that the aggregate fair market value of the vessels securing the loan does not fall below 150% of the outstanding loan) set forth thereunder.  At the end of September 2018, vessel values were remeasured and, given a further deterioration in such values, we were again in non-compliance of the security coverage ratio at September 30, 2018.
In December 2018, we executed the Private Placement with SOI whereby SOI invested $5 million in a private placement of the Company’s shares at a price of $4.20 per share. Effective upon closing of the Private Placement, $1.9 million of the proceeds were immediately used to repay a portion of the loan and regain compliance with the security coverage ratio. Additional temporary waivers were granted under the Initial Credit Facility as a result of the Private Placement and corresponding debt repayment. As of December 31, 2018, we were in compliance with the modified terms under the Initial Credit Facility and the loan was not considered callable.
In April 2019, the lenders under the Initial Credit Facility agreed to extend the waivers of certain financial covenants with which the Company was not in compliance, until January 31, 2020, as part of a broader set of agreements to recapitalize the Company.  This agreement included a commitment by the lenders under the Initial Credit Facility to refinance the Initial Credit Facility with a new $132.9 million term loan facility with a maturity of December 6, 2023 (the "New Term Loan Facility"), subject to certain conditions precedent, the most significant of which was the requirement to raise an additional $15 million of equity before January 31, 2020. In December 2019, the lenders under the Initial Credit Facility agreed that we had satisfied these conditions precedent with the New Equity Line of Credit (as defined in Note 8). The New Term Loan Facility was executed in January 2020 and is described below.
Under our Initial Credit Facility $132.9 million was outstanding at each of December 31, 2019 (Successor) and 2018 (Predecessor). We were in compliance with the covenants set forth under the waivers of the Initial Credit Facility at December 31, 2019. Additionally, the amount outstanding at December 31, 2019 was classified as non-current on consolidated balance sheet on the basis of the agreement and subsequent execution of the new term loan facility as described below.
New $132.9 Million Term Loan Facility
As described above, in December 2019, the lenders under the Initial Credit Facility agreed that the New Equity Line of Credit (as defined in Note 8) satisfied the condition precedent that the Company raise $15 million of additional equity in order to refinance the Initial Credit Facility with the $132.9 million New Term Loan Facility. In January 2020, the Company closed on the refinancing of the Initial Credit Facility with the New Term Loan Facility. The New Term Loan facility is collateralized by our ten PSVs and 11 crew boats, bears interest at LIBOR plus a margin 3.50% through December 2021, LIBOR plus a margin of 4.50% from December 2021 through December 2022 and LIBOR plus a margin of 5.5% from December 2022 through the maturity date of December 2023 (the margin in all periods can be reduced if the Company meets certain Net Debt to EBITDA thresholds). The New Term Loan Facility is repayable in equal, semi-annual installments of $7.5 million beginning in December 2021 with a balloon payment due upon the maturity date of December 6, 2023.  
The New Term Loan Facility is secured by:
•
a first priority mortgage over the relevant collateralized vessels under this facility;
•
a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility;
•
a pledge of earnings generated by the mortgaged vessels for the specific facility; and
•
a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
The New Term Loan Facility contains financial and restrictive covenants, as summarized below:
•
Cash and cash equivalents shall at all times be equal to or greater than $500,000 per vessel above 2,500 DWT. The Company’s two AHTS vessels and 11 crew boats are excluded from this definition. Accordingly, the minimum liquidity under the New Term Loan Facility is $5 million based on the Company's fleet as of December 31, 2019;
•
The ratio of net debt (defined as total debt less cash) to total capitalization (defined below) shall be no greater than 0.70 to 1.00 from the date that the New Term Loan Facility is executed through December 31, 2020 and 0.65 to 1.00 thereafter through the maturity date of December 6, 2023. Undrawn amounts available under the New Equity Line of Credit are included as part of the definition of total capitalization (defined as net debt plus equity plus amounts available under the New Equity Line of Credit);
•
Current assets shall at all times exceed current liabilities less the current portion of the long term liabilities;
•
The aggregate fair market value of the vessels collateralized under the New Term Loan Facility shall at all times be at least 115% of the aggregate outstanding principal amount until December 7, 2021, 125% of the aggregate outstanding principal amount until December 7, 2022, and 130% at all times thereafter; and
•
The Company is restricted from paying dividends for 24 months following the date of the execution of the New Term Loan Facility.
The New Term Loan Facility also contains customary events of default, including cross default provisions and a subjective acceleration clause under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
DVB Credit Facility and Supplemental Agreement
As part of the Transaction, we assumed the aggregate outstanding indebtedness of $9.0 million under a term loan facility with DVB Bank SE, Nordic Branch ("DVB") relating to the AHTS vessels (the "DVB Credit Facility"). The DVB Credit Facility was supplemented on April 10, 2019 as part of the Transaction.
The borrowers under the DVB Credit Facility are the respective vessel owning entities of the AHTS vessels. The DVB Credit Facility bears interest at LIBOR plus a margin of 2.75% and contains a financial covenant whereby the Company must maintain minimum liquidity of an aggregate of $0.75 million in the bank accounts that are pledged as security under the facility (as described in Note 4). 
For the first 36 months after the initial drawdown date (through September 2020), the terms of the DVB Credit Facility require that the Company fund any Excess Earnings (defined as each vessel's earnings less budgeted operating expenses, interest payments and the maintenance of the minimum liquidity requirement) related to such vessels, up to $3.6 million in aggregate, to a drydock reserve account, the proceeds of which are to be utilized for the vessel’s next scheduled drydock. Any Excess Earnings related to each vessel, after funding the minimum liquidity requirement and drydock reserve account, shall be utilized to repay the credit facility.  Starting 39 months after the initial drawdown date, the DVB Credit Facility shall be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022. 
This facility contains financial and restrictive covenants, which require the borrowers to, among other things, comply with certain financial tests (as described above).  This facility is secured by, among other things:
•
a first preferred mortgage over the two AHTS vessels which are collateralized under this facility;
•
an assignment of earnings, insurances and charters from the two mortgaged AHTS vessels;
•
a pledge of the related earnings accounts and drydock reserve accounts of the borrowers in respect of the two mortgaged AHTS vessels; and
•
a pledge of the equity interests in each of the borrowers.
The DVB Credit Facility also contains customary events of default, including a subjective acceleration clause under which the debt could become due and payable in the event of a material adverse change in the Company’s business.
The outstanding balance under this credit facility was $9.0 million as of December 31, 2019, and we were in compliance with the financial covenants as of that date.
As of December 31, 2019, the aggregate annual principal payments required to be made under the Company's debt facilities are as follows (in thousands of U.S. dollars):

Principal repayments
2020
$
207

2021
8,309

2022
22,984

2023
110,405

2024
—

Total
141,905
v3.20.1
REVERSE ASSET ACQUISITION
 12 Months Ended
Dec. 31, 2019
Asset Acquisition [Abstract]  
REVERSE ASSET ACQUISITION
REVERSE ASSET ACQUISITION
As a result of the Transaction, Scorpio obtained a controlling voting interest in the Company.  Accordingly, Scorpio was identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition.  Moreover, the Company determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination.  The implications of this determination are as follows:
•
The SOHI Assets of Scorpio, as the accounting acquirer, were recorded at their historical carrying values. On the Transaction date, there were $1.3 million of cash and cash equivalents, $24.7 million of vessels, net, and $9.0 million of non-current debt.
•
The theoretical cost of the reverse acquisition is the fair value of the equity interests that the legal acquiree (the SOHI Assets) would theoretically have had to issue to give the Company’s shareholders the same percentage equity interest in the combined entity that results from the reverse acquisition. This theoretical cost was determined based on the price of the Company’s common shares on the date of the Transaction and was allocated to the Company's pre-Transaction assets and liabilities on a relative fair value basis.
•
This application of purchase accounting therefore resulted in several adjustments to the assets and liabilities of the Predecessor given the difference between the fair value and their carrying value on the date of the Transaction.
There were 7,373,989 common shares of the Predecessor outstanding as of the Transaction date, of which, 1,175,474 were owned by Scorpio as a result of the Private Placement. The fair values of the common shares owned by Scorpio, and of the 6,198,515 non-controlling common shares were determined separately based on the volume-weighted average price of the Company's common shares on the closing date of the Transaction of $3.23 per share. Accordingly, the fair value of the equity of the Predecessor on the Transaction date was determined to be $23.8 million.
The Transaction price was allocated to the Company's pre-Transaction identifiable assets and liabilities on a relative fair value basis as of April 8, 2019. The purchase price allocation of the identifiable assets acquired and liabilities assumed is set forth below:
In thousands of U.S. dollars

Cash and cash equivalents
$
1,657

Accounts receivable
3,212

Prepaid expenses
1,198

Fuel, lube oil, and consumables
981

Other current assets
1,098

Vessels, net (1)
154,744

Accounts payable
(1,836
)
Other current liabilities (2)
(4,151
)
Debt
(132,905
)
Other long-term liabilities (2)
(190
)
Net assets acquired and liabilities assumed
$
23,808

(1)     Vessels, net - The difference between the Transaction price and the fair value of the net assets acquired, excluding vessels, was allocated to vessels which were the Company's only long-lived assets. This amount was allocated to the ten individual PSVs on a relative fair value basis (primarily by the age of each vessel). This resulted in a reduction of $20.7 million when comparing the aggregate carrying value of these vessels prior to and subsequent to the Transaction date. Additionally, a component of the cost of each vessel is related to drydock and engine overhaul costs which was estimated based on recent costs, adjusted for each individual vessel based on the estimated period until the next drydock or engine overhaul and are being depreciated on a straight-line basis over that period.
(2)     Other current and other long-term liabilities (unfavorable contracts) - Other current liabilities and other long-term liabilities include liabilities of $1.4 million and $0.1 million respectively, as a result of an analysis of term contracts for PSVs at rates below market value at the Transaction date. The resulting liabilities are recorded as an adjustment to revenues from the Transaction date until the end of the related term contracts, the last of which ends in December 2020.
Certain adjustments were made to the carrying values of the Company's pre-Transaction identifiable assets and liabilities to reflect their fair value. The most significant are described above. Most other balances were recorded at the historical carrying values of the Predecessor, as we determined that their carrying values approximated fair value. Since this was a reverse acquisition of assets rather than a business combination, there is no resultant goodwill (or bargain purchase) as a result of the purchase price allocation. Nominal transaction costs were incurred as part of the Transaction.
v3.20.1
Label Element Value
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents $ 1,322,000
Common Stock [Member]  
Shares, Outstanding us-gaap_SharesOutstanding 0 [1]
Stockholders' Equity Attributable to Parent us-gaap_StockholdersEquity $ 0 [1]
Retained Earnings [Member]  
Stockholders' Equity Attributable to Parent us-gaap_StockholdersEquity (3,417,000) [1]
Additional Paid-in Capital [Member]  
Stockholders' Equity Attributable to Parent us-gaap_StockholdersEquity $ 23,190,000 [1]
[1] Represents the beginning balance in equity of the SOHI Assets (as defined in Note 1), the accounting acquirer in the reverse acquisition that occurred in April 2019.
v3.20.1
REVENUE AND CUSTOMER CONCENTRATIONS - Expected Term Charter Revenue (Details) - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01    
Revenue from Contract with Customer [Abstract]    
Expected charter term revenue $ 3.4 $ 3.7
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]    
Expected timing of recognition 1 year 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01    
Revenue from Contract with Customer [Abstract]    
Expected charter term revenue $ 0.2  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]    
Expected timing of recognition 1 year  
v3.20.1
SEGMENT REPORTING - Narrative (Details)
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
segment
vessel
Dec. 31, 2019
segment
vessel
Dec. 31, 2018
segment
vessel
Dec. 31, 2017
segment
vessel
Jun. 19, 2019
vessel
Segment Reporting Information [Line Items]          
Number of operating segments | segment 1 2 1 1  
Number of PSVs 10 10 10 10 10
Number of AHTS vessels   2      
Number of crew boats   11      
North Sea          
Segment Reporting Information [Line Items]          
Number of PSVs   10      
West Coast of Africa          
Segment Reporting Information [Line Items]          
Number of AHTS vessels   2      
Number of crew boats   11      
v3.20.1
REVENUE AND CUSTOMER CONCENTRATIONS (Tables)
 12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Schedule of Revenue by Vessel Type
The following table sets forth the breakout of revenue by vessel type:

Successor

 
Predecessor
In thousands of U.S. dollars except per share and share data
April 9 - December 31, 2019

 
January 1 - April 8, 2019

Year ended December 31, 2018

Year ended December 31, 2017
Charter revenues - PSVs
29,911


 
5,258


20,654


17,895

Charter revenues - AHTS vessels
3,729


 
—


—


—

Charter revenues - crew boats
2,915


 
—


—


—

Total charter revenue
36,555


 
5,258


20,654


17,895
v3.20.1
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES (Tables)
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Schedule of Carrying Value and Estimated Fair Value of Financial Instruments and Other Assets
The carrying value and estimated fair value of the Company’s financial instruments and other assets accounted for under fair value at December 31, 2019 (Successor) and 2018 (Predecessor) are as follows:
 
 
 
Successor
 
Predecessor
In thousands of U.S. dollars
Fair Value Hierarchy Level

2019 Fair Value

2019 Carrying Value

2018 Fair Value

2018 Carrying Value
Recurring









Cash and cash equivalents
1

$
12,681


$
12,681


$
8,446


$
8,446

Accounts receivable
1

8,381


8,381


2,602


2,602

Accounts payable
1

4,192


4,192


843


843

Accounts payable, related party
1

916


916


492


492

Other current liabilities
1

2,768


2,768


3,147


3,147

Initial Credit Facility
2

(132,905
)

(132,905
)

(132,905
)

(132,905
)
DVB Credit Facility
2

(9,000
)

(9,000
)

—


—















Non-recurring













Vessels
2

—


—


176,914


176,914
Schedule of Exchange Gain (Loss)
We recorded the following exchange gain or losses during the historical periods presented:

Successor

 
Predecessor

For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Exchange gain/(loss)
56


 
(164
)

(626
)

327
v3.20.1
SHAREHOLDERS' EQUITY
 12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
SHAREHOLDERS' EQUITY
SHAREHOLDERS’ EQUITY
Reverse Stock Split
On January 28, 2019, the Company effected a one-for-ten reverse stock split. Pursuant to this reverse stock split, the common shares outstanding were reduced from 73,741,595 shares to 7,373,989 shares (which reflects adjustments for fractional share settlements). The par value was adjusted to $0.10 per share as a result of the reverse stock split, which was subsequently adjusted to $0.01 with effect from June 5, 2019, as described below.
Reduction in par value
With effect from June 5, 2019, the Company reduced the issued and paid-up share capital of the Company from $1,901,512 to $190,151 by canceling the paid-up share capital of the Company to the extent of $0.09 on each of the issued shares of par value $0.10 in the share capital of the Company, so that each issued share of par value $0.10 shall have a par value of $0.01 and be treated in all respects as one fully paid-up share of par value $0.01. This reduction in par value also resulted in an increase in the number of authorized common shares from 35,000,000 to 350,000,000.
Common shares authorized and issued
On December 11, 2018 at the annual general meeting of the shareholders it was resolved to increase the Company’s authorized share capital from $2,000,000 to $4,000,000. As a result of this increase, the Company’s authorized share capital was changed to 35,000,000 common shares, par value $0.10 per share (or $3,500,000) and 50,000,000 preferred shares, par value $0.01 per share (or $500,000). As a result of the reduction in par value of the Company's common shares from $0.10 to $0.01 per share with effect from June 5, 2019, as described above, the number of authorized common shares was increased from 35,000,000 to 350,000,000.
In December 2018, we issued an aggregate of 1,175,474 common shares as part of the Private Placement at $4.20 per share, resulting in net proceeds to us of $4.9 million. 
In March 2017, the Company completed an underwritten public follow-on offering of 4,130,000 common shares for net proceeds of $48.3 million.
Equity Lines of Credit
In March 2019, the Company entered into an Initial Equity Line of Credit with SOI, a related party, and Mackenzie Financial Corporation ("Mackenzie"). SOI is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price. The issuances of common shares under the Initial Equity Line of Credit during the year ended December 31, 2019 were as follows:
•
In April 2019, 3,240,418 common shares were issued under the Initial Equity Line of Credit (split equally between SOI and Mackenzie) for approximately $2.78 per share and aggregate net proceeds of $9.0 million.
•
In June 2019, 1,421,472 common shares were issued under the Initial Equity Line of Credit (split equally between SOI and Mackenzie) for approximately $3.52 per share and aggregate net proceeds of $5.0 million.
•
In October 2019, 2,356,108 common shares were issued under the Initial Equity Line of Credit (split equally between Scorpio Services Holding Limited, a related party, ("SSH") (as SOI’s nominee) and Mackenzie) for $1.06 per share for aggregate net proceeds of $2.5 million.
•
In December 2019, 3,143,709 common shares were issued under the Initial Equity Line of Credit for aggregate net proceeds of $3.5 million. 1,492,508 common shares were issued to Mackenzie and 1,651,201 common shares were issued to SSH, a related party, (as SOI’s nominee) for $1.11 per share.
Following the December 2019 issuance, the Initial Equity Line of Credit was fully drawn, and there is no further capacity thereunder.
In January 2020, the Company entered into a new common stock purchase agreement with SSH, a related party, (the “New Equity Line of Credit”) which provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. Under the terms of the New Equity Line of Credit, the Company is precluded from issuing shares under the New Equity Line of Credit if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share. In March 2020, we issued 5,668,317 common shares to SSH for $0.88 per share under the New Equity Line of Credit for aggregate net proceeds of $5.0 million.
v3.20.1
CASH AND CASH EQUIVALENTS
 12 Months Ended
Dec. 31, 2019
Cash and Cash Equivalents [Abstract]  
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
The following table sets forth components of our cash and cash equivalents as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
Cash and cash equivalents
11,727


8,432

Cash and cash equivalents in DVB accounts (1)
927


—

Cash on vessels
27


14

Total cash and cash equivalents
12,681


8,446

(1)
We maintain bank accounts that are pledged under our DVB Credit Facility (as described in Note 7). Under the terms of the DVB Credit Facility, the earnings generated from the AHTS vessels must be deposited into these accounts. These accounts are subject to a minimum liquidity requirement of an aggregate of $750,000 and also require that the Company fund any Excess Earnings (defined as each vessel's earnings less budgeted operating expenses, interest payments and the maintenance of the minimum liquidity requirement) related to such vessels, up to $3.6 million in aggregate, to a drydock reserve account, the proceeds of which are to be utilized for the vessel’s next scheduled drydock. For the first 36 months after the initial drawdown date (through September 2020), any Excess Earnings related to each vessel, after funding the minimum liquidity requirement and drydock reserve account, shall be utilized to repay the credit facility.  Starting 39 months after the initial drawdown date, the DVB Credit Facility shall be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022.
v3.20.1
EARNINGS PER SHARE
 12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
EARNINGS PER SHARE
EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and potentially dilutive common share equivalents outstanding during the period. There were no potentially dilutive common share equivalents for any of the periods presented.
 
Successor
 
 
Predecessor
 
For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Numerator

 
 

 



Net Loss
(11,453
)
 
 
(7,663
)
 
(197,294
)

(29,326
)
Denominator


 
 


 





Basic and diluted - Weighted Average Common Shares Outstanding
20,481,174

 
 
7,374,069

 
6,263,094


5,499,561




 
 


 





Loss per Common Share


 
 


 





Basic and diluted
(0.56
)
 
 
(1.04
)
 
(31.50
)

(5.33
)
v3.20.1
REVENUE AND CUSTOMER CONCENTRATIONS - Customer Concentrations (Details) - Client Concentration Risk
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenue | Two customers          
Concentration Risk [Line Items]          
Concentration risk (percent)       25.00%  
Revenue | Three customers          
Concentration Risk [Line Items]          
Concentration risk (percent)         44.00%
Revenue | Four customers          
Concentration Risk [Line Items]          
Concentration risk (percent) 63.00%        
Revenue | Customer one          
Concentration Risk [Line Items]          
Concentration risk (percent) 20.00% 13.00%   13.00% 21.00%
Revenue | Customer two          
Concentration Risk [Line Items]          
Concentration risk (percent) 18.00%     12.00% 13.00%
Revenue | Customer three          
Concentration Risk [Line Items]          
Concentration risk (percent) 13.00%       10.00%
Revenue | Customer four          
Concentration Risk [Line Items]          
Concentration risk (percent) 12.00%        
Accounts Receivable | Three customers          
Concentration Risk [Line Items]          
Concentration risk (percent)     44.00% 76.00%  
Accounts Receivable | Customer one          
Concentration Risk [Line Items]          
Concentration risk (percent)     16.00% 32.00%  
Accounts Receivable | Customer two          
Concentration Risk [Line Items]          
Concentration risk (percent)     14.00% 30.00%  
Accounts Receivable | Customer three          
Concentration Risk [Line Items]          
Concentration risk (percent)     14.00% 14.00%  
v3.20.1
SEGMENT REPORTING - Operations and Assets by Segment (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Operations        
Charter revenue $ 5,258 $ 36,555 $ 20,654 $ 17,895
Vessel operating expenses (6,612) (27,230) (25,173) (20,454)
Voyage expenses (395) (1,124) (2,215) (1,815)
General and administrative costs (1,207) (4,534) (4,757) (4,222)
Depreciation (2,205) (8,452) (17,298) (17,472)
Interest income 21 39 207 298
Interest expense (2,555) (6,571) (8,031) (4,880)
Other financial income (expense) $ 32 (136) (601) $ 327
Segment income / (loss)   (11,453)    
Assets        
Total assets   201,909 $ 191,074  
Operating Segments | North Sea        
Operations        
Charter revenue   29,911    
Vessel operating expenses   (20,104)    
Voyage expenses   (783)    
General and administrative costs   (1,068)    
Depreciation   (6,578)    
Interest income   0    
Interest expense   0    
Other financial income (expense)   0    
Segment income / (loss)   1,378    
Assets        
Total assets   170,229    
Operating Segments | West Coast of Africa        
Operations        
Charter revenue   6,644    
Vessel operating expenses   (7,126)    
Voyage expenses   (341)    
General and administrative costs   (184)    
Depreciation   (1,874)    
Interest income   0    
Interest expense   (347)    
Other financial income (expense)   0    
Segment income / (loss)   (3,228)    
Assets        
Total assets   28,133    
Corporate        
Operations        
Charter revenue   0    
Vessel operating expenses   0    
Voyage expenses   0    
General and administrative costs   (3,282)    
Depreciation   0    
Interest income   39    
Interest expense   (6,224)    
Other financial income (expense)   (136)    
Segment income / (loss)   (9,603)    
Assets        
Total assets   $ 3,547    
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The consolidated financial statements incorporate the financial statements of Hermitage Offshore Services Ltd. and its subsidiaries. The consolidated financial statements have been presented in United States dollars, or USD or "$", which is the functional currency of Hermitage Offshore Services Ltd. and all its subsidiaries.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
Entities in which the Company has a controlling financial interest are consolidated. Subsidiaries are consolidated from the date on which control is obtained. The subsidiaries' accounting policies are in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated upon consolidation.
Use of Estimates
Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and costs during the reporting period. Actual results could differ from those estimates. The effects of changes in accounting estimates are accounted for in the same period in which the estimates are changed.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, nor to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. This topic is further discussed in Note 14.
Revenue Recognition
Revenues are generated from time charter contracts for which we provide a vessel and crew on a rate per day basis in the spot market and the term market.
We recognize revenue in accordance with the provisions of ASC 606, Revenue from Contracts with Customers. The standard provides a unified model to determine how revenue is recognized. Under this standard, revenues are recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In the application of this model, we make judgments including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price (if applicable), and allocating the transaction price to each performance obligation. Services provided under our contracts with customers represent a single performance obligation, which is received and consumed by our customers as we perform such services. Accordingly, revenues are recognized over time based on the daily rate of hire that is prescribed in each contract. The manner in which we recognize revenue did not change as a result of the adoption of this standard.
Leases
We adopted the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), Topic 842, “Leases” effective January 1, 2019. Under this new lease standard, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases and to disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The FASB has issued several amendments and practical expedients to the standard, including clarifying guidance, transition relief on comparative reporting at adoption, the lessee practical expedient, which allows lessees, as an accounting policy election made by class of underlying asset, to choose not to separate non-lease components from lease components and instead combine them and account for them as a single lease component, the lessor practical expedient, which similarly allows lessors to choose to combine lease and non-lease components and account for them as required by that practical expedient, and a practical expedient which allows lessees to elect, as an accounting policy, not to apply the provisions of ASC 842 to short term leases. 
The Company (Predecessor) applied the modified retrospective transition approach, which allowed the Company to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate its comparative prior year periods. The cumulative effect adjustment to the Predecessor’s opening balance of accumulated deficit was zero.
Additionally, we, as lessor of our vessels, have elected the practical expedient to not separate non-lease components from the associated lease component and instead to account for those components as a single component since both of the following criteria were met: (i) the timing and patterns of transfer of the non-lease component and associated lease are the same; and (ii) the lease component, if accounted for separately, would be classified as  an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and, is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and have accounted for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. The lease component consists of the vessels leased to our customers and the non-lease component consists of the technical management services provided to operate the vessel. The pattern of revenue recognition did not change as a result of the application of ASC 842.
We have also elected to apply the practical expedient to elect as an accounting policy not to apply the provisions of ASC 842 to short term leases. We are party to a lease for office space which qualifies as a short-term lease under ASC 842. Accordingly, lease expense under this lease is recognized in the period in which the obligation for those payments is incurred.
We own all of the vessels in our fleet and are therefore not a lessee of any vessels.
Voyage Expenses
Voyage expenses primarily include bunkers consumed when a vessel is off-hire, and brokerage commissions paid by us under our charter agreements. These costs are recognized as incurred.
Vessel Operating Costs
Vessel operating costs include crewing, repair and maintenance, insurance, stores, lubricants, management fees, communication costs, and tonnage tax. These costs are recognized as incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments such as time deposits with an original maturity at acquisition of three months or less.
Accounts Receivable
If accounts receivable are determined uncollectible, after all means of collections have been exhausted and the potential for recovery is considered to be remote, they are charged against an allowance for doubtful accounts. There were no such charges during any of the historical periods presented (both Predecessor and Successor). Additionally, we did not record an allowance for doubtful accounts as of December 31, 2019 (Successor) and 2018 (Predecessor), as all amounts due at these dates were deemed collectible.
Fuel, Lube Oils, and Consumables
Fuel, lube oils, and consumables are stated at the lower of cost or net realizable value, which is determined on a first-in, first-out basis. Bunker fuel onboard at the time of delivery to a charterer is purchased by the charterer and re-purchased by the Company at the time of re-delivery.
Vessels, Net
Vessels are stated at historical costs, less accumulated depreciation and impairment. Depreciation is provided by the straight-line method over the estimated useful life of 25 years for the PSVs and AHTS vessels, and 15 years for the crew boats based on upon the date the vessel is delivered from the yard.
Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessel. Repairs and maintenance are expensed as incurred. The vessels’ estimated residual values and useful life are reviewed when there has been a change in circumstances that indicates that the original estimate may no longer be appropriate.
Drydocking and Engine Overhaul
Our PSVs and AHTS vessels are required to be drydocked approximately every 30 - 60 months (depending on vessel age), and to have engines overhauled after 10,000 – 12,000 running hours. We will capitalize a substantial portion of the costs incurred during drydocking and overhaul and amortize those costs on a straight-line basis from the completion of a drydocking, intermediate survey or overhaul to the estimated completion of the next drydocking or overhaul. Drydocking costs include a variety of costs incurred while vessels are placed within drydock, including expenses related to the dock preparation and port expenses at the drydock shipyard, general shipyard expenses, expenses related to hull, external surfaces and decks, expenses related to machinery and engines of the vessel, as well as expenses related to the testing and correction of findings related to safety equipment on board. We also capitalize those costs incurred as part of the drydock to meet classification and regulatory requirements. The Company expenses costs related to routine repairs and maintenance performed during drydocking, and for annual class survey costs. The capitalized and unamortized drydocking costs are included in the book value of the vessels. Amortization expense of the drydocking costs is included in depreciation expense.
For an acquired or newly built vessel, a drydock component is estimated and accounted for as a separate component of the vessel’s cost. The drydock component is amortized on a straight-line basis to the next estimated drydock. The estimated amortization period for a drydock is based on the estimated period between drydocks. When the drydock expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.
Impairment of Long-Lived Assets
We review long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, we review our assets for impairment on an asset by asset basis. As part of our process, we obtain vessel valuations for our operating vessels from leading, independent and internationally recognized ship brokers on a quarterly basis for the PSVs and crew boats and on a semi-annual basis for the AHTS vessels, or when there is an indication that an asset or assets may be impaired. We also take other facts and circumstances into consideration, such as general market conditions or prolonged weakness in the price of our common shares, in determining whether indicators of potential impairment exist.
If there is any such indication that the carrying amount of our vessels may not be recoverable, they are tested for recoverability by comparing the net carrying value of the asset to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we evaluate the asset for an impairment loss. The projection of cash flows related to vessels is complex and requires us to make various estimates including to charter rates, utilization, operating costs, capital expenditures, residual value and the estimated remaining useful life of each vessel. All of these items have been historically volatile.
If the estimate of undiscounted future net cash flows for any vessel is lower than the vessel’s carrying value, the carrying value is written down to the vessel’s fair market value. The impairment loss is determined by the difference between the carrying amount of the asset and fair value.
Operating Segments
As a result of the Transaction, the Company has a fleet of 23 vessels, which primarily operate in the North Sea and off the coast of West Africa. For the period from April 9, 2019 to December 31, 2019 (Successor), the Company determined it had two reportable segments, the North Sea segment and the West Africa segment. Prior to the Transaction, the Company did not present segment information as it considered its operations as one reportable segment, the OSV market in the North Sea and surrounding areas.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate carrying value because of the short-term nature of these instruments. The estimated fair values of our debt are considered to approximate their carrying values because the interest rates on these instruments change with, or approximate, market interest rates, the interest margins under each loan approximate market rates, and the fair values of the vessels collateralized under each facility equal or exceed the amount outstanding.
Income Taxes
The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not subject to corporate income taxes in that territory. The statutory applicable rate to consolidated corporate earnings is 0%.
Two of our subsidiaries, Delta PSV Norway AS, which was incorporated in 2019, and NAO Norway AS, are subject to income tax in Norway at a rate of 22% and 23% of their taxable results for the years ended December 31, 2019 and 2018, respectively. We have deferred tax assets of $5.7 million and $3.5 million from our net operating losses in Norway for these two entities, along with corresponding full valuation allowances of $5.7 million and $3.5 million as of December 31, 2019 and 2018, respectively.  A full valuation allowance has been recognized due to the uncertainty related to the utilization of any carried forward tax losses. The Norwegian net operating losses may be carried forward for an indefinite period according to Norwegian tax law. There are no other permanent or temporary differences for our two Norwegian subsidiaries as of December 31, 2019 and 2018.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash is primarily held in major banks and financial institutions in Norway, the Netherlands, and Germany, and are typically insured up to a set amount. Accordingly, we believe the risk of any potential loss on deposits held in these institutions is remote. Concentrations of credit risk related to accounts receivable are limited to our client base in the energy industry that may be affected by changes in economic or other external conditions. The Company does not require collateral for its accounts receivable.
Recently Issued Accounting Standard
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit losses (ASC 326), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model known as the current expected credit loss (“CECL”) model that is based on expected losses rather than incurred losses. Under the new guidance, an entity is required to recognize as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. Unlike the incurred loss models under existing standards, the CECL model does not specify a threshold for the recognition of an impairment allowance. Rather, an entity will recognize its estimate of expected credit losses for financial assets as of the end of the reporting period. Credit impairment will be recognized as an allowance or contra-asset rather than as a direct write-down of the amortized cost basis of a financial asset. However, the carrying amount of a financial asset that is deemed uncollectible will be written off in a manner consistent with existing standards. The standard will be effective for the first reporting period within annual periods beginning after December 15, 2019 and early adoption is permitted. We do not expect the implementation of this standard to have a material impact on our consolidated financial statements.
v3.20.1
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES - Exchange Gains and Losses (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Fair Value Disclosures [Abstract]        
Exchange gain (loss) $ (164) $ 56 $ (626) $ 327
v3.20.1
RELATED PARTY TRANSACTIONS - Expenses (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Related Party Transaction [Line Items]        
General and administrative expenses - related party $ 323 $ 455 $ 2,324 $ 2,426
Scorpio Ship Management SAM        
Related Party Transaction [Line Items]        
Vessel operating expense - related party 0 576 0 0
Scorpio Services Holding Limited        
Related Party Transaction [Line Items]        
General and administrative expenses - related party 0 353 0 0
Scorpio Commercial Management SAM        
Related Party Transaction [Line Items]        
Voyage expense - related party 0 82 0 0
General and administrative expenses - related party 0 69 0 0
Scorpio Tankers Inc.        
Related Party Transaction [Line Items]        
General and administrative expenses - related party 0 33 0 0
Nordic American Tankers Limited        
Related Party Transaction [Line Items]        
General and administrative expenses - related party $ 323 $ 0 $ 2,324 $ 2,426
v3.20.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Common stock
Additional paid-In capital
Accumulated deficit
Balance (in shares) at Dec. 31, 2016   2,068,684    
Balance at Dec. 31, 2016 $ 234,196 $ 234 $ 276,957 $ (42,995)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Common shares issued, net of issuance cost (in shares)   4,130,000    
Common shares issued, net of issuance cost 48,336 $ 413 47,923  
Dividends distributed (4,933)   (4,933)  
Net loss (29,326)     (29,326)
Balance (in shares) at Dec. 31, 2017   6,198,684    
Balance at Dec. 31, 2017 248,273 $ 647 319,947 (72,321)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Common shares issued, private placement, net of issuance cost (in shares)   1,175,475    
Common shares issued, private placement, net of issuance cost 4,945 $ 117 4,827  
Dividends distributed (1,860)   (1,860)  
Net loss (197,294)     (197,294)
Balance (in shares) at Dec. 31, 2018   7,374,159    
Balance at Dec. 31, 2018 54,064 $ 764 322,914 (269,614)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Reverse stock split - fractional share adjustment (shares)   (170)    
Net loss (7,663)     (7,663)
Balance (in shares) at Apr. 08, 2019   7,373,989    
Balance at Apr. 08, 2019 46,401 $ 764 322,914 (277,277)
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Impact of reverse acquisition (shares) [1]   15,500,208    
Impact of reverse acquisition [1] 23,808 $ 1,550 22,258  
Issuance of common shares under equity line of credit (shares)   10,161,707    
Issuance of common shares under equity line of credit 20,000 $ 1,016 18,984  
Change in par value 0 $ (2,310) 2,310  
Net loss (11,453)     (11,453)
Balance (in shares) at Dec. 31, 2019   25,661,915    
Balance at Dec. 31, 2019 $ 52,128 $ 256 $ 66,742 $ (14,870)
[1] Includes reclassifications to align to the share capital of the Company (the legal acquirer).
v3.20.1
COVER PAGE
 12 Months Ended
Dec. 31, 2019
shares
Cover [Abstract]  
Document Type 20-F
Document Period End Date Dec. 31, 2019
Document Annual Report true
Document Transition Report false
Document Shell Company Report false
Entity Registrant Name HERMITAGE OFFSHORE SERVICES LTD.
Entity Central Index Key 0001597659
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2019
Document Fiscal Period Focus FY
Amendment Flag false
Entity Common Stock, Shares Outstanding 25,661,915
Entity Well-known Seasoned Issuer No
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Shell Company false
Entity Filer Category Non-accelerated Filer
Entity Emerging Growth Company false
Document Accounting Standard U.S. GAAP
v3.20.1
REVERSE ASSET ACQUISITION - Purchase Price Allocation (Details) - SOHI Transaction
$ in Thousands
Apr. 08, 2019
USD ($)
Schedule Of Asset Acquisition [Line Items]  
Cash and cash equivalents $ 1,657
Accounts receivable 3,212
Prepaid expenses 1,198
Fuel, lube oil, and consumables 981
Other current assets 1,098
Vessels, net 154,744
Accounts payable (1,836)
Other current liabilities (4,151)
Debt (132,905)
Other long-term liabilities (190)
Net assets acquired and liabilities assumed $ 23,808
v3.20.1
OTHER CURRENT LIABILITIES (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Accrued Liabilities    
Accrued interest $ 1,169 $ 1,274
Other accrued liabilities 1,327 1,873
Unamortized portion of fair value assessment of acquired time charter contracts 272 0
Total other current liabilities $ 2,768 $ 3,147
v3.20.1
CASH AND CASH EQUIVALENTS (Tables)
 12 Months Ended
Dec. 31, 2019
Cash and Cash Equivalents [Abstract]  
Schedule of Components of Cash and Cash Equivalents
The following table sets forth components of our cash and cash equivalents as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
Cash and cash equivalents
11,727


8,432

Cash and cash equivalents in DVB accounts (1)
927


—

Cash on vessels
27


14

Total cash and cash equivalents
12,681


8,446

(1)
We maintain bank accounts that are pledged under our DVB Credit Facility (as described in Note 7). Under the terms of the DVB Credit Facility, the earnings generated from the AHTS vessels must be deposited into these accounts. These accounts are subject to a minimum liquidity requirement of an aggregate of $750,000 and also require that the Company fund any Excess Earnings (defined as each vessel's earnings less budgeted operating expenses, interest payments and the maintenance of the minimum liquidity requirement) related to such vessels, up to $3.6 million in aggregate, to a drydock reserve account, the proceeds of which are to be utilized for the vessel’s next scheduled drydock. For the first 36 months after the initial drawdown date (through September 2020), any Excess Earnings related to each vessel, after funding the minimum liquidity requirement and drydock reserve account, shall be utilized to repay the credit facility.  Starting 39 months after the initial drawdown date, the DVB Credit Facility shall be repaid in consecutive quarterly installments of $0.2 million in aggregate with a balloon payment due upon the maturity date of September 2022.
v3.20.1
COMMITMENTS AND CONTINGENCIES
 12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
We may become a party to various legal proceedings generally incidental to our business and are subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, we face exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is our opinion that the outcome of any claim which might be pending or threatened, either individually or on a combined basis, will not have a materially adverse effect on the financial position of the Company, but could materially affect the Company’s results of operations in a given year.
To our knowledge, no claims have been filed against the Company, nor has it been party to any legal proceedings for the periods presented.
v3.20.1
REVENUE AND CUSTOMER CONCENTRATIONS
 12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
REVENUE AND CUSTOMER CONCENTRATIONS
REVENUE AND CUSTOMER CONCENTRATIONS
Our revenues are generated from time charter contracts for which we provide a vessel and crew on a rate per day basis in the spot market and the term market. The lease component consists of the vessel leased to our customers and the non-lease component consists of the technical management services provided to operate the vessel.
We, as lessor of our vessels, have elected the practical expedient under ASC 842 to not separate non-lease components from the associated lease component and instead to account for those components as a single component since both of the following criteria were met: (i) the timing and patterns of transfer of the non-lease component and associated lease are the same; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and, is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and have accounted for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. Accordingly, all of revenues for the historical periods presented (both Predecessor and Successor) have been recognized over time based on the daily rate of hire that is prescribed in each contract.
The following table sets forth the breakout of revenue by vessel type:

Successor

 
Predecessor
In thousands of U.S. dollars except per share and share data
April 9 - December 31, 2019

 
January 1 - April 8, 2019

Year ended December 31, 2018

Year ended December 31, 2017
Charter revenues - PSVs
29,911


 
5,258


20,654


17,895

Charter revenues - AHTS vessels
3,729


 
—


—


—

Charter revenues - crew boats
2,915


 
—


—


—

Total charter revenue
36,555


 
5,258


20,654


17,895


As of December 31, 2019, we were party to long-term time charter contracts, which were greater than one year in duration, for four of our crew boats with commitments through early 2021. Expected term charter revenues for these contracts is $3.4 million in 2020 and $0.2 million in 2021. The aggregate carrying value of these vessels was $6.3 million as of December 31, 2019. As of December 31, 2018, the Company had entered into two long-term time charter contracts for two of its PSVs with commitments through 2020. Expected time charter revenues for these contracts was $3.7 million in 2020. The aggregate cost of these vessels was $82.7 million and the aggregate accumulated depreciation (including impairment charges) and carrying value as of December 31, 2018 was $47.9 million and $34.8 million, respectively. As of December 31, 2017, there were no long-term time charter contracts.
As of December 31, 2019, there were no unamortized deferred costs of obtaining or fulfilling a contract.
Customer Concentrations
Set forth below are figures summarizing our customer concentrations for the historical periods presented:
•
For the Successor period from April 9, 2019 to December 31, 2019, we had one customer which accounted for 13% of total revenues.
•
For the Predecessor period from January 1, 2019 to April 8, 2019, we had four customers which accounted for an aggregate of 63% of total revenues (20%, 18%, 13%, and 12%, respectively).
•
For the year ended December 31, 2018, (Predecessor), we had two customers which accounted for an aggregate of 25% of total revenues (13% and 12%, respectively).
•
For the year ended December 31, 2017 (Predecessor), we had three customers which accounted for an aggregate of 44% of total revenues (21%, 13%, and 10%, respectively).
•
As of December 31, 2019 (Successor), we had three customers which accounted for an aggregate of 44% of our outstanding accounts receivable (16%, 14%, and 14% respectively).
•
As of December 31, 2018 (Predecessor), we had three customers which accounted for an aggregate of 76% of our outstanding accounts receivable (32%, 30%, and 14%, respectively).
v3.20.1
OTHER CURRENT LIABILITIES
 12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
OTHER CURRENT LIABILITIES
LIABILITIES
The following table sets forth the components of our other current liabilities as of December 31, 2019 and 2018:
 
As of December 31,
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
Accrued interest
$
1,169


$
1,274

Other accrued liabilities
1,327


1,873

Unamortized portion of fair value assessment of acquired time charter contracts
272


—

Total other current liabilities
$
2,768


$
3,147
v3.20.1
DEBT (Tables)
 12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Schedule of Aggregate Annual Principal Payments Required
As of December 31, 2019, the aggregate annual principal payments required to be made under the Company's debt facilities are as follows (in thousands of U.S. dollars):

Principal repayments
2020
$
207

2021
8,309

2022
22,984

2023
110,405

2024
—

Total
141,905
v3.20.1
EARNINGS PER SHARE (Tables)
 12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and potentially dilutive common share equivalents outstanding during the period. There were no potentially dilutive common share equivalents for any of the periods presented.
 
Successor
 
 
Predecessor
 
For the period April 9 to December 31, 2019

 
For the period January 1 to April 8, 2019

For the year ended December 31,
In thousands of U.S. dollars

 

2018

2017
Numerator

 
 

 



Net Loss
(11,453
)
 
 
(7,663
)
 
(197,294
)

(29,326
)
Denominator


 
 


 





Basic and diluted - Weighted Average Common Shares Outstanding
20,481,174

 
 
7,374,069

 
6,263,094


5,499,561




 
 


 





Loss per Common Share


 
 


 





Basic and diluted
(0.56
)
 
 
(1.04
)
 
(31.50
)

(5.33
)
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Vessels, Impairment, Drydocking and Engine Overhaul (Details)
 12 Months Ended
Dec. 31, 2019
h
Minimum  
Property, Plant and Equipment [Line Items]  
Period when vessels are required to be drydocked (in months) 30 months
Estimated running hours until engine overhaul (hours) 10,000
Maximum  
Property, Plant and Equipment [Line Items]  
Period when vessels are required to be drydocked (in months) 60 months
Estimated running hours until engine overhaul (hours) 12,000
PSVs  
Property, Plant and Equipment [Line Items]  
Estimated useful life (in years) 25 years
AHTS vessels  
Property, Plant and Equipment [Line Items]  
Estimated useful life (in years) 25 years
Crew boats  
Property, Plant and Equipment [Line Items]  
Estimated useful life (in years) 15 years
v3.20.1
EARNINGS PER SHARE (Details) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Numerator        
Net loss $ (7,663) $ (11,453) $ (197,294) $ (29,326)
Denominator        
Basic and diluted - Weighted Average Common Shares Outstanding (shares) 7,374,069 20,481,174 6,263,094 5,499,561
Loss per Common Share        
Basic and diluted (in dollars per share) $ (1.04) $ (0.56) $ (31.50) $ (5.33)
v3.20.1
REVENUE AND CUSTOMER CONCENTRATIONS - Narrative (Details)
Dec. 31, 2019
USD ($)
vessel
Dec. 31, 2018
USD ($)
contract
vessel
Dec. 31, 2017
contract
Disaggregation of Revenue [Line Items]      
Number of longer term time charter contracts | contract   2 0
Aggregate cost of vessels $ 186,649,000 $ 413,949,000  
Carrying value of vessels 178,206,000 176,914,000  
Accumulated depreciation 8,443,000 $ 237,035,000  
Unamortized deferred costs of obtaining or fulfilling a contract $ 0    
Crew boats, long-term time charter contracts      
Disaggregation of Revenue [Line Items]      
Number vessels with long term time charter contracts | vessel 4    
Carrying value of vessels $ 6,300,000    
PSVs, long-term time charter contract      
Disaggregation of Revenue [Line Items]      
Number vessels with long term time charter contracts | vessel   2  
Aggregate cost of vessels   $ 82,700,000  
Carrying value of vessels   47,900,000  
Accumulated depreciation   $ 34,800,000  
v3.20.1
SHAREHOLDERS' EQUITY - Equity Lines of Credit (Details)
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Mar. 04, 2020
USD ($)
$ / shares
shares
Mar. 31, 2020
USD ($)
$ / shares
shares
Jan. 31, 2020
USD ($)
$ / shares
Dec. 31, 2019
USD ($)
$ / shares
shares
Oct. 31, 2019
USD ($)
$ / shares
shares
Jun. 30, 2019
USD ($)
$ / shares
shares
Apr. 30, 2019
USD ($)
$ / shares
shares
Mar. 31, 2019
USD ($)
Apr. 08, 2019
USD ($)
Dec. 31, 2019
USD ($)
$ / shares
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Class of Stock [Line Items]                        
Aggregate net proceeds                 $ 0 $ 20,000,000 $ 0 $ 0
Initial Equity Line of Credit | SOI and Mackenzie Financial Corporation                        
Class of Stock [Line Items]                        
Issuance of common shares under equity line of credit (shares) | shares           1,421,472 3,240,418          
Common stock price (in dollars per share) | $ / shares           $ 3.52 $ 2.78          
Aggregate net proceeds           $ 5,000,000 $ 9,000,000          
Initial Equity Line of Credit | SSH and Mackenzie Financial Corporation                        
Class of Stock [Line Items]                        
Issuance of common shares under equity line of credit (shares) | shares       3,143,709 2,356,108              
Common stock price (in dollars per share) | $ / shares       $ 1.11 $ 1.06         $ 1.11    
Aggregate net proceeds       $ 3,500,000 $ 2,500,000              
Initial Equity Line of Credit | Mackenzie Financial Corporation                        
Class of Stock [Line Items]                        
Issuance of common shares under equity line of credit (shares) | shares       1,492,508                
Initial Equity Line of Credit | SSH                        
Class of Stock [Line Items]                        
Issuance of common shares under equity line of credit (shares) | shares       1,651,201                
New Equity Line of Credit | Subsequent Event                        
Class of Stock [Line Items]                        
Number of days for volume weighted average basis calculation per New Equity Line of Credit     5 days                  
Minimum allowable share price for share issuances per New Equity Line of Credit (in dollars per share) | $ / shares     $ 0.60                  
SOI | Initial Equity Line of Credit                        
Class of Stock [Line Items]                        
Equity line of credit               $ 20,000,000        
Common shares multiplier               0.94        
Trailing period considered for equity line of credit               30 days        
SSH | New Equity Line of Credit | Common Stock Purchase Agreement | Subsequent Event                        
Class of Stock [Line Items]                        
Equity line of credit     $ 15,000,000                  
Common shares multiplier     0.94                  
Trailing period considered for equity line of credit     5 days                  
Issuance of common shares under equity line of credit (shares) | shares 5,668,317 5,668,317                    
Common stock price (in dollars per share) | $ / shares $ 0.88210 $ 0.88                    
Aggregate net proceeds $ 5,000,000 $ 5,000,000                    
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes (Details)
$ in Millions
 12 Months Ended
Dec. 31, 2019
USD ($)
subsidiary
Dec. 31, 2018
USD ($)
Income Taxes    
Income tax rate (percent) 0.00%  
Norwegian Tax Administration    
Income Taxes    
Income tax rate (percent) 22.00% 23.00%
Number of subsidiaries subject to foreign income tax | subsidiary 2  
Deferred tax asset $ 5.7 $ 3.5
Deferred tax asset valuation allowance $ 5.7 $ 3.5
v3.20.1
VESSELS, NET - Carrying Value (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Vessels, Net [Abstract]    
Vessels, gross $ 186,649 $ 413,949
Less: accumulated depreciation and impairment charges (8,443) (237,035)
Vessels, net 178,206 176,914
PSVs    
Vessels, Net [Abstract]    
Vessels, gross 158,413 413,949
AHTS vessels    
Vessels, Net [Abstract]    
Vessels, gross 12,071 0
Crew boats    
Vessels, Net [Abstract]    
Vessels, gross $ 16,165 $ 0
v3.20.1
DEBT - DVB Credit Facility and Supplemental Agreement (Details)
 1 Months Ended 9 Months Ended 12 Months Ended
Apr. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
vessel
Dec. 31, 2019
USD ($)
Debt Instrument [Line Items]      
Outstanding balance   $ 141,905,000 $ 141,905,000
DVB Credit Facility      
Debt Instrument [Line Items]      
Aggregate minimum liquidity requirement on pledged bank accounts   $ 750,000 $ 750,000
Term for excess earnings to be used to repay credit facility   36 months 36 months
Drydock reserve account, excess funding limit   $ 3,600,000 $ 3,600,000
Time from initial drawdown to begin consecutive quarterly installment payments   39 months 39 months
Required quarterly installment payments per facility   $ 200,000 $ 200,000
Number of AHTS vessels collateralized under facility | vessel   2  
DVB Credit Facility | Loan Facility      
Debt Instrument [Line Items]      
Principal balance   $ 9,000,000.0 9,000,000.0
Outstanding balance   $ 9,000,000 $ 9,000,000
DVB Credit Facility | Loan Facility | LIBOR      
Debt Instrument [Line Items]      
Basis spread on variable rate (percent)   2.75%  
SOHI Transaction      
Debt Instrument [Line Items]      
Debt assumed $ 9,000,000    
v3.20.1
COMMITMENTS AND CONTINGENCIES (Details) - claim
Dec. 31, 2019
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]    
Pending claims 0 0
v3.20.1
GOING CONCERN (Details) - Subsequent Event - New Equity Line of Credit
 1 Months Ended
Jan. 31, 2020
$ / shares
Subsequent Event [Line Items]  
Number of days for volume weighted average basis calculation per New Equity Line of Credit 5 days
Minimum allowable share price for share issuances per New Equity Line of Credit (in dollars per share) $ 0.60
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities        
Net loss $ (7,663) $ (11,453) $ (197,294) $ (29,326)
Reconciliation of net loss to net cash used in operating activities        
Depreciation 2,205 8,452 17,298 17,480
Amortization of deferred financing costs 90 0 359 359
Overhaul of engine costs and drydock payments (772) (5,389) (3,610) (341)
Amortization of acquired time charters   (1,226)    
Impairment loss on vessels 0 0 (160,080) 0
Foreign currency loss 0 0 198 (12)
Changes in operating assets and liabilities        
Accounts receivable (609) (3,748) (506) (606)
Fuel, lube oil, and consumables 200 687 329 (270)
Prepaid and other current assets (365) 1,496 (326) 262
Accounts payable, other current liabilities 308 276 1,902 (1,725)
Accounts payable, related party (183) 607 (237) 147
Net cash used in operating activities (6,789) (10,298) (21,807) (14,032)
Cash flows from investing activities        
Investment in vessels 0 0 (45) (830)
Cash acquired from Predecessor through reverse acquisition 0 1,657 0 0
Net cash provided by/ (used in) investing activities 0 1,657 (45) (830)
Cash flows from financing activities        
Proceeds from issuance of common stock 0 0 4,945 48,336
Repayment of credit facility 0 0 (4,095) 0
Issuance of common stock - Equity Line of Credit 0 20,000 0 0
Cash dividends paid to shareholders 0 0 (1,860) (4,933)
Net cash provided / (used in) by financing activities 0 20,000 (1,010) 43,403
Net increase/(decrease) in cash and cash equivalents (6,789) 11,359 (22,862) 28,541
Cash and cash equivalents at beginning of period 8,446 1,657 31,506 2,953
Effect of exchange rate changes on cash and cash equivalents 0 0 (198) 12
Cash and cash equivalents at the end of period 1,657 12,681 8,446 31,506
Supplemental cash flow information        
Cash paid for interest, net of amounts capitalized $ 2,289 $ 6,241 $ 7,090 $ 4,417
v3.20.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Shareholders’ equity    
Preferred shares, par value (in dollars per share) $ 0.01 $ 0.01
Preferred shares, authorized (shares) 50,000,000 50,000,000
Preferred shares, issued (shares) 0 0
Common shares, par value (in dollars per share) $ 0.01 $ 0.10
Common shares, authorized (shares) 350,000,000 35,000,000
Common shares, issued (shares) 25,936,367 7,648,611
Common shares, outstanding (shares) 25,661,915 7,374,159
Treasury shares (shares) 274,452 274,452
v3.20.1
OTHER CURRENT LIABILITIES (Tables)
 12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
Schedule of Components of Other Current Liabilities
The following table sets forth the components of our other current liabilities as of December 31, 2019 and 2018:
 
As of December 31,
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
Accrued interest
$
1,169


$
1,274

Other accrued liabilities
1,327


1,873

Unamortized portion of fair value assessment of acquired time charter contracts
272


—

Total other current liabilities
$
2,768


$
3,147
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Basis of Accounting
Basis of Accounting
The consolidated financial statements incorporate the financial statements of Hermitage Offshore Services Ltd. and its subsidiaries. The consolidated financial statements have been presented in United States dollars, or USD or "$", which is the functional currency of Hermitage Offshore Services Ltd. and all its subsidiaries.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation
Principles of Consolidation
Entities in which the Company has a controlling financial interest are consolidated. Subsidiaries are consolidated from the date on which control is obtained. The subsidiaries' accounting policies are in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated upon consolidation.
Use of Estimates
Use of Estimates
Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and costs during the reporting period. Actual results could differ from those estimates. The effects of changes in accounting estimates are accounted for in the same period in which the estimates are changed.
Going Concern
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, nor to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. This topic is further discussed in Note 14.
Revenue Recognition
Revenue Recognition
Revenues are generated from time charter contracts for which we provide a vessel and crew on a rate per day basis in the spot market and the term market.
We recognize revenue in accordance with the provisions of ASC 606, Revenue from Contracts with Customers. The standard provides a unified model to determine how revenue is recognized. Under this standard, revenues are recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In the application of this model, we make judgments including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price (if applicable), and allocating the transaction price to each performance obligation. Services provided under our contracts with customers represent a single performance obligation, which is received and consumed by our customers as we perform such services. Accordingly, revenues are recognized over time based on the daily rate of hire that is prescribed in each contract. The manner in which we recognize revenue did not change as a result of the adoption of this standard.
Leases
Leases
We adopted the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), Topic 842, “Leases” effective January 1, 2019. Under this new lease standard, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases and to disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The FASB has issued several amendments and practical expedients to the standard, including clarifying guidance, transition relief on comparative reporting at adoption, the lessee practical expedient, which allows lessees, as an accounting policy election made by class of underlying asset, to choose not to separate non-lease components from lease components and instead combine them and account for them as a single lease component, the lessor practical expedient, which similarly allows lessors to choose to combine lease and non-lease components and account for them as required by that practical expedient, and a practical expedient which allows lessees to elect, as an accounting policy, not to apply the provisions of ASC 842 to short term leases. 
The Company (Predecessor) applied the modified retrospective transition approach, which allowed the Company to recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption rather than restate its comparative prior year periods. The cumulative effect adjustment to the Predecessor’s opening balance of accumulated deficit was zero.
Additionally, we, as lessor of our vessels, have elected the practical expedient to not separate non-lease components from the associated lease component and instead to account for those components as a single component since both of the following criteria were met: (i) the timing and patterns of transfer of the non-lease component and associated lease are the same; and (ii) the lease component, if accounted for separately, would be classified as  an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component and, is accounted for under ASC 606 if the non-lease component is the predominant component. We elected this practical expedient to combine our lease and non-lease components for all classes of underlying assets and have accounted for the combined component under ASC 606 for revenue contracts qualifying for this practical expedient because we have concluded that the non-lease component is the predominant component in our current revenue contracts. The lease component consists of the vessels leased to our customers and the non-lease component consists of the technical management services provided to operate the vessel. The pattern of revenue recognition did not change as a result of the application of ASC 842.
We have also elected to apply the practical expedient to elect as an accounting policy not to apply the provisions of ASC 842 to short term leases. We are party to a lease for office space which qualifies as a short-term lease under ASC 842. Accordingly, lease expense under this lease is recognized in the period in which the obligation for those payments is incurred.
We own all of the vessels in our fleet and are therefore not a lessee of any vessels.
Voyage Expenses
Voyage Expenses
Voyage expenses primarily include bunkers consumed when a vessel is off-hire, and brokerage commissions paid by us under our charter agreements. These costs are recognized as incurred.
Vessel Operating Costs
Vessel Operating Costs
Vessel operating costs include crewing, repair and maintenance, insurance, stores, lubricants, management fees, communication costs, and tonnage tax. These costs are recognized as incurred.
Cash and Cash Equivalents
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments such as time deposits with an original maturity at acquisition of three months or less.
Accounts Receivable
Accounts Receivable
If accounts receivable are determined uncollectible, after all means of collections have been exhausted and the potential for recovery is considered to be remote, they are charged against an allowance for doubtful accounts. There were no such charges during any of the historical periods presented (both Predecessor and Successor). Additionally, we did not record an allowance for doubtful accounts as of December 31, 2019 (Successor) and 2018 (Predecessor), as all amounts due at these dates were deemed collectible.
Fuel, Lube Oils, and Consumables
Fuel, Lube Oils, and Consumables
Fuel, lube oils, and consumables are stated at the lower of cost or net realizable value, which is determined on a first-in, first-out basis. Bunker fuel onboard at the time of delivery to a charterer is purchased by the charterer and re-purchased by the Company at the time of re-delivery.
Vessels, Net
Vessels, Net
Vessels are stated at historical costs, less accumulated depreciation and impairment. Depreciation is provided by the straight-line method over the estimated useful life of 25 years for the PSVs and AHTS vessels, and 15 years for the crew boats based on upon the date the vessel is delivered from the yard.
Certain subsequent expenditures for conversions and major improvements are also capitalized if it is determined that they appreciably extend the life, increase the earnings capacity or improve the efficiency or safety of the vessel. Repairs and maintenance are expensed as incurred. The vessels’ estimated residual values and useful life are reviewed when there has been a change in circumstances that indicates that the original estimate may no longer be appropriate.
Drydocking and Engine Overhaul
Drydocking and Engine Overhaul
Our PSVs and AHTS vessels are required to be drydocked approximately every 30 - 60 months (depending on vessel age), and to have engines overhauled after 10,000 – 12,000 running hours. We will capitalize a substantial portion of the costs incurred during drydocking and overhaul and amortize those costs on a straight-line basis from the completion of a drydocking, intermediate survey or overhaul to the estimated completion of the next drydocking or overhaul. Drydocking costs include a variety of costs incurred while vessels are placed within drydock, including expenses related to the dock preparation and port expenses at the drydock shipyard, general shipyard expenses, expenses related to hull, external surfaces and decks, expenses related to machinery and engines of the vessel, as well as expenses related to the testing and correction of findings related to safety equipment on board. We also capitalize those costs incurred as part of the drydock to meet classification and regulatory requirements. The Company expenses costs related to routine repairs and maintenance performed during drydocking, and for annual class survey costs. The capitalized and unamortized drydocking costs are included in the book value of the vessels. Amortization expense of the drydocking costs is included in depreciation expense.
For an acquired or newly built vessel, a drydock component is estimated and accounted for as a separate component of the vessel’s cost. The drydock component is amortized on a straight-line basis to the next estimated drydock. The estimated amortization period for a drydock is based on the estimated period between drydocks. When the drydock expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.
Impairment of Long-Lived Assets
Impairment of Long-Lived Assets
We review long-lived assets held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In this respect, we review our assets for impairment on an asset by asset basis. As part of our process, we obtain vessel valuations for our operating vessels from leading, independent and internationally recognized ship brokers on a quarterly basis for the PSVs and crew boats and on a semi-annual basis for the AHTS vessels, or when there is an indication that an asset or assets may be impaired. We also take other facts and circumstances into consideration, such as general market conditions or prolonged weakness in the price of our common shares, in determining whether indicators of potential impairment exist.
If there is any such indication that the carrying amount of our vessels may not be recoverable, they are tested for recoverability by comparing the net carrying value of the asset to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, we evaluate the asset for an impairment loss. The projection of cash flows related to vessels is complex and requires us to make various estimates including to charter rates, utilization, operating costs, capital expenditures, residual value and the estimated remaining useful life of each vessel. All of these items have been historically volatile.
If the estimate of undiscounted future net cash flows for any vessel is lower than the vessel’s carrying value, the carrying value is written down to the vessel’s fair market value. The impairment loss is determined by the difference between the carrying amount of the asset and fair value.
Operating Segments
Operating Segments
As a result of the Transaction, the Company has a fleet of 23 vessels, which primarily operate in the North Sea and off the coast of West Africa. For the period from April 9, 2019 to December 31, 2019 (Successor), the Company determined it had two reportable segments, the North Sea segment and the West Africa segment. Prior to the Transaction, the Company did not present segment information as it considered its operations as one reportable segment, the OSV market in the North Sea and surrounding areas.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate carrying value because of the short-term nature of these instruments. The estimated fair values of our debt are considered to approximate their carrying values because the interest rates on these instruments change with, or approximate, market interest rates, the interest margins under each loan approximate market rates, and the fair values of the vessels collateralized under each facility equal or exceed the amount outstanding.
Income Taxes
Income Taxes
The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not subject to corporate income taxes in that territory. The statutory applicable rate to consolidated corporate earnings is 0%.
Two of our subsidiaries, Delta PSV Norway AS, which was incorporated in 2019, and NAO Norway AS, are subject to income tax in Norway at a rate of 22% and 23% of their taxable results for the years ended December 31, 2019 and 2018, respectively. We have deferred tax assets of $5.7 million and $3.5 million from our net operating losses in Norway for these two entities, along with corresponding full valuation allowances of $5.7 million and $3.5 million as of December 31, 2019 and 2018, respectively.  A full valuation allowance has been recognized due to the uncertainty related to the utilization of any carried forward tax losses. The Norwegian net operating losses may be carried forward for an indefinite period according to Norwegian tax law. There are no other permanent or temporary differences for our two Norwegian subsidiaries as of December 31, 2019 and 2018.
Concentration of Credit Risk
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash is primarily held in major banks and financial institutions in Norway, the Netherlands, and Germany, and are typically insured up to a set amount. Accordingly, we believe the risk of any potential loss on deposits held in these institutions is remote. Concentrations of credit risk related to accounts receivable are limited to our client base in the energy industry that may be affected by changes in economic or other external conditions. The Company does not require collateral for its accounts receivable.
Recently Issued Accounting Standard
Recently Issued Accounting Standard
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit losses (ASC 326), which amends the guidance on the impairment of financial instruments. The standard adds an impairment model known as the current expected credit loss (“CECL”) model that is based on expected losses rather than incurred losses. Under the new guidance, an entity is required to recognize as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. Unlike the incurred loss models under existing standards, the CECL model does not specify a threshold for the recognition of an impairment allowance. Rather, an entity will recognize its estimate of expected credit losses for financial assets as of the end of the reporting period. Credit impairment will be recognized as an allowance or contra-asset rather than as a direct write-down of the amortized cost basis of a financial asset. However, the carrying amount of a financial asset that is deemed uncollectible will be written off in a manner consistent with existing standards. The standard will be effective for the first reporting period within annual periods beginning after December 15, 2019 and early adoption is permitted. We do not expect the implementation of this standard to have a material impact on our consolidated financial statements.
v3.20.1
GOING CONCERN
 12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
GOING CONCERN
GOING CONCERN
Under ASC paragraph 205-40 (the "Standard"), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.  Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
The Company regularly performs cash flow projections to evaluate (i) whether it will be in a position to cover the liquidity needs for the next 12-month period and (ii) the compliance with financial and security ratios under the existing and future financing agreements. In developing estimates of future cash flows, the Company makes assumptions about the vessels’ future performance, market rates, operating expenses, capital expenditure, fleet utilization, general and administrative expenses, loan repayments and interest charges. The assumptions applied are based on historical experience and future expectations.  Nevertheless, volatility in the offshore market makes forecasting difficult, and there is the possibility that the Company’s actual trading performance during the coming year may be materially different from expectations. 
Economic conditions in the offshore market during 2019 reflected a gradual improvement from the lows of previous years and were showing signs that the industry was in the early stages of a broader recovery. The Company’s operating results during 2019 (in both the Predecessor and Successor periods) reflected this improvement, as losses from operations narrowed when compared to prior periods. Additionally, as highlighted elsewhere in these financial statements, the Company executed a series of transactions during 2019 and 2020, such as the Transaction, the New Term Loan Facility and the New Equity Line of Credit in an effort to recapitalize the Company and create a platform for future growth.
Nevertheless, since the beginning of the calendar year 2020, the outbreak of the novel coronavirus (the "COVID-19") has resulted in the implementation of numerous actions by governments and governmental agencies in an attempt to mitigate the spread of the virus. These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets which has reduced the global demand for oil and related products. Additionally, in March 2020, output disagreements between OPEC producing nations (led by Saudi Arabia) and Russia triggered a price war sending the price of crude oil to lows not seen in decades. The confluence of these events has resulted in a precipitous pull back of production and capital expenditure outlays from major oil producers throughout the world. Consequently, the markets in which our vessels operate have come under significant pressure in the form of reduced spot market rates and utilization, higher lay-up activity, and contract cancellations and renegotiations.
These conditions have caused management to revisit its cash flow projections for the next 12-month period under revised assumptions. Under these revised assumptions, the Company projects that it might breach certain financial covenants under its credit facilities within 12 months from the date of these financial statements. Additionally, under the terms of the New Equity Line of Credit, the Company is precluded from issuing shares under the New Equity Line of Credit if the price of the Company’s common stock (calculated on a volume weighted average basis over the preceding five days) is below $0.60 per share. In March and April 2020, the price of the Company’s common stock fell below this threshold on certain occasions and for sustained periods of time. Additionally, as described in Item 3. Key Information D. Risk Factors, we have received two deficiency notifications from the NYSE that could result in suspension or delisting of our common shares. We have until November 2020, and August 2021, subject to certain conditions, to cure each of these deficiencies. If our stock is delisted, then the Company is precluded from issuing shares under the New Equity Line of Credit. If additional liquidity under the New Equity Line of Credit is unavailable, the Company might breach covenants under its credit facilities, or face liquidity constraints, sooner than would otherwise occur under the revised projections.
The Company has commenced discussions with its lenders in an effort to find possible solutions and is also considering other strategic alternatives to meet the Company’s obligations, such as the sale of some or all of the vessels in the Company’s fleet. The Company has also engaged an advisor to provide consultation throughout this process. There can be no assurance that these or other measures will be successful.
As these discussions are currently in a preliminary phase, there are no remedies that can be considered as probable for purposes of the Standard.  Accordingly, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.
v3.20.1
DEBT - Aggregate Annual Principal Payments Required (Details)
$ in Thousands
Dec. 31, 2019
USD ($)
Aggregate Annual Principal Payments Required  
2020 $ 207
2021 8,309
2022 22,984
2023 110,405
2024 0
Total $ 141,905
v3.20.1
REVERSE ASSET ACQUISITION - Narrative (Details)
$ / shares in Units, $ in Thousands
Apr. 08, 2019
USD ($)
vessel
$ / shares
shares
Dec. 31, 2019
USD ($)
vessel
shares
Jun. 19, 2019
vessel
Jan. 28, 2019
shares
Jan. 27, 2019
shares
Dec. 31, 2018
USD ($)
vessel
shares
Dec. 31, 2017
vessel
Schedule Of Asset Acquisition [Line Items]              
Cash and cash equivalents   $ 12,681       $ 8,446  
Vessels, net   178,206       176,914  
Non-current debt   $ 141,698       $ 132,457  
Common shares, outstanding (shares) | shares 7,373,989 25,661,915   7,373,989 73,741,595 7,374,159  
Common shares controlled by Scorpio (shares) | shares 1,175,474            
Noncontrolling common shares (shares) | shares 6,198,515            
Volume weighted average price common shares (in dollars per share) | $ / shares $ 3.23            
Number of PSVs | vessel 10 10 10     10 10
Current liability for acquired below market time charter contracts $ 1,400            
Long-term liability for acquired below market time charter contracts 100            
SOHI Transaction              
Schedule Of Asset Acquisition [Line Items]              
Fair market value of equity of Predecessor on Transaction date 23,800            
SOHI Transaction | PSVs              
Schedule Of Asset Acquisition [Line Items]              
Reduction of aggregate carrying value of vessels on transaction 20,700            
Scorpio Offshore Holding Inc              
Schedule Of Asset Acquisition [Line Items]              
Cash and cash equivalents 1,300            
Vessels, net 24,700            
Non-current debt $ 9,000            
v3.20.1
VESSELS, NET - Narrative (Details)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
USD ($)
vessel
Dec. 31, 2019
USD ($)
vessel
Dec. 31, 2019
USD ($)
vessel
Dec. 31, 2018
USD ($)
vessel
Dec. 31, 2017
USD ($)
vessel
Jun. 19, 2019
vessel
Property, Plant and Equipment [Line Items]            
Number of vessels under operations | vessel   23 23 10    
Market capitalization as percent of carrying value of Company equity (less than)   50.00% 50.00%      
Assumed growth rate in charter rates for undiscounted cash flow model     2.00%      
Historical average time charter rates, minimum     10 years      
Historical average time charter rates, maximum     20 years      
Assumed growth rate in vessel operating expenses and drydock engine overhaul costs for undiscounted cash flow model     2.00%      
Number of PSVs | vessel 10 10 10 10 10 10
Impairment loss on vessels $ 0 $ 0   $ 160,080 $ 0  
PSVs            
Property, Plant and Equipment [Line Items]            
Estimated residual value for each vessel   1,500 $ 1,500 $ 1,500    
Estimated useful life (in years)     25 years      
Period of time for assumed growth rate in charter rates for undiscounted cash flow model (in years)     15 years      
Aggregate estimated vessel values in excess of carrying amount   $ 17,200 $ 17,200      
Break-even charter rate percent lower than effective charter rate   8.00% 8.00%      
AHTS vessels and crew boats            
Property, Plant and Equipment [Line Items]            
Aggregate carrying value in excess of estimated vessel values   $ 900 $ 900      
Number of vessels with carrying value in excess of estimated vessel value | vessel   6 6      
Gross carrying value in excess of estimated vessel values   $ 3,000 $ 3,000      
Number of vessels with estimated vessel value in excess of carrying value | vessel   7 7      
Gross estimated vessel values in excess of carrying amount   $ 2,100 $ 2,100      
AHTS vessels            
Property, Plant and Equipment [Line Items]            
Estimated residual value for each vessel   $ 1,000 $ 1,000      
Estimated useful life (in years)     25 years      
Period of time for assumed growth rate in charter rates for undiscounted cash flow model (in years)     15 years      
Break-even charter rate percent lower than effective charter rate   5.00% 5.00%      
Crew boats            
Property, Plant and Equipment [Line Items]            
Estimated useful life (in years)     15 years      
Period of time for assumed growth rate in charter rates for undiscounted cash flow model (in years)     10 years      
Break-even charter rate percent lower than effective charter rate   10.00% 10.00%      
v3.20.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - USD ($)
$ in Millions
 12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Statement of Stockholders' Equity [Abstract]    
Share issuance costs $ 0.1 $ 0.9
v3.20.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 12,681 $ 8,446
Accounts receivable 8,381 2,602
Prepaid expenses 427 755
Fuel, lube oil, and consumables 1,808 1,181
Other current assets 406 1,176
Total current assets 23,703 14,160
Non-current assets    
Vessels, net 178,206 176,914
Total non-current assets 178,206 176,914
Total assets 201,909 191,074
Current liabilities    
Accounts payable 4,192 843
Accounts payable, related party 916 492
Other current liabilities 2,768 3,147
Current portion of long-term debt 207 0
Total current liabilities 8,083 4,482
Non-current liabilities    
Long-term debt 141,698 132,457
Other non-current liabilities 0 71
Total non-current liabilities 141,698 132,528
Shareholders’ equity    
Preferred shares, par value $0.01 per share, 50,000,000 shares authorized, none issued at December 31, 2019 and December 31, 2018. 0 0
Common shares, par value $0.01 per share, 350,000,000 shares authorized, 25,936,367 shares issued, 25,661,915 shares outstanding, and 274,452 treasury shares as of December 31, 2019; and Common shares, par value $0.10 per share, 35,000,000 shares authorized, 7,648,611 shares issued, 7,374,159 shares outstanding, and 274,452 treasury shares at December 31, 2018 257 764
Additional paid-in capital 66,741 322,914
Accumulated deficit (14,870) (269,614)
Total shareholders’ equity 52,128 54,064
Total liabilities and shareholders’ equity $ 201,909 $ 191,074
v3.20.1
FINANCIAL INSTRUMENTS AND OTHER FAIR VALUE DISCLOSURES - Narrative (Details) - Loan Facility - USD ($)
 9 Months Ended 12 Months Ended 23 Months Ended 24 Months Ended 33 Months Ended
Dec. 31, 2019
Dec. 06, 2023
Dec. 07, 2022
Dec. 07, 2021
Dec. 06, 2023
Sep. 30, 2022
Jan. 31, 2020
DVB Credit Facility              
Line of Credit Facility [Line Items]              
Principal balance $ 9,000,000.0            
LIBOR | DVB Credit Facility              
Line of Credit Facility [Line Items]              
Basis spread on variable rate (percent) 2.75%            
Forecast | New Term Loan Facility              
Line of Credit Facility [Line Items]              
Frequency of payments         semi-annual    
Periodic payments due         $ 7,500,000    
Forecast | DVB Credit Facility              
Line of Credit Facility [Line Items]              
Frequency of payments           quarterly  
Periodic payments due           $ 200,000  
Forecast | LIBOR | New Term Loan Facility              
Line of Credit Facility [Line Items]              
Basis spread on variable rate (percent)   5.50% 4.50% 3.50%      
Subsequent Event | New Term Loan Facility              
Line of Credit Facility [Line Items]              
Principal balance             $ 132,900,000.0
v3.20.1
RELATED PARTY TRANSACTIONS - Accounts Payable (Details) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Related Party Transaction [Line Items]    
Accounts payable - related party $ 916 $ 492
Scorpio Ship Management SAM    
Related Party Transaction [Line Items]    
Accounts payable - related party 480 0
Scorpio Services Holding Limited    
Related Party Transaction [Line Items]    
Accounts payable - related party 265 0
Scorpio Commercial Management SAM    
Related Party Transaction [Line Items]    
Accounts payable - related party 165 0
Scorpio Offshore Holding Inc    
Related Party Transaction [Line Items]    
Accounts payable - related party 6 0
Nordic American Tankers Limited    
Related Party Transaction [Line Items]    
Accounts payable - related party $ 0 $ 492
v3.20.1
SUBSEQUENT EVENTS
 12 Months Ended
Dec. 31, 2019
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
New Term Loan Facility
As described in Note 7, in December 2019, we reached an agreement with the lenders under the Initial Credit Facility, that the New Equity Line of Credit satisfied the condition precedent that the Company raise $15 million of additional equity in order to refinance the Initial Credit Facility with the $132.9 million New Term Loan Facility. In January 2020, the Company completed the refinancing of the Initial Credit Facility with the New Term Loan Facility. The terms and conditions of the New Term Loan facility are described in Note 7.
New Equity Line of Credit
As described in Note 8, in December 2019, we reached an agreement to enter into the New Equity Line of Credit with SSH, a related party. The New Equity Line of Credit was executed in January 2020 and provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price.
On March 4, 2020, we issued 5,668,317 common shares under the New Equity Line of Credit for $0.88210 per share and aggregate net proceeds of approximately $5.0 million.
Novel Coronavirus (COVID-19)
Since the beginning of the calendar year 2020, the COVID-19 outbreak that originated in Hubei province in China and that has since spread globally has resulted in the implementation of numerous actions taken by governments and governmental agencies in an attempt to mitigate the spread of the virus.  These measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets. The reduction of economic activity has significantly reduced the global demand for oil and refined petroleum products.  The recent actions taken by Saudi Arabia and other OPEC members to increase the production of oil in the near term has resulted in a steep decline in oil prices, negatively impacting the offshore drilling markets. We expect that the impact of the COVID-19 pandemic and the uncertainty in the supply of oil will continue to cause volatility in the commodity markets.  The scale and duration of the impact of these factors remain unknowable but could have a material impact on our earnings, cash flow, financial condition and asset values for 2020. An estimate of the impact on the Company’s results of operations and financial condition cannot be made at this time.
v3.20.1
RELATED PARTY TRANSACTIONS
 12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
During the periods from January 1, 2019 to April 8, 2019 (Predecessor), April 9, 2019 to December 31, 2019 (Successor), and years ended December 31, 2018 and 2017 (Predecessor), we were party to a management agreement with Scandic American Shipping Ltd (“Scandic”), a wholly owned subsidiary of Nordic American Tankers Ltd. (“NAT”), for the provision of administrative services. Scandic and NAT were related parties of ours due to NAT’s ownership interest in the Company at the time, along with certain shared management personnel.
As a result of the Transaction, along with a subsequent reduction in NAT’s ownership interest in the Company, both NAT and Scandic are no longer deemed related parties. On May 1, 2019, the Company tendered notice to NAT that it shall terminate the management agreement with NAT upon the expiration of 180 days from the date of such notice (the “Transition Period”). The management agreement with NAT and Scandic was terminated upon the expiration of the Transition Period on October 28, 2019.
Acquisition of AHTS Vessels and Crew Boats
In April 2019, as part of the Transaction (which is described in Note 1), we acquired 13 vessels, including associated debt, consisting of two AHTS vessels and 11 crew boats from SOHI, a related party that is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro and our Vice President, Mr. Filippo Lauro, are members, in exchange for 8,126,219 common shares of the Company at approximately $2.78 per share for aggregate net consideration of $22.6 million.
Equity Lines of Credit
In March 2019, the Company entered into an Initial Equity Line of Credit with SOI, a related party, and Mackenzie. SOI is owned and controlled by certain members of the Lolli-Ghetti family, of which our Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr. Filippo Lauro, are members. The Initial Equity Line of Credit provided for $20 million to be available on demand to the Company in exchange for common shares of the Company priced at 0.94 multiplied by the then-prevailing 30-day trailing volume weighted average price. The issuances of common shares under the Initial Equity Line of Credit during the year ended December 31, 2019 are described in Note 8.
In December 2019, the Company reached an agreement to enter into the New Equity Line of Credit with SSH, a related party. The New Equity Line of Credit was executed in January 2020 and provides for $15 million to be available on demand to the Company in exchange for its common shares priced at 0.94 multiplied by the then-prevailing five-day trailing volume weighted average price. In March 2020, we issued 5,668,317 common shares to SSH for $0.88 per share under the New Equity Line of Credit for aggregate net proceeds of $5.0 million.
Administrative Services Agreement
On June 19, 2019, the Company entered into an agreement with SSH, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services (the “Administrative Services Agreement”). SSH is majority owned by the Lolli-Ghetti family, of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members.
The Administrative Services Agreement is on substantially the same terms as the previous management agreement with NAT. Under the terms of the Administrative Services Agreement, the Company shall pay an annual fee of $10,000 per vessel (the “Fee”), and will reimburse SSH for the reasonable direct or indirect expenses it incurs in providing the Company with the administrative services described above. The Fee was not payable to SSH as it pertains to the ten PSVs in the Company’s fleet during the Transition Period. The Administrative Services Agreement may be terminated by the Company upon 180 days' notice.
Commercial and Technical Management
The Company’s AHTS vessels and crew boats are commercially managed by Scorpio Commercial Management S.A.M. ("SCM") and technically managed by Scorpio Ship Management S.A.M. ("SSM") pursuant to a Master Agreement, which may be terminated by either party upon 24 months' notice, unless terminated earlier in accordance with its provisions. SSM and SCM are related parties of ours and are owned and controlled by certain members of the Lolli-Ghetti family of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo Lauro, our Vice President, are members. In the event of the sale of one or more vessels, a notice period of three months and a payment equal to three months of management fees will apply, provided that the termination does not amount to a change in control of the AHTS vessels or crew boats, including a sale of all or substantially all of the AHTS vessels or crew boats, in which case a payment equal to 24 months of management fees will apply.
Additional vessels in our fleet, or that we may acquire, may potentially also be managed under the Master Agreement, or on substantially similar terms, at some point in the future.
SCM’s services include securing employment, in the spot market and on time charters, for our AHTS vessels and crew boats. We pay SCM a management fee equal to 1.25% of gross revenues per charter fixture. SCM may subcontract these services to third-parties pursuant to the Master Agreement.
SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. SSM may subcontract these services to third-parties pursuant to the Master Agreement. We pay SSM an annual fee of $156,000 per vessel for the AHTS vessels and an annual fee of $43,800 per vessel for the crew boats plus additional amounts for certain itemized services per vessel to provide technical management services for each of our AHTS vessels and crew boats.
The following table represents the related party transactions recorded in our statements of operations for the Predecessor and Successor periods:
 
 
Successor


Predecessor
In thousands of U.S. dollars
April 9 to December 31, 2019


January 1 to April 8, 2019
 
Year ended December 31, 2018
 
Year ended December 31, 2017
Vessel operating expense:




 

 


 Scorpio Ship Management SAM
$
576



—

 
—

 
—

Voyage expense:




 

 


Scorpio Commercial Management SAM
82



—

 
—

 
—

General and administrative expense:




 

 


 Scorpio Services Holding Limited
353



—

 
—

 
—


 Scorpio Commercial Management SAM
69



—

 
—

 
—


 Scorpio Tankers Inc. (1)
33



—

 
—

 
—


 Nordic American Tankers Limited
—



$
323

 
$
2,324

 
$
2,426

Total general and administrative expense:
$
455



$
323

 
$
2,324

 
$
2,426

(1)    Relates to certain shared office expenses that were reimbursed to this entity.
The following table reflects the balances due to related parties as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):
In thousands of U.S. dollars
December 31, 2019 (Successor)

December 31, 2018 (Predecessor)
Liabilities



Accounts payable, related party:




Scorpio Ship Management SAM
$
480


$
—


Scorpio Services Holding Limited
265


—


Scorpio Commercial Management SAM
165


—


Scorpio Offshore Holding Inc
6


—


Nordic American Tankers Limited
—


492

Total accounts payable, related party:
$
916


$
492
v3.20.1
VESSELS, NET (Tables)
 12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Schedule of Vessels, Net
The following table sets forth the carrying values of our vessels for each vessel class:
 
As of December 31,
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
PSVs
158,413


413,949

AHTS vessels
12,071


—

Crew boats
16,165


—

Total
186,649


413,949

Less: accumulated depreciation and impairment charges
(8,443
)

(237,035
)
Vessels, net
178,206


176,914
v3.20.1
SEGMENT REPORTING
 12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
SEGMENT REPORTING
SEGMENT REPORTING
For the periods January 1, 2019 to April 8, 2019, and for the years ended December 31, 2018 and 2017 (Predecessor), the Company consisted of ten PSVs, all of which primarily operated in the North Sea and surrounding areas, and therefore was considered as one reportable segment, the OSV market. Therefore, the financial information for these periods can be found in the Predecessor periods of the Consolidated Statements of Operations and Comprehensive (Loss) Income and the Consolidated Balance Sheets.
Effective April 9, 2019, for the Successor period, we reported two operating segments - the North Sea segment (where our ten PSVs operate) and the West Coast of Africa segment (where our two AHTS vessels and 11 crew boats operate), which is consistent with how our chief operating decision maker reviews operating results for purposes of allocating resources and assessing performance. Certain expenses incurred by the Company are not attributable to any specific segment. Accordingly, these costs are not allocated to the North Sea or West Africa segments and are included in the results below as "Corporate".
The following schedule presents segment information about the Company's operations for the period April 9, 2019 to December 31, 2019 (Successor):
In thousands of U.S. dollars
North Sea

West Coast of Africa

Corporate

Total
Charter Revenue
$29,911

$6,644

—


$36,555
Vessel operating expenses
(20,104
)

(7,126
)

—


(27,230
)
Voyage expenses
(783
)

(341
)

—


(1,124
)
General and administrative expenses
(1,068
)

(184
)

(3,282
)

(4,534
)
Depreciation expense
(6,578
)

(1,874
)

—


(8,452
)
Interest income
—


—


39


39

Interest expense
—


(347
)

(6,224
)

(6,571
)
Other financial income (expense)
—


—


(136
)

(136
)
Segment income / (loss)
$1,378

$(3,228)

$(9,603)

$(11,453)

    
The following schedule presents the Company's assets by segment as of December 31, 2019 (Successor):
In thousands of U.S. dollars
North Sea

West Coast of Africa

Corporate

Total
Total assets
$
170,229


$
28,133


$
3,547


$
201,909
v3.20.1
VESSELS, NET
 12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
VESSELS, NET
VESSELS, NET
Vessels, net, consist of the carrying value of 23 vessels for the year ended December 31, 2019 (Successor) and ten vessels for the year ended December 31, 2018 (Predecessor). Vessels, net, includes drydocking, engine overhaul costs and capitalized interest when applicable. Residual values are estimated at $1.5 million for each PSV in the fleet at December 31, 2019 (Successor) and 2018 (Predecessor) and at $1.0 million for each AHTS vessel in the fleet at December 31, 2019. The crew boats do not have an estimated residual value. The following table sets forth the carrying values of our vessels for each vessel class:
 
As of December 31,
In thousands of U.S. dollars
2019 (Successor)

2018 (Predecessor)
PSVs
158,413


413,949

AHTS vessels
12,071


—

Crew boats
16,165


—

Total
186,649


413,949

Less: accumulated depreciation and impairment charges
(8,443
)

(237,035
)
Vessels, net
178,206


176,914


Impairment of Vessels
As part of our impairment assessment at December 31, 2019 (Successor), we determined that impairment indicators existed because the market capitalization was less than 50% of shareholders' equity. Accordingly, we proceeded to assess whether the carrying values of the vessels were recoverable by estimating undiscounted future cash flows.
The assumptions that we, as the Successor company, use to develop estimates of future undiscounted cash flows are based on historical trends as well as future expectations and are forecast through the end of the expected useful life of each vessel, which is assumed to be 25 years from the delivery of the vessel from the shipyard for the PSVs and AHTS vessels, and 15 years for the crew boats.
The most significant assumption in preparing these undiscounted cash flows is our estimate of revenues, which are derived from our assumptions of utilization adjusted dayrates over the forecast period. Utilization and dayrates in our markets are highly volatile, adjust rapidly when confronted with changes in market conditions, and are difficult to predict. Accordingly, this assumption is highly subjective. In preparing our estimated undiscounted cash flows, we assumed a base case scenario that we believe reflects our undiscounted cash flows over time based upon a lower rate environment. In our base case scenario, our forecasted revenue estimates are primarily based on (i) a combination of the Company's forecast, published time charter rates (as of December 31, 2019, net of broker commissions) for the next year and a 2.0% growth rate (which is based on published historical and forecast inflation rates in the geographies in which we operate) in charter rates in each period through the vessel's 15th year of useful life for PSVs and AHTS vessels, and 10th year of its useful life for crew boats, and assuming the growth in expenses over time thereafter will be offset by similar increases in charter revenues, and (ii) our estimated off-hire days and utilization which are based on management's experience and market data. We believe that these dayrates are the most useful approximation of future dayrates as (i) they are derived from actual fixtures in the market and thus reflect a collective, forward looking view of market participants, and (ii) are consistent with activity that the Company has seen in its market activities (either through actual fixtures or tendering activity). Additionally, from a longer term perspective, we believe that the dayrate assumptions utilized in the base case scenario are reasonable as the average dayrates for the PSVs and AHTS vessels over the entire forecast period are approximately equal to the 10-year and 20-year historical average time charter rates.
Our revenue assumptions are supplemented by our best estimate of vessel operating expenses and drydock and engine overhaul costs, which are based on our most recent forecasts and actual experience in 2019 and a 2.0% growth rate in each period thereafter. Historical trends underlying these assumptions have been significantly less volatile than the assumptions underlying revenue over time, and therefore do not involve as high of a degree of subjectivity.
Based on the foregoing, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives in our base case would be sufficient to recover their respective carrying values. Moreover, we considered the estimates of vessel values from independent shipbrokers as a comparison to the undiscounted cash flows:
•
The estimates of vessel values from the independent shipbrokers for the PSVs exceeded their carrying values for each vessel, and by an aggregate of $17.2 million.
•
The estimates of vessel values from the independent shipbrokers for the crew boats and AHTS vessels was lower than their carrying values by an aggregate of $0.9 million. Six vessels had carrying values greater than their fair values by $3.0 million in aggregate and seven vessels had carrying value lower than their fair values by $2.1 million in aggregate.
For the vessels where the vessel values from the independent shipbrokers were less than their carrying values, we re-evaluated the inputs to the undiscounted cash flow analysis, and the sensitivities thereto, and determined that the inputs were reasonable. Accordingly, we determined that our vessels were not impaired.
In our impairment testing, we also examined the sensitivity of the estimated future cash flows and carrying values to be recovered by separately calculating the break-even charter rates, while holding all other assumptions constant. We then evaluated the outcome of the sensitivity analysis performed to assess their impact on our conclusions. Break-even charter rates were approximately 8% lower than the effective charter rates assumed in the testing for the PSVs, 5% lower for the AHTS vessels, and over 10% lower for the crew boats.
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will improve by any significant degree. Charter rates may decrease, which could adversely affect our revenue and profitability, and any future assessments of vessel impairment. We will continue to monitor developments in charter rates in the markets in which we participate with respect to the expectation of future rates that are utilized in the undiscounted cash flow analyses.
Our fleet as of December 31, 2018 (Predecessor) consisted of ten PSVs. As a result of a prolonged deterioration in market conditions, we determined that the undiscounted future cash flows expected to be generated by each vessel over their remaining useful lives would not be sufficient to recover their respective carrying values. Accordingly, we determined that our vessels were impaired and an impairment charge of $160.1 million was recorded for the year ended December 31, 2018. This impairment charge was measured based upon the amount by which the carrying values of our vessels exceeded their fair values.
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Operating Segments (Details)
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
segment
Dec. 31, 2019
segment
vessel
Dec. 31, 2018
segment
vessel
Dec. 31, 2017
segment
Accounting Policies [Abstract]        
Number of vessels under operations | vessel   23 10  
Number of reportable segments | segment 1 2 1 1
v3.20.1
SEGMENT REPORTING (Tables)
 12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Schedule of Segment Information about Company Operations and Assets
The following schedule presents segment information about the Company's operations for the period April 9, 2019 to December 31, 2019 (Successor):
In thousands of U.S. dollars
North Sea

West Coast of Africa

Corporate

Total
Charter Revenue
$29,911

$6,644

—


$36,555
Vessel operating expenses
(20,104
)

(7,126
)

—


(27,230
)
Voyage expenses
(783
)

(341
)

—


(1,124
)
General and administrative expenses
(1,068
)

(184
)

(3,282
)

(4,534
)
Depreciation expense
(6,578
)

(1,874
)

—


(8,452
)
Interest income
—


—


39


39

Interest expense
—


(347
)

(6,224
)

(6,571
)
Other financial income (expense)
—


—


(136
)

(136
)
Segment income / (loss)
$1,378

$(3,228)

$(9,603)

$(11,453)

    
The following schedule presents the Company's assets by segment as of December 31, 2019 (Successor):
In thousands of U.S. dollars
North Sea

West Coast of Africa

Corporate

Total
Total assets
$
170,229


$
28,133


$
3,547


$
201,909
v3.20.1
RELATED PARTY TRANSACTIONS (Tables)
 12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Schedule of Related Party Transactions
The following table represents the related party transactions recorded in our statements of operations for the Predecessor and Successor periods:
 
 
Successor


Predecessor
In thousands of U.S. dollars
April 9 to December 31, 2019


January 1 to April 8, 2019
 
Year ended December 31, 2018
 
Year ended December 31, 2017
Vessel operating expense:




 

 


 Scorpio Ship Management SAM
$
576



—

 
—

 
—

Voyage expense:




 

 


Scorpio Commercial Management SAM
82



—

 
—

 
—

General and administrative expense:




 

 


 Scorpio Services Holding Limited
353



—

 
—

 
—


 Scorpio Commercial Management SAM
69



—

 
—

 
—


 Scorpio Tankers Inc. (1)
33



—

 
—

 
—


 Nordic American Tankers Limited
—



$
323

 
$
2,324

 
$
2,426

Total general and administrative expense:
$
455



$
323

 
$
2,324

 
$
2,426

(1)    Relates to certain shared office expenses that were reimbursed to this entity.
The following table reflects the balances due to related parties as of December 31, 2019 (Successor) and December 31, 2018 (Predecessor):
In thousands of U.S. dollars
December 31, 2019 (Successor)

December 31, 2018 (Predecessor)
Liabilities



Accounts payable, related party:




Scorpio Ship Management SAM
$
480


$
—


Scorpio Services Holding Limited
265


—


Scorpio Commercial Management SAM
165


—


Scorpio Offshore Holding Inc
6


—


Nordic American Tankers Limited
—


492

Total accounts payable, related party:
$
916


$
492
v3.20.1
REVENUE AND CUSTOMER CONCENTRATIONS - Breakout by Vessel Type (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Disaggregation of Revenue [Line Items]        
Charter revenue $ 5,258 $ 36,555 $ 20,654 $ 17,895
PSVs        
Disaggregation of Revenue [Line Items]        
Charter revenue 5,258 29,911 20,654 17,895
AHTS vessels        
Disaggregation of Revenue [Line Items]        
Charter revenue 0 3,729 0 0
Crew boats        
Disaggregation of Revenue [Line Items]        
Charter revenue $ 0 $ 2,915 $ 0 $ 0
v3.20.1
SHAREHOLDERS' EQUITY - Narrative (Details) - USD ($)
 1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2018
Mar. 31, 2017
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Jun. 05, 2019
Jun. 04, 2019
Jan. 28, 2019
Jan. 27, 2019
Dec. 11, 2018
Dec. 10, 2018
Class of Stock [Line Items]                        
Common shares, outstanding (shares) 7,374,159   7,373,989 25,661,915 7,374,159       7,373,989 73,741,595    
Common shares, par value (in dollars per share) $ 0.10     $ 0.01 $ 0.10   $ 0.01 $ 0.10 $ 0.10 $ 0.01 $ 0.10  
Issued and paid-up share capital             $ 190,151 $ 1,901,512        
Cancellation of paid-up share capital of each issued share (in dollars per share)             $ 0.09          
Number of fully paid-up shares for each share (in shares)             1          
Common shares, authorized (shares) 35,000,000     350,000,000 35,000,000   350,000,000 35,000,000     35,000,000  
Authorized share capital                     $ 4,000,000 $ 2,000,000
Common shares authorized value                     $ 3,500,000  
Preferred shares, authorized (shares) 50,000,000     50,000,000 50,000,000           50,000,000  
Preferred shares, par value (in dollars per share) $ 0.01     $ 0.01 $ 0.01           $ 0.01  
Preferred shares authorized value                     $ 500,000  
Proceeds from issuance of common stock     $ 0 $ 0 $ 4,945,000 $ 48,336,000            
Private Placement                        
Class of Stock [Line Items]                        
Aggregate common shares issued in private placement (in shares) 1,175,474                      
Common stock price (in dollars per share) $ 4.20       $ 4.20              
Proceeds from issuance of private placement $ 4,900,000                      
Underwritten Public Follow-on Offering                        
Class of Stock [Line Items]                        
Common shares issued during period (in shares)   4,130,000                    
Proceeds from issuance of common stock   $ 48,300,000                    
v3.20.1
INTEREST COSTS (Details) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Apr. 08, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Interest Expense [Abstract]        
Interest costs $ 2,445 $ 6,571 $ 7,574 $ 4,428
Amortization of deferred financing costs 90 0 359 359
Commitment fee 20 0 98 93
Total interest costs $ 2,555 $ 6,571 $ 8,031 $ 4,880